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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 29, 2000
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 $94,103,642 as of May 22, 2000.
As of May 22, 2000, there were issued and outstanding 16,080,981 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 29, 2000 (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 19, 2000 (Items 10, 11, and 12)
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LOJACK CORPORATION
<TABLE>
<CAPTION>
Securities and Exchange Commission
Item Number and Description Page
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PART I
ITEM 1. Business........................................................ 1
ITEM 2. Properties...................................................... 6
ITEM 3. Legal Proceedings............................................... 7
ITEM 4. Submission of Matters to a Vote of Security
Holders......................................................... 7
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder 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.............. 8
ITEM 11. Executive Compensation.......................................... 8
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.. 8
ITEM 13. Certain Relationships and Related Transactions.................. 8
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................ 8
SIGNATURES................................................................. 12
INDEX TO AUDITORS' REPORT AND FINANCIAL STATEMENT SCHEDULE................. 13
</TABLE>
In as much as the calculation of shares of the registrant's voting stock held by
non-affiliates requires a calculation of the number of shares held by
affiliates, such figure, as shown on the cover page hereof, represents the
registrant's best good faith estimate for purposes of this annual report on
Form 10-K, and the registrant disclaims that such figure is binding for any
other purpose. The aggregate market value of Common Stock indicated is based
upon the last traded price of the Common Stock as reported by NASDAQ on May 22,
2000. 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 all or a portion of each of the
following domestic jurisdictions pursuant to agreements with applicable law
enforcement agencies:
<TABLE>
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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
Ft Myers; April 1999
Jacksonville August 1999
</TABLE>
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<TABLE>
<S> <C>
Michigan April 1990
Illinois November 1990
Texas:
Dallas May 1997
Houston April 1998
San Antonio and Austin May 2000
California:
Los Angeles County July 1990
San Diego and Orange County June 1995
San Bernadino, and Riverside March 1997
Ventura County April 1998
San Francisco and San Jose Counties March 2000
Arizona July 1998
New Hampshire June 1998
</TABLE>
The Company is presently pursuing negotiations with several law enforcement
agencies in the United States regarding the implementation of the LoJack System
in jurisdictions in addition to those mentioned above. The Company's strategy is
to expand the LoJack System to those jurisdictions where the combination of new
vehicle sales, population density, and the incidence of vehicle theft is high.
Improvements to the Company's technology and interface with law enforcement
systems have made expansion 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 as 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 that part of
the LoJack System that contains the Sector Activation Computer ("SAC"), the
Sector Activation Transmitters ("SATs"), and the communication network that
connects them.
The SAC contains the LoJack subscriber database, an up-to-date file with
information on each vehicle equipped with a LoJack Unit. For each vehicle
equipped, the file contains the vehicle identification number ("VIN") assigned
by the vehicle's
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manufacturer, and the activation, deactivation, and reply codes for the LoJack
Unit installed in that vehicle. The SAC also controls the SAT network, causing
activation, speed-up, and deactivation commands to be broadcast at appropriate
times during the stolen vehicle activation and recovery sequence.
The SAS was designed to function with existing law enforcement computer and
telecommunication systems 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.
When the VIN of a stolen vehicle is entered into the existing police computer
system, it is compared automatically to those contained in the SAC database.
When a match occurs, the SAC causes the SAT network to broadcast the appropriate
activation command. Police officers who receive the corresponding reply code
call dispatch and receive a description of the transmitting vehicle. After
recovery, the officer reports to dispatch, which enters the vehicle as
recovered. The routine entry into the police computer causes the SAS to transmit
a deactivate command, which returns the LoJack unit to its original state.
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.
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The Company may make direct investments in the operations of foreign licensees
in the future. The Company generally does not recognize revenues during the
period immediately after entering into an agreement with a licensee.
Recognition of revenues does not generally commence until after the licensee
receives any required governmental approvals, such as frequency allocation for
the CarSearch or LoJack System. The governmental approval process may be time-
consuming.
As of February 29, 2000, the Company had licensees operating stolen vehicle
recovery systems using LoJack's technology in the following countries:
Argentina, Brazil, Colombia, Ecuador, 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 approvals which may be time consuming or may not be
obtained. The Company is also pursuing similar agreements for other countries.
Approximately 11% of the Company's revenues in fiscal 2000 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, are insured
through EXIM Bank, or require payment in advance from the licensee. (See Note 8
to the Notes to Financial Statements which are included in LoJack's 2000 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 would 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
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the time that the report of the theft is reported to the police, LoJack will
refund the full purchase price of the LoJack Unit up to a maximum of $595.
PATENTS AND TRADEMARKS
LoJack holds United States Patents 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.
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 2000, 1999, and 1998 the approximate amounts spent by
LoJack on company-sponsored research and development activities were $678,000,
$201,000, and $244,000, respectively.
EMPLOYEES
As of May 1, 2000, the Company and its subsidiaries had a total of 510 full-time
employees.
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EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information concerning C. Michael
Daley, who is Chairman of the Board, Chief Executive Officer and Treasurer of
the Company, from the Company's definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 19, 2000, 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 47 President and Chief Operating Officer
William R. Duvall 48 Senior Vice President (Operations and Technical
Development)
Peter J. Conner 59 Vice President (Government Relations)
Kevin M. Mullins 45 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 from 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 2000 to 2004. 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
There was no material litigation during fiscal 2000.
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 2000 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 2000
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 2000 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 2000 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 20 of
the Company's 2000 Annual Report, which is filed herewith as Exhibit 13.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K and instruction 3 to
Item 401(b), the information required by this item concerning executive
officers, including certain information incorporated herein by reference to the
information appearing in the Company's definitive Proxy Statement concerning
C. Michael Daley, who is also Chairman of the Board, Chief Executive Officer and
Treasurer of the Company, is set forth in Part I, Item 1 under the heading
"Executive Officers of the Registrant" and information concerning Directors,
including Mr. Daley, is incorporated by reference to the sections entitled
"Proposal No. 1 - Election of Directors" and "Board of Directors" in the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
to be held July 19, 2000.
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 19, 2000 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 19, 2000 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 19, 2000 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 incorporated by reference and attached as
exhibit 13:
(1) CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
The following financial statements of the Company and the report
of the independent auditors are incorporated by reference to the
Company's 2000 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
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(2) CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
-----------------------------------------
The following report and consolidated financial statement
schedule is filed as part of this report and should be read in
conjunction with the consolidated financial statements (and notes
thereto):
Independent Auditors' Report Relating to the Consolidated
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
Other financial statement schedules have been omitted because they are
not required or not applicable or because the required information is
included in the consolidated financial statements or notes thereto.
(3) EXHIBITS
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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.
<TABLE>
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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. Supply Agreement with Motorola (incorporated by reference to exhibit 10J
to the Company's Annual Report on Form 10-K for the fiscal year ended
February 28, 1986 (the "1986 Form 10-K"))
10B. Agreement with the City of Los Angeles dated March 9, 1989 (incorporated
by reference to exhibit 10K to File No. 33-27457)
10C. 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")
10D. 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)
10E.++ 1985 Non-Qualified Stock Option Plan, as amended (incorporated by
reference to exhibit 10F to the 1992 Form 10-K)
10F.++ Directors' Compensation Plan (incorporated by reference to exhibit 10G
to the 1992 Form 10-K)
10G.++ LoJack Corporation Restated and Amended Stock Incentive Plan
(incorporated by reference to Exhibit 10H to the
1994 Form 10-K)
10H.++ 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")
10I.++ Amendment Number Two to Restated and Amended Stock Incentive Plan
10J. Form of Agreement with respect to options granted to certain officers and
employees (incorporated by reference to exhibit 10H to File No. 33-27457)
10K. 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 the 1992 Form 10-K)
10L. Accepted Proposal by LoJack Corporation to the Massachusetts
Department of Public Safety (incorporated by reference to exhibit 10F to
File No. 2-74238-B)
10M. 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)
10N. 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)
</TABLE>
-9-
<PAGE>
<TABLE>
<C> <S>
10O. 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"))
10P. 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 the 1993 Form 10-K)
10Q.++ Form of Senior Management Option (incorporated by reference to exhibit
10Z to 1993 Form 10-K)
10R. 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 the 1993 Form 10-K)
10S. 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 the 1993 Form 10-K)
10T. 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)
10U. 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")
10V. Memorandum of Understanding dated February 28, 1994 with Rhode Island
State Police (incorporated by reference to Exhibit 10dd to the 1995
Form 10-K)
10W. Contract dated July 15, 1993 with the State of Connecticut (incorporated
by reference to Exhibit 10ee to the 1995 Form 10-K)
10X. 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)
10Y. 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)
10Z. 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)
10aa. 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)
10bb. 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)
10cc. Third Amendment to Loan Agreement dated as of October 31, 1996 among The
First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc. , LoJack Holdings Corporation and LoJack Venture
Corporation (incorporated by reference to Exhibit 10jj to the Company's
Annual Report on Form 10-K for the fiscal year ended February 28, 1997
(the "1997 Form 10-K"))
10dd. Fourth Amendment to Loan Agreement dated as of February 28, 1997 among
The First National Bank of Boston and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey Corporation, Recovery
Systems, Inc., LoJack Holdings Corporation, and LoJack Venture
Corporation (incorporated by reference to Exhibit 10ll to the 1997
Form 10-K)
10ee. License, Trademark and Supply Agreement dated September 10, 1996 between
LoJack International and S1 Corporation, Seoul, Korea (incorporated by
reference to Exhibit 10nn to the 1997 Form 10-K)
10ff. Agreement dated September 1, 1996 between LoJack Corporation and the
Texas Department of Public Safety (incorporated by reference to
Exhibit 10oo to the 1997 Form 10-K)
10gg. Agreement between Commonwealth of Pennsylvania, Pennsylvania State Police
and LoJack Corporation dated May 14, 1996 (incorporated by reference to
Exhibit 10pp to the 1997 Form 10-K)
10hh. Agreement between the Maryland Department of State Police and LoJack
Corporation dated November 8, 1996 (incorporated by reference to Exhibit
10qq to the 1997 Form 10-K)
10ii. 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. (incorporated by reference to Exhibit
10uu to the Company's Annual Report on Form 10-K for the fiscal year
ended February 28, 1998 (the "1998 Form 10-K"))
10jj. 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.
(incorporated by reference to Exhibit 10ww to the Company's Annual Report
on Form 10-K for the fiscal year ended February 28, 1999 (the "1999 Form
10-K"))
</TABLE>
-10-
<PAGE>
<TABLE>
<C> <S>
10kk. 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. (incorporated by reference to Exhibit 10xx to
the 1999 Form 10-K)
13.* 2000 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
</TABLE>
- --------------------
* 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 26th day of May 2000.
LOJACK CORPORATION
(Registrant)
BY: /s/ C. Michael Daley
-----------------------
C. Michael Daley
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in their capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/s/ C. Michael Daley Director, Chairman, Chief May 26, 2000
- -------------------- Executive Officer, and Treasurer
C. Michael Daley (Principal Executive Officer)
/s/ Robert J. Murray Director May 26, 2000
- --------------------
Robert J. Murray
/s/ James A. Daley Director May 26, 2000
- ------------------
James A. Daley
/s/ Lee T. Sprague Director May 26, 2000
- ------------------
Lee T. Sprague
/s/ Larry C. Renfro Director May 26, 2000
- ----------------------
Larry C. Renfro
/s/ Harvey Rosenthal Director May 26, 2000
- ----------------------
Harvey Rosenthal
/s/ Joseph F. Abely President and Chief Operating May 26, 2000
- ---------------------- Officer (Principal Financial
Joseph F. Abely and Accounting Officer)
</TABLE>
-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 29, 2000 and February 28, 1999, and for each of the
three years in the period ended February 29, 2000, and have issued our report
thereon dated April 20, 2000. Such consolidated financial statements and report
are included in your 2000 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(a)(2). 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 20, 2000
F-1
<PAGE>
SCHEDULE II
LOJACK CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED FEBRUARY 29, 2000
AND FEBRUARY 28, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN C
COLUMN B ADDITIONS COLUMN E
BALANCE AT CHARGED TO BALANCE
COLUMN A BEGINNING COSTS AND COLUMN D AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
- ----------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS:
For the year ended:
February 29, 2000 $526,537 $212,290 $(108,445) (1) $630,382
======== ======== ========= ========
February 28, 1999 $579,187 $ 99,103 $(151,753) (1) $526,537
======== ======== ========= ========
February 28, 1998 $553,442 $217,139 $(191,394) (1) $579,187
======== ======== ========= ========
WARRANTY RESERVE:
For the year ended:
February 29, 2000 $476,966 $168,476 $(161,178) $484,264
======== ======== ========= ========
February 28, 1999 $482,731 $185,584 $(191,349) $476,966
======== ======== ========= ========
February 28, 1998 $388,679 $358,447 $(264,395) $482,731
======== ======== ========= ========
</TABLE>
(1) Net accounts written off
F-2
<PAGE>
EXHIBIT 13
------------------
2000 Annual Report
Company Profile
---------------
LoJack Corporation markets and licenses the LoJack System, a unique, proprietary
system used exclusively by law enforcement personnel to track, locate and
recover stolen motor vehicles.
The problem of vehicle theft has escalated to an epidemic level--estimated to
result in an annual loss of almost $8 billion.
The LoJack System has a proven track record of reducing damage, enhancing public
safety, and solving serious crimes related to motor vehicle theft, all
accomplished within the practical constraints of today's overburdened law
enforcement system.
LoJack's mission is to be the leading, premium-branded aftermarket provider of
vehicle tracking and related products. The Company's strategy is to strengthen
its position in current markets and expand into new markets while extending the
LoJack brand into other related products, such as Telematics. The Company
expects to continue its strategy of licensing the LoJack brand in international
markets.
The LoJack System is currently operational in the following states: Arizona,
California, Connecticut, Delaware, Florida, Georgia, Illinois, Maryland,
Massachusetts, Michigan, New Hampshire, New Jersey, New York, Pennsylvania,
Rhode Island, Texas, Virginia, and the District of Columbia.
International licensees are operating stolen vehicle recovery systems using
LoJack's technology in the following countries: Argentina, Brazil, Colombia,
Ecuador, Greece, Hong Kong, P.R.C., 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 on the last day of February.
High Low
Fiscal 1999
First Quarter $14.625 $12.000
Second Quarter 14.125 11.250
Third Quarter 11.750 8.000
Fourth Quarter 12.333 8.875
Fiscal 2000
First Quarter 9.000 6.813
Second Quarter 11.875 7.750
Third Quarter 9.500 6.750
Fourth Quarter 8.313 6.250
On May 18, 2000, there were 3,100 record holders of the Company's Common Stock.
The Company believes the actual number of beneficial owners of the Common Stock
is approximately 12,200 because a large number of the shares of the Company's
Common Stock is held in custodial or nominee accounts for the benefit of persons
other than the record holder.
LoJack has never paid a dividend, and at the present time the Company expects
that future earnings will be retained for use in its business or to repurchase
shares of its Common Stock. The Company's loan agreement with a bank permits the
payment of dividends so long as such payment does not cause noncompliance with
certain loan covenants.
1
<PAGE>
Letter to Shareholders
----------------------
LoJack Corporation has compiled an impressive record of revenue and profit
growth over its history and is today the nation's largest marketer of security
products for the automotive aftermarket. In Fiscal 2000 we recorded an 8%
revenue growth to over $90 million, and net income of over $9 million; however,
several areas of our operations did not meet our expectations. First, expansion
to new international markets, and recovery in some of the existing ones was
slower than expected due to political and economic conditions. This caused a
slight decrease in our revenues from that segment. We also expanded our
operations to new domestic markets at a lower rate than in recent years. Lastly,
the number of dealers regularly selling our product did not expand at the rate
experienced in prior years.
Despite some disappointments, LoJack continues to be a very profitable company
with an outstanding international identity as the leader in stolen vehicle
recovery technology and with the opportunity for significant future growth.
Throughout the world LoJack's proprietary stolen vehicle recovery system is the
technology most widely used by law enforcement agencies in their battle against
vehicle theft. In the United States alone, there have been over 35,000
recoveries of LoJack equipped vehicles and untold thousands more vehicle
recoveries associated with the LoJack recoveries. Over 20% of LoJack recoveries
have resulted in arrests and many recoveries have been a significant tool in
assisting law enforcement in locating chop shops and investigating other
criminal activity. Because of our system's effectiveness LoJack receives
outstanding cooperation from participating law enforcement agencies.
For Fiscal 2000, revenues were $90,159,000, an 8% increase over revenues of
$83,210,000 for a year earlier. Net income was $9,081,000, or $.52 per diluted
share compared to $11,008,000, or $.57 per diluted share, for fiscal 1999.
Included in Fiscal 2000 net income was a net gain of $.01 per diluted share
after taxes on a gain on the sale of marketable securities, which was partially
offset by a charge related to the financial difficulties of a licensee. Net
income for fiscal 1999 included a gain on the sale of marketable securities of
$.03 per diluted share after taxes.
Domestic Operations
In fiscal 2000 the Company had an 11% increase in revenues from our domestic
operations. This growth rate was very solid as it primarily represents an
increase in same market sales since our domestic expansion for the year was
limited to new areas within our existing California, Florida and Texas markets.
Domestic sales of LoJack units increased by an encouraging l6% compared to the
previous year. We believe that we can continue to grow revenues from our core
domestic markets, which comprise a distribution network of over 6,000 new car
dealerships, at healthy rates by continuing to target major dealer organizations
and by increasing sales in smaller individual groups and new car dealerships.
[PHOTO]
In addition to our new car business we are also expecting to increase our fleet,
commercial and heavy equipment business. We experienced modest success in this
area in Fiscal 2000, and see real opportunity in several vertical markets,
including construction equipment and tractor-trailers. We recently formed a
commercial business unit to focus more attention to this largely untapped
market.
Over the next three years LoJack anticipates significant domestic expansion. In
March 2000 we began operations in the San Francisco and San Jose areas and we
have just completed expanding coverage in Texas to San Antonio and Austin. We
also expect to expand our Northern California coverage to Sacramento, Stockton
and Modesto by the end of the second quarter. We are proceeding with plans to
add Louisiana and Nevada by the end of the second quarter of this fiscal year.
In addition, we are negotiating with authorities in Colorado, Ohio and North
Carolina to add those markets to our coverage area within two years. Completion
of these plans will increase LoJack's domestic market coverage to approximately
65% of the U.S. population.
For Fiscal 2001 we have expanded our multimedia advertising program, which
includes national cable television, national automotive magazines and our
traditional drive time radio, to include Internet advertising to address the
growing population of consumers who are utilizing the Internet in their new car
buying decisions. We believe that our media campaign offers visible support to
our new car dealer network, and improves our strong brand name, consumer
awareness, and product acceptance as the leader in the automotive aftermarket
for vehicle security.
International Operations
We experienced an 8% decrease in revenues in our international sector in Fiscal
2000. This problem is not unique to LoJack. Many companies that do business
internationally are experiencing similar difficulties in producing gains in
their international operations primarily due to the unpredictability of economic
and political conditions that are prevalent in markets around the globe. That
said, I am pleased to report that during Fiscal 2000 we
2
<PAGE>
Letter to Shareholders
----------------------
expanded the International LoJack Stolen Vehicle Recovery Network to include
Nigeria and Poland and we have recently signed agreements to expand our
International LoJack Stolen Vehicle Recovery Network to include Brazil, Spain,
Portugal, and Uruguay. Also, we have recently resumed shipping product to
Russia, Colombia, Venezuela and Argentina after extended periods of inactivity
in those markets.
We are also moving forward to expand coverage to Canada beginning in the Toronto
area, which could be operational by the end of this fiscal year. Similar efforts
are underway to expand the coverage of our LoJack licensee in Mexico to Mexico
City. This licensee is presently awaiting approval from the Mexican authorities
to authorize this expansion, and to approve the use of his present frequency
nationwide. Both the Canadian and Mexican systems are planning to operate on the
U.S. frequency which will allow the LoJack Technology to work on both sides of
the borders.
Fiscal 2001 and Beyond
We have accomplished the successful introduction of a new technology, which has
compiled an outstanding record of performance. Using this technology, we have
established a highly profitable company with an exceptionally well known brand
name, and a solid distribution network with the added benefit of a nationwide
sales and installation organization. Based on the success and the reputation we
have established, we have identified our mission to be the leading,
premium-branded aftermarket provider of vehicle tracking and related products.
Our strategy is to strengthen our position in current markets and expand into
new markets while extending the LoJack brand into other related products, such
as Telematics. The Company expects to continue its strategy of licensing the
LoJack brand in international markets.
As a part of translating this mission into reality, I will outline some of our
new product initiatives. We have recently signed an agreement with Wireless
Link, a design/development engineering firm specializing in wireless technology,
to develop a LoJack "Telematics" product. This new product will be applicable to
both the consumer and commercial markets.
The Telematic product we are developing will provide location information using
Global Positioning Satellites (GPS). This product will provide consumers with
features such as: roadside assistance, medical alert, collision notification,
the ability to remotely open/close door locks and disable the engine. For the
commercial customer, this information will greatly enhance productivity. We are
presently seeking to pool our experience and resources with other companies in
the wireless field to offer a premier, affordable product that can gain the
widest possible acceptance in the growing consumer and commercial telematics
markets.
Telematics products of the future will be capable of delivering many new
services to the vehicle including Internet access and entertainment. Industry
studies predict this to be a multi-billion dollar market. The opportunity for
these types of products in the automotive aftermarket is significant. We believe
that LoJack will become a dominant force because of our national presence in
that market, our brand name, distribution and installation capability. We also
see strong synergies between such new product lines and LoJack's stolen vehicle
recovery technology. This combination has the potential to aid us in gaining
increased penetration of our domestic markets.
In addition to new product development we will introduce two new features to the
patented LoJack Technology during our third quarter of Fiscal 2001. The first
feature will be a signal sent from a stolen vehicle acknowledging that its
LoJack unit has been activated and is transmitting. This will allow the LoJack
Network to identify the general location of the newly activated signal in the
coverage area, which will further assist police in recovering vehicles and
improve their already impressive recovery record.
The second feature is designed to be an "Early Warning Alarm" with the ability
to send a signal to a LoJack telecommunications center informing LoJack that a
vehicle is experiencing an unauthorized use. It will provide an automated
request to the customer to check his vehicle to see if it has been stolen, and,
if stolen, inform the customer to immediately report the theft to the police.
I am very optimistic about the opportunities we have as a result of continued
sales increases, market expansion, product improvements and new product
developments for Fiscal 2001 and beyond. I am also encouraged to see some
improvement in our international results here in the early part of this fiscal
year. Taken together I believe that we will continue to be successful in growing
revenues and profits in the coming years. On behalf of the officers and
directors of LoJack Corporation, I wish to thank our many dedicated employees
whose contributions have played a major role in LoJack's successful history.
/s/ C. Michael Daley
C. Michael Daley
Chairman and Chief Executive Officer
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 29, 2000
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 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
2000 1999 1998 1997 1996
STATEMENTS OF OPERATIONS DATA (in thousands, except per share information):
<S> <C> <C> <C> <C> <C>
Revenues $ 90,159 $ 83,210 $ 74,502 $ 61,665 $ 52,516
Cost of goods sold 41,933 37,565 32,778 27,704 23,966
-------- -------- -------- -------- --------
Gross margin 48,226 45,645 41,724 33,961 28,550
Costs and expenses 34,035 29,159 26,204 22,041 19,945
-------- -------- -------- -------- --------
Operating income 14,191 16,486 15,520 11,920 8,605
Interest income (expense) and other - net 695 1,563 685 1,484 1,442
-------- -------- -------- -------- --------
Income before provision (benefit) for income taxes 14,886 18,049 16,205 13,404 10,047
Income tax provision (benefit) 5,805 7,041 6,318 5,224 (1,931)
-------- -------- -------- -------- --------
Net income $ 9,081 $ 11,008 $ 9,887 $ 8,180 $ 11,978
======== ======== ======== ======== ========
Earnings per common share:
Basic $ 0.54 $ 0.61 $ 0.52 $ 0.39 $ 0.56
======== ======== ======== ======== ========
Diluted $ 0.52 $ 0.57 $ 0.48 $ 0.36 $ 0.51
======== ======== ======== ======== ========
Weighted average shares
Basic 16,665 17,920 18,934 21,176 21,544
======== ======== ======== ======== ========
Diluted 17,481 19,215 20,580 22,569 23,285
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Working capital $ 15,453 $ 18,735 $ 15,486 $ 21,883 $ 33,619
Total assets 35,161 38,479 32,661 38,165 53,079
Long-term debt 1,204 1,373 793 782 644
Total liabilities 13,907 13,363 11,158 10,945 9,352
Stockholders' equity 21,254 25,116 21,502 27,220 43,727
</TABLE>
REVENUES AND EARNINGS BY QUARTER (Unaudited and in thousands except per share
information): Years Ended February 29, 2000 and February 28,1999
<TABLE>
<CAPTION>
2000 1999
First Second Third Fourth First Second Third Fourth
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $22,501 $24,085 $22,168 $21,405 $20,265 $21,810 $20,864 $20,271
Gross margin 12,533 12,904 11,764 11,025 11,383 12,328 11,313 10,621
Net income 2,245 2,521 2,505 1,810 3,419 2,866 2,279 2,444
Basic earnings per share $ 0.13 $ 0.15 $ 0.15 $ 0.11 $ 0.19 $ 0.16 $ 0.13 $ 0.13
Diluted earnings per share $ 0.12 $ 0.14 $ 0.15 $ 0.11 $ 0.17 $ 0.15 $ 0.12 $ 0.13
</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 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 required
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, 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 29, 2000 ("fiscal 2000")
vs. February 28, 1999 ("fiscal 1999")
Revenues increased by $6,949,000, or 8%, to $90,159,000 in fiscal 2000 from
$83,210,000 in fiscal 1999. Revenues from domestic markets increased by
$7,846,000, or 11%, to $80,181,000 in fiscal 2000 from $72,335,000 in fiscal
1999. Revenues from product sales and licensing fees related to international
licensing agreements decreased by $897,000, or 8%, in fiscal 2000 to $9,978,000
from $10,874,000 in fiscal 1999.
The increase in domestic revenues resulted primarily from an increase of 16% in
the number of LoJack Units sold in fiscal 2000, as compared to a year earlier,
offset partially by reduction in the average revenue earned per LoJack Unit sold
as a result of standard volume variable pricing discounts earned by larger
customers, and by decreases in the penetration of sales of optional alarm
products.
The decrease in international revenues of $897,000 is the result of a decrease
in system components and license fee revenues of $36,000 and a decrease in
revenues on sales of and royalties on the international version of the LoJack
Unit and related products of $861,000.
Cost of goods sold for fiscal 2000 increased to 47% of revenues from 45% in
fiscal 1999. Domestically, cost of goods sold was 46% of related revenues in
fiscal 2000 as compared to 44% a year earlier. The increase in domestic cost of
goods sold was principally related to the aforementioned reduction in average
revenue per LoJack Unit sold. International cost of goods sold decreased to 50%
of related revenues in fiscal 2000 from 52% a year earlier. The change in
international cost of goods sold resulted from changes in the mix of product
sales and license fee revenue.
Systems costs and research and development expense increased by $884,000 in
fiscal 2000 to $2,186,000, from $1,302,000 in fiscal 1999. Systems costs
increased by $408,000 to $1,508,000 in fiscal 2000 from $1,100,000 a year
earlier, primarily as a result of increases in systems and engineering salaries
and benefits and system maintenance costs. Research and development expense
increased by $476,000 to $678,000 in fiscal 2000 from $201,000 a year earlier,
primarily as a result of the timing of certain work related to a redesign of the
LoJack Unit and other new product research and development initiatives.
Approximately $291,000 of product development costs associated with a new
feature of the LoJack Unit was capitalized during fiscal 2000.
Marketing expense increased by $2,939,000, to $20,525,000 in fiscal 2000 from
$17,586,000 in fiscal 1999. This increase resulted from an increase in media
expense of $1,039,000 and an increase of $1,900,000 in marketing salaries and
benefits, and other expenses related to market expansion, an increase in size
and quality of sales force, and an increase in overall business volume.
General and administrative expense increased by $929,000 to $9,418,000 in fiscal
2000 from $8,489,000 in fiscal 1999. This
5
<PAGE>
Management's Discussion and Analysis
------------------------------------
increase was primarily the result of 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,
consulting fees, and information systems costs.
Depreciation and amortization increased by $124,000 to $1,905,000 in fiscal 2000
from $1,781,000 in fiscal 1999, primarily as the result of depreciation expense
in fiscal 2000 on the LoJack System in new expansion markets, computer equipment
and other capital expenditures and amortization on a patent acquired during the
year.
Other income (expense) in fiscal 2000 included an expense of $457,000 related to
the write-off of advances to the Company's German licensee who was experiencing
severe financial difficulties and costs incurred related to such advances. The
licensee filed for bankruptcy in October 1999. Other income (expense) in fiscal
2000 also included a gain on the sale of marketable securities of $864,000
related to the sale of the remaining portion of the Company's stock in its
United Kingdom licensee, and a gain on the sale of certain installation vehicles
in the normal course of business of $184,000. In fiscal 1999 other income
(expense) included a gain on the sale of marketable securities of $1,100,000 and
a gain on the sale of certain installation vehicles in the normal course of
business of $300,000.
Interest expense increased by $8,000 to $273,000 in fiscal 2000 from $265,000 in
fiscal 1999.
Interest income decreased by $51,000 to $377,000 in fiscal 2000 from $428,000 in
fiscal 1999, as a result of the decrease in cash available for investment during
the year.
Provision for income taxes decreased by $1,236,000 to $5,805,000 in fiscal 2000
from $7,041,000 in fiscal 1999 as the result of the decrease in related taxable
income. The Company's effective tax rate remained at 39% in fiscal 2000 and
1999.
As a result of the foregoing, net income decreased by $1,927,000 to $9,081,000
in fiscal 2000 from $11,008,000 in fiscal 1999.
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
6
<PAGE>
Management's Discussion and Analysis
------------------------------------
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.
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 2000, cash and equivalents decreased by $4,207,000. The overall
decrease is the result of cash provided by operating activities of $11,935,000
offset by cash used for investing activities of $1,644,000 and cash used for
financing activities of $14,498,000. Cash used for financing activities included
$13,067,000 related to the repurchase of the Company's stock under a stock
repurchase program initially approved during fiscal 1996 and amended several
times since that date, as well as repayment of capital leases of $1,662,000
offset by proceeds from the exercise of stock options of $231,000.
Cash flows used for investing activities in fiscal 2000 included expenditures
for property and equipment of $1,949,000 (exclusive of additions under capital
leases of $1,754,000), purchase of a patent for $425,000, product development
costs capitalized of $291,000 and advances to a licensee and related costs of
$457,000. Additionally, in fiscal 2000 the Company sold the remaining shares of
United Kingdom licensee stock and netted proceeds of $1,478,000.
Cash flow provided by operating activities in fiscal 2000 of $11,935,000 was
primarily attributed to net income of $9,081,000, depreciation and amortization
of $3,862,000, and a decrease in inventories of $2,073,000, offset by a use of
cash by an increase in receivables of $2,630,000. The increase in receivables is
primarily due to an increase in the Company's domestic sales and timing of
certain international shipments. The decrease in inventory resulted from a
decrease in international inventory and a decrease in domestic inventory
primarily related to the rollout of a third generation LoJack Unit in the fourth
quarter.
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 2001. The Company plans
to fund these expansions as well as other capital expenditures during fiscal
2001 using working capital cash flow from operations, or the existing line of
credit discussed below. The Company estimates capital expenditures in fiscal
2001 of approximately $2,750,000 principally for planned domestic market
expansions as well as other on-going capital requirements.
As of February 29, 2000 the Company had working capital of $15,453,000. The
Company believes that its anticipated capital and operating requirements for
fiscal 2001 can be funded from cash flows from operations and the existing line
of credit discussed below. 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 29, 2000. The
line-of-credit will expire on 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 to 6,200,000 shares. In September
1999, the Board of Directors increased the total by 1,000,000 to 7,200,000 total
shares authorized under the Company's repurchase program. As of February 29,
2000 the Company had repurchased 6,393,600 shares for a total of $65,299,054.
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 $738,000 in fiscal
2001 on its research and development efforts as compared with $678,000 spent in
fiscal 2000.
7
<PAGE>
Management's Discussion and Analysis
------------------------------------
The Company is also continuing to explore possible investment opportunities,
including, but not limited to, possible acquisitions of, or investments in,
other companies.
Other Information
Year 2000 Issue
The "Year 2000 Issue" ("Y2K") related to potential problems resulting from the
incorrect processing of information using dates or date sensitive data by
computers and other machines utilizing embedded microprocessors. The problem is
attributable to the computer or software recognizing the year as a two digit
number "00" as opposed to the Year "2000". The Company was adequately prepared
for Y2K and did not experience any significant disruptions related to the
Company's information technology ("IT") and non-IT systems. Additionally, the
Company did not encounter any disruptions in service or communications with its
mission critical service vendors, suppliers of products, logistics vendors or
its customers.
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 2000 the Company derived 11% 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, or purchases
export insurance, which assures 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 involve 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 29, 2000.
Quantitative and Qualitative Disclosures about Market
The Company has limited exposure to market risk due to the nature of its
financial instruments. The Company's financial instruments at February 29, 2000
consist of cash and equivalents, accounts receivable, accounts payable,
deposits, accrued liabilities, and capital lease obligations. The fair value of
these financial instruments as of February 29, 2000 approximate their carrying
values.
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 value, 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 2000. 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 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
CURRENT ASSETS:
<S> <C> <C>
Cash and equivalents .............................................................. $ 6,023,323 $ 10,230,215
Accounts receivable--Net .......................................................... 12,096,998 9,679,102
Inventories ....................................................................... 3,593,760 5,666,718
Prepaid expenses and other ........................................................ 152,393 217,609
Prepaid income taxes .............................................................. 1,595,421 779,118
Deferred income taxes ............................................................. 1,021,394 796,237
------------ ------------
Total current assets ........................................................... 24,483,289 27,368,999
MARKETABLE SECURITIES ................................................................ -- 999,232
PROPERTY AND EQUIPMENT--Net .......................................................... 9,780,828 9,873,105
OTHER ASSETS--(Net of accumulated amortization of $442,124 and $375,139) ............. 897,173 237,321
------------ ------------
TOTAL ................................................................................ $ 35,161,290 $ 38,478,657
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital
lease obligations .............................................................. $ 1,556,536 $ 1,297,046
Accounts payable .................................................................. 3,016,220 3,437,895
Accrued and other liabilities ..................................................... 1,351,218 1,152,690
Current portion of deferred revenue ............................................... 1,621,933 1,516,875
Accrued compensation .............................................................. 1,484,850 1,229,970
------------ ------------
Total current liabilities ...................................................... 9,030,757 8,634,476
------------ ------------
DEFERRED REVENUE ..................................................................... 3,026,442 3,113,683
------------ ------------
DEFERRED INCOME TAXES ................................................................ 645,730 241,855
------------ ------------
CAPITAL LEASE OBLIGATIONS ............................................................ 1,204,412 1,372,760
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized, 35,000,000 shares; issued,
22,474,581 and 22,399,381 shares at February 29, 2000
and February 28, 1999, respectively ............................................ 224,746 223,994
Additional paid-in capital ........................................................ 60,688,316 60,329,803
Accumulated other comprehensive income ............................................ -- 235,323
Retained earnings ................................................................. 25,639,941 16,559,076
Treasury stock, at cost, 6,393,600 and 4,736,600
shares of common stock at February 29, 2000
and February 28, 1999, respectively ............................................ (65,299,054) (52,232,313)
------------ ------------
Total stockholders' equity .................................................. 21,253,949 25,115,883
------------ ------------
TOTAL ................................................................................ $ 35,161,290 $ 38,478,657
============ ============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
REVENUES ................................................... $ 90,158,708 $ 83,209,703 $ 74,502,318
COST OF GOODS SOLD ......................................... 41,933,181 37,565,161 32,777,929
------------ ------------ ------------
GROSS MARGIN ............................................... 48,225,527 45,644,542 41,724,389
------------ ------------ ------------
COSTS AND EXPENSES:
Systems costs and research and development .............. 2,186,293 1,301,997 1,182,988
Marketing ............................................... 20,525,427 17,585,841 15,901,693
General and administrative .............................. 9,418,302 8,489,468 7,319,715
Depreciation and amortization ........................... 1,904,736 1,781,010 1,800,163
------------ ------------ ------------
Total ................................................ 34,034,758 29,158,316 26,204,559
------------ ------------ ------------
OPERATING INCOME ........................................... 14,190,769 16,486,226 15,519,830
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense ........................................ (273,477) (265,412) (210,784)
Interest income ......................................... 376,604 428,388 787,636
Gain on sale of fixed assets ............................ 184,122 300,279 108,306
Other expense ........................................... (456,244) -- --
Gain on sale of marketable securities ................... 864,091 1,099,597 --
------------ ------------ ------------
Total ................................................ 695,096 1,562,852 685,158
------------ ------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES ................... 14,885,865 18,049,078 16,204,988
PROVISION FOR INCOME TAXES ................................. 5,805,000 7,041,000 6,318,000
------------ ------------ ------------
NET INCOME ................................................. $ 9,080,865 $ 11,008,078 $ 9,886,988
============ ============ ============
EARNINGS PER SHARE:
BASIC ................................................... $ 0.54 $ 0.61 $ 0.52
============ ============ ============
DILUTED ................................................. $ 0.52 $ 0.57 $ 0.48
============ ============ ============
WEIGHTED AVERAGE SHARES:
BASIC ................................................... 16,665,116 17,919,868 18,934,414
============ ============ ============
DILUTED ................................................. 17,481,403 19,215,061 20,579,884
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
10
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
--------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 29, 2000 AND FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
Treasury Stock
Common Stock Additional Retained --------------
Number of Paid-in Earnings Number of
Shares Amount Capital (Deficit) Shares Amount
------ ------ ------- --------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
MARCH 1, 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 of $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)
Comprehensive Income:
Net income ............................. 9,080,865
Sale of marketable securities ..........
Total comprehensive income
Exercise of stock options ................. 75,200 752 230,257
Repurchase of common stock ................ 1,657,000 (13,066,741)
Tax benefit of employee stock
option exercises ....................... 128,256
----------- ------------ ------------ ------------ ---------- ------------
BALANCE,
FEBRUARY 29, 2000 ......................... 22,474,581 $ 224,746 $ 60,688,316 $ 25,639,941 6,393,600 $(65,299,054)
=========== ============ ============ ============= ========== ============
<CAPTION>
Accumulated Other
Comprehensive
Income Total
------ -----
<S> <C> <C>
BALANCE,
MARCH 1, 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 of $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
------------
Comprehensive Income:
Net income ............................. 9,080,865
Sale of marketable securities .......... (235,323) (235,323)
------------
Total comprehensive income 8,845,542
------------
Exercise of stock options ................. 231,009
Repurchase of common stock ................ (13,066,741)
Tax benefit of employee stock
option exercises ....................... 128,256
------------ ------------
BALANCE,
FEBRUARY 29, 2000 ......................... $ -- $ 21,253,949
============ ============
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
--------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 29, 2000 AND FEBRUARY 28, 1999 AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................................ $ 9,080,865 $ 11,008,078 $ 9,886,988
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization .......................................... 3,862,101 3,300,751 2,777,636
Provision for doubtful accounts ........................................ 212,290 99,103 217,139
Deferred income taxes .................................................. 329.168 (69,101) 119,000
Advances to licensee and related costs ................................. 456,242 -- --
Gain on sale of marketable securities .................................. (864,091) (1,099,597) --
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable .................................................. (2,630,186) (1,704,224) (860,629)
Inventories .......................................................... 2,072,958 (783,680) (1,137,565)
Vendor deposit ....................................................... -- 1,432,000 (1,432,000)
Prepaid expenses and other ........................................... 65,216 (85,455) 21,658
Prepaid income taxes ................................................. (688,047) (475,014) --
Other assets ......................................................... (11,272) (91,633) (9,627)
Accounts payable ..................................................... (421,675) 859,547 (263,838)
Accrued and other liabilities ........................................ 453,408 (207,994) 804,496
Deferred revenue ..................................................... 17,817 740,514 755,218
------------ ------------ ------------
Net cash provided by operating activities .......................... 11,934,794 12,923,295 10,878,476
------------ ------------ ------------
Cash flows from investing activities:
Expenditures for property and equipment - net ............................. (1,949,301) (652,285) (2,672,857)
Purchase of patent ........................................................ (425,000) -- --
Expenditures for product development ...................................... (290,564) -- --
Purchase of marketable securities ......................................... -- (1,259,170) --
Advances to licensee and related costs .................................... (456,242) -- --
Proceeds from sale of marketable securities ............................... 1,477,548 1,745,310 --
Maturity of short-term investment ......................................... -- 1,400,000 200,000
------------ ------------ ------------
Net cash (used for) provided by investing activities ............... (1,643,559) 1,233,855 (2,472,857)
------------ ------------ ------------
Cash flows from financing activities:
Exercise of stock options ................................................. 231,009 533,381 1,020,337
Repayment of capital lease obligations .................................... (1,662,395) (1,491,177) (1,038,140)
Repurchase of common stock ................................................ (13,066,741) (8,467,487) (17,561,168)
------------ ------------ ------------
Net cash used for financing activities ............................. (14,498,127) (9,425,283) (17,578,971)
------------ ------------ ------------
(Decrease) Increase in cash and equivalents .................................. (4,206,892) 4,731,867 (9,173,352)
Beginning Cash and equivalents ............................................... 10,230,215 5,498,348 14,671,700
------------ ------------ ------------
Ending Cash and equivalents .................................................. $ 6,023,323 $ 10,230,215 $ 5,498,348
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
12
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended February 29, 2000 AND FEBRUARY 28, 1999 AND 1998
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 year ends 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 $707,000, $678,000, and
$2,821,000 for the fiscal years ended February 2000, 1999, and 1998,
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 $1,687,000, $1,431,000, and $1,181,000 for the fiscal
years ended February 2000, 1999 and 1998, 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 $678,000, $201,000, and $244,000 for the fiscal years ended
February 2000, 1999, and 1998, respectively.
Certain Concentrations - The Company has subcontracted one supplier to
manufacture a certain LoJack System component (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 29, 2000, believes it had no significant exposure to credit risks.
Accounts Receivable - The allowance for doubtful accounts was approximately
$630,000 and $527,000 as of the end of February 2000 and 1999, 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 export insurance policies or 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. As of February 28, 1999, 142,507 shares of the investment were
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. The
unrealized gain of $235,323 (net of taxes of $150,452) was reported in
accumulated other comprehensive income, a component of stockholders' equity, at
February 28, 1999. In June 1999, the Company sold the remaining 142,507 shares
and recognized a pre-tax gain of $864,091.
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 2000 and 1999 approximate
cost.
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 $484,000 and $477,000 as of
the end of February 2000 and 1999, respectively.
Income Taxes - The Company accounts for income taxes under SFAS No. 109,
"Accounting for Income Taxes". SFAS 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the Company's financial statements or tax returns.
Deferred tax 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.
13
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended February 29, 2000 AND FEBRUARY 28, 1999 AND 1998
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:
2000 1999 1998
Weighted average shares for basic 16,665,116 17,919,868 18,934,414
Dilutive effect of stock options 816,287 1,295,193 1,645,470
---------- ---------- ----------
Weighted average
shares for diluted 17,481,403 19,215,061 20,579,884
========== ========== ==========
Options to purchase 1,727,459 (at a range of $7.625 to $15.00 per share),
624,738 (at a range of $12.375 to $15.00 per share), and 100,625 shares (at a
range of $12.375 to $15.00 per share) of common stock were outstanding on
average during fiscal 2000, 1999, and 1998, respectively, but were not included
in the computation of diluted earnings per share, because the options exercise
price was greater than the average market price of the common share.
Comprehensive Income - In March 1998, the Company adopted the provisions of
SFAS No. 130, "Reporting Comprehensive Income". For the years ended February
2000 and 1999, in addition to net income, the only items included in the
Company's comprehensive income are realized and 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 years ended February 2000 and 1999.
<TABLE>
<CAPTION>
2000 1999
<S> <C> <C>
Net Income:
Gain on sale of marketable securities $ 864,091 $ 1,099,597
Income tax expense (336,995) (428,843)
----------- -----------
Net gain realized in net income $ 527,096 $ 670,754
=========== ===========
Other comprehensive income:
Holding gain, net of tax $ 291,773 $ 906,077
Net gain realized in net income (527,096) (670,754)
----------- -----------
Net (loss) gain recognized in other
comprehensive income $ (235,323) $ 235,323
=========== ===========
</TABLE>
Comprehensive income and net income were the same for the year ended
February 1998.
Segment Reporting - In March 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 were adopted by the Company during fiscal year 2000. The
adoption of these SOP's did not have a material impact on the Company's
consolidated financial statements.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." The SAB summarizes certain of the SEC's views in applying revenue
recognition in financial statements. The provisions of SAB No. 101 are effective
for the fiscal year beginning March 1, 2000. The Company has not yet completed
the evaluation of the effects of SAB No. 101.
Supplemental Disclosures of Cash Flow Information - Cash payments for
interest aggregated approximately $273,000, $265,000, and $211,000 for the
fiscal years ended February 2000, 1999, and 1998, respectively. Cash payments
for income taxes for the fiscal years ended February 2000, 1999, and 1998 were
approximately $5,982,000, $7,691,000, and $5,371,000, respectively.
Supplemental Disclosures of Noncash Investing and Financing Activities -
Capital lease obligations aggregating approximately $1,754,000, $2,622,000, and
$1,102,000 were incurred when the Company entered into lease agreements for new
vehicles during the fiscal years ended February 2000, 1999, and 1998,
respectively.
Reclassifications - Certain 1999 and 1998 amounts have been reclassified to
conform to the 2000 presentation.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of the end of February:
2000 1999
LoJack System components $ 17,952,417 $ 16,840,848
Equipment, furniture, and fixtures 4,938,834 4,288,994
Vehicles 7,336,349 6,113,777
------------ ------------
Total 30,227,600 27,243,619
Less accumulated depreciation
and amortization (21,215,366) (18,125,250)
------------ ------------
Total 9,012,234 9,118,369
LoJack System components not yet in service 768,594 754,736
------------ ------------
Property and equipment - net $ 9,780,828 $ 9,873,105
============ ============
14
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
--------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended February 29, 2000 AND FEBRUARY 28, 1999 AND 1998
Total additions to property and equipment, including those relating to
capital lease obligations, aggregated approximately $3,703,000, $3,274,000 and
$3,775,000 for the fiscal years ended February 2000, 1999, and 1998,
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 2000 are expected to be placed into service during the year
ended February 2001.
3. 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 2000 and 1999. In May 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 $7,336,000 and $6,114,000, and the
related accumulated amortization is approximately $4,234,000 and $2,773,000 as
of the end of February 2000 and 1999, respectively. Amortization of such assets
is included within cost of goods sold in the accompanying consolidated financial
statements.
At February 29, 2000, scheduled repayment requirements for capital lease
obligations are as follows:
2001 $ 1,675,978
2002 923,095
2003 294,991
-------------
Total payments 2,894,064
Less amounts representing interest (133,116)
-------------
Total principal 2,760,948
Less current portion (1,556,536)
-------------
Long-term portion $ 1,204,412
=============
4. STOCKHOLDERS' EQUITY
Common Stock - As of February 29, 2000 the Company has 35,000,000
authorized shares of $.01 par value common stock of which 16,080,981 are issued
and outstanding and 4,560,920 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 29,
2000 and February 28, 1999.
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 5,374,135 shares of common
stock. The incentive 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 29, 2000 is as follows:
Authorized Available for
for Grant Outstanding Future Grant
Management and incentive
stock options 5,064,135 3,457,915 812,005
Directors options 310,000 203,000 88,000
---------- ---------- ---------
5,374,135 3,660,915 900,005
========== ========== =========
The following table presents activity of all stock options:
Weighted
Number of Average
Options Exercise Price
Outstanding at March 1, 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 463,775 13.04
Exercised (149,000) 3.55
Canceled (4,375) 10.26
---------- ---------
Outstanding at February 28, 1999 3,353,140 7.65
Granted 390,025 7.83
Exercised (75,200) 3.07
Canceled (7,050) 10.29
---------- ---------
Outstanding at February 29, 2000 3,660,915 $ 7.76
========== =========
15
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999 AND 1998
The following table sets forth information regarding options outstanding at
February 29, 2000:
<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>
825,900 $2.00 - $2.38 $2.00 2 825,900 $2.00
319,600 4.94 - 5.97 5.04 3 319,600 5.04
1,123,115 6.88 - 9.00 7.86 5 825,630 7.93
564,900 9.13 - 10.25 9.79 7 392,520 9.75
827,400 12.38 - 15.00 13.04 7 576,380 13.04
- --------- -------------- ----- - --------- -----
3,660,915 $2.00 - $15.00 $7.76 5 2,940,030 $7.20
========= ============== ===== = ========= =====
</TABLE>
As described in Note 1, the Company accounts 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:
2000 1999 1998
Net income $ 6,335,237 $ 8,247,055 $ 7,814,345
Basic earnings per share $ 0.38 $ 0.46 $ 0.41
Diluted earnings per share $ 0.36 $ 0.43 $ 0.38
Options granted during fiscal 2000, 1999, and 1998 had a weighted average
grant date fair value of $5.76, $6.70, and $6.11, 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>
2000 1999 1998
<S> <C> <C> <C>
Range of risk free interest rates 5.11% - 5.72% 5.46% - 5.65% 6.22% - 6.69%
Expected life of option grants 9 years 9 years 9 years
Range of expected volatility of
underlying stock 58% - 65% 28% - 30% 38% - 39%
</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 7,200,000 shares of its outstanding common stock.
Through February 29, 2000, the Company has repurchased 6,393,600 shares for a
total of $65,299,054.
5. INCOME TAXES
The provision for income taxes consists of the following for the fiscal years
ended February 2000, 1999 and 1998:
2000 1999 1998
Current:
Federal $ 4,674,641 $ 5,947,101 $ 4,901,000
State 801,191 1,163,000 1,228,000
Foreign -- -- 70,000
----------- ----------- -----------
Total 5,475,832 7,110,101 6,199,000
----------- ----------- -----------
Deferred:
Federal 317,182 (17,101) 150,000
State 11,986 (52,000) (31,000)
----------- ----------- -----------
Total 329,168 (69,101) 119,000
----------- ----------- -----------
Provision for income taxes $ 5,805,000 $ 7,041,000 $ 6,318,000
=========== =========== ===========
16
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended February 29, 2000 AND FEBRUARY 28, 1999 AND 1998
The difference between the Company's effective income tax rate and the
United States statutory rate is reconciled below:
2000 1999 1998
U. S. statutory rate 35.0% 35.0% 34.0%
State taxes, net of federal benefit 5.0 5.0 5.0
Other, net (1.0) (1.0) --
---- ---- ----
Effective tax rate 39.0% 39.0% 39.0%
==== ==== ====
The tax effects of the items comprising the Company's net deferred tax
asset at the end of February 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
Current Long-term Current Long-term
<S> <C> <C> <C> <C>
Deferred tax liabilities:
Differences between book and
tax basis of property $ -- $(1,856,307) $ -- $(1,487,328)
Unrealized gain on
marketable securities -- -- (150,452) --
----------- ----------- ----------- -----------
Deferred tax liabilities -- (1,856,307) (150,452) (1,487,328)
----------- ----------- ----------- -----------
Deferred tax assets:
Reserves not currently deductible 171,818 -- 108,361 --
Income deferred for book purposes 648,773 1,210,577 606,750 1,245,473
Net operating loss carryforwards
(utilization limited to $39,000 per
year through 2005) 200,803 -- 231,578 --
----------- ----------- ----------- -----------
Deferred tax assets 1,021,394 1,210,577 946,689 1,245,473
----------- ----------- ----------- -----------
Net deferred tax assets (liabilities) $ 1,021,394 $ (645,730) $ 796,237 $ (241,855)
=========== =========== =========== ===========
</TABLE>
Tax benefits that pertained to certain employee stock option exercises of
$128,256 and $304,104 were recorded to additional paid-in capital for the fiscal
years ended February 2000 and 1999, respectively.
6. COMMITMENTS AND CONTINGENT LIABILITIES
Lease Commitments - The Company leases various facilities under operating
leases whose terms expire from 2001 to 2005; the leases contain renewal options
ranging from two to five years. Minimum annual lease payments are as follows:
2001 $ 982,000
2002 511,000
2003 287,000
2004 194,000
2005 55,000
--------
Total $ 2,029,000
===========
Rental expense under operating leases aggregated approximately $1,337,000,
$1,235,000, and $1,028,000 for the fiscal years ended February 2000, 1999, and
1998, respectively.
7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution 40l(k) plan covering substantially
all full-time employees. Under the provisions of the plan, employees may
contribute a portion of their compensation within certain limitations. The
Company matches a percentage of employee contributions on a discretionary basis
as determined by the Board of Directors. The Company's Board of Directors
elected to match 50% of employee contributions (100% of employee contributions
for those with more than five years of service) in fiscal years 2000 and 1999;
and 50% of all employee contributions in fiscal 1998, subject to certain
limitations. Company contributions become fully vested after five years of
continuous service. Company contributions related to the plan were approximately
$474,000, $412,000 and $126,000 for the fiscal years ended February 2000, 1999
and 1998, respectively.
17
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended February 29, 2000 And February 28, 1999 And 1998
8. 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:
2000 1999 1998
Export Revenues:
Europe and Russia $ 2,161,000 $ 2,011,000 $ 1,841,000
South America 3,390,000 2,815,000 7,108,000
Asia 14,000 638,000 1,296,000
Caribbean 427,000 328,000 293,000
Africa 3,986,000 5,082,000 3,291,000
----------- ----------- -----------
Total $ 9,978,000 $10,874,000 $13,829,000
=========== =========== ===========
9. 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>
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
2000
- ----
Revenues:
Product sales $ 80,181,032 $ 7,836,085 $ 88,017,117
License fees and
system component revenues -- 2,141,591 2,141,591
------------ ------------ ------------
Total revenues 80,181,032 9,977,676 90,158,708
Interest income 367,979 8,625 376,604
Interest expense (273,477) -- (273,477)
Depreciation and amortization 3,858,201 3,900 3,862,101
Income tax expense 4,798,000 1,007,000 5,805,000
Segment net income 7,506,169 1,574,696 9,080,865
Capital expenditures (excluding capital leases) 1,949,301 -- 1,949,301
Segment assets 33,196,380 1,964,910 35,161,290
</TABLE>
The 2000, 1999, and 1998 domestic and international segment assets are net of
intercompany eliminations of approximately $4,637,000, $2,547,000 and
$1,162,000, respectively.
18
<PAGE>
INDEPEDENT 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 29, 2000 and February 28, 1999, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended February 29, 2000.
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 auditing standards generally
accepted in the United States of America. 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 29, 2000 and February 28, 1999, and the results of
their operations and their cash flows for each of the three years in the period
ended February 29, 2000 in conformity with accounting principles generally
accepted in the United States of America.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
April 20, 2000
19
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
<TABLE>
<S> <C>
Executive Officers Registrar and Transfer Agent
C. Michael Daley American Stock Transfer
Chairman of the Board of Directors and Treasurer & Trust Company
(Chief Executive Officer) New York, New York
Joseph F. Abely Securities Listings
President and Chief Operating Officer
NASDAQ: National Market Systems-"LOJN"
William R. Duvall
Senior Vice President Annual meeting
(Operations and Technical Development)
10:00 a.m.
Kevin M. Mullins July 19, 2000
Vice President Sheraton Tara Hotel
(Sales and Marketing) Braintree, Massachusetts
Peter J. Conner Form 10-K Availability
Vice President
(Government Relations) The Company's annual report filed
with the Securities and Exchange
Board of Directors Commission on Form 10-K is available
without charge upon written request to:
C. Michael Daley
Chairman Investor Relations
LoJack Corporation
James A. Daley Norfolk Place
President 333 Elm Street
Daley Hotel Group, Inc. Dedham, Massachusetts 02026
781.326.4700
Robert J. Murray
Chairman and Chief Executive Officer or through our website
New England Business Service, Inc. (www.lojack.com).
Corporate Counsel
Harvey Rosenthal
Retired; Sullivan & Worcester LLP
Formerly President and Chief Operating Officer Boston, Massachusetts
Melville Corporation
Independent Auditors
Larry C. Renfro
President and Chief Executive Officer Deloitte & Touche LLP
NewRiver Investor Communications Boston, Massachusetts
Lee T. Sprague Investor Relations
Private Investor
Swanson Communications
Thomas A. Wooters New York, New York
Clerk 516.671.8582
20
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<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 20, 2000, appearing in and incorporated by reference in the Annual
Report on Form 10-K of LoJack Corporation for the year ended February 29, 2000.
/s/ Deloitte & Touche LLP
Boston, Massachusetts
May 25, 2000
<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 29, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 6,023,323
<SECURITIES> 0
<RECEIVABLES> 12,727,380
<ALLOWANCES> 630,382
<INVENTORY> 3,593,760
<CURRENT-ASSETS> 24,483,289
<PP&E> 30,996,194
<DEPRECIATION> 21,215,366
<TOTAL-ASSETS> 35,161,290
<CURRENT-LIABILITIES> 9,030,757
<BONDS> 0
0
0
<COMMON> 224,746
<OTHER-SE> 21,029,203
<TOTAL-LIABILITY-AND-EQUITY> 35,161,290
<SALES> 88,968,268
<TOTAL-REVENUES> 90,158,708
<CGS> 41,933,181
<TOTAL-COSTS> 41,933,181
<OTHER-EXPENSES> 34,034,758
<LOSS-PROVISION> 212,290
<INTEREST-EXPENSE> 273,477
<INCOME-PRETAX> 14,885,865
<INCOME-TAX> 5,805,000
<INCOME-CONTINUING> 9,080,865
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,080,865
<EPS-BASIC> .54
<EPS-DILUTED> .52
</TABLE>
<PAGE>
EXHIBIT 99
RISKS AND UNCERTAINTIES THAT MAY AFFECT
FORWARD-LOOKING STATEMENTS
Forward-looking statements made by or on behalf of the Company represent
the Company's reasonable judgement on the future and are subject to risks and
uncertainties. Actual results may differ materially from those projected in the
forward-looking statements. Such risks and uncertainties include, among others:
THE COMPANY DEPENDS ON ITS PRINCIPAL PRODUCTS AND MARKET ACCEPTANCE OF
THEM. The Company currently derives most of its revenues from consumer sales of
LoJack Units and related products, the licensing of its Stolen Vehicle Recovery
System and sale of related products to licensees in foreign countries. The
Company also derives a limited portion of its revenues from sales of
conventional vehicle security devices. As a result, any factor adversely
affecting sales of the Company's principal products would have an adverse effect
on the Company.
The Company's success is also heavily dependent upon acceptance of its
current and future products in new markets. There is no assurance that the
LoJack System will continue to achieve widespread consumer acceptance in all of
the Company's existing or future markets.
THE COMPANY IS AFFECTED BY CHANGES IN ECONOMIC CONDITIONS AND NEW VEHICLE
SALES. The Company's products are installed in new and used vehicles; the
Company's sales, however, are primarily driven by the production and sales of
new vehicles. As a result, any change in general economic conditions resulting
in decreased new vehicle sales could adversely affect the Company. Because new
car sales are most often a discretionary activity, the Company is unable to
accurately predict its sales in future quarters. In any quarter, many factors
can affect the Company's revenues. These factors include, but are not limited
to, periods of economic slowdown, slowdowns in vehicle production, labor
disputes affecting the automobile industry, and any change in general economic
conditions. If fewer new vehicles are sold or produced, fewer LoJack Units may
be installed.
THE COMPANY DEPENDS ON KEY PERSONNEL. The Company's success depends, to a
significant degree, upon the efforts and abilities of key creative, technical,
marketing, sales and management personnel. The loss of services of one or more
of these key employees could have an adverse effect on the Company. In
addition, the Company believes that its future success depends in part upon its
ability to attract, retain, and motivate qualified personnel necessary for the
development of its business. There can be no assurance that the Company will be
successful in attracting and retaining such personnel. The Company has no
employment contracts with its key employees.
<PAGE>
THE COMPANY IS SUBJECT TO GOVERNMENT REGULATION AND APPROVAL. The Company
must obtain the approval of law enforcement agencies, as well other governmental
agencies, 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. In addition, governmental approval may be terminable at
the convenience of the executive or legislative body in some jurisdictions.
Such governmental discretion and regulation may limit the number of potential
customers for the Company's services or impede its ability to offer competitive
services to the market. The Company may encounter similar or additional
regulatory requirements as it expands into foreign markets.
THE COMPANY DEPENDS ON PROPRIETARY TECHNOLOGY. The Company's success is
dependent on its proprietary technology. Although the Company seeks to protect
its intellectual rights through patents, copyrights, trademarks, trade secrets
and license agreements, there can be no assurance that the Company will be able
to protect its technology from misappropriation or that competitors will not
develop similar technology independently. There can be no assurance that third
parties will not assert that the Company's products infringe upon their own
patents, copyrights, or trade secrets. In addition, the laws of certain foreign
countries in which the Company's products are or may be distributed do not
protect the Company's products and intellectual rights to the same extent as the
laws of the United States.
THE COMPANY DEPENDS ON A SINGLE SUPPLIER FOR PRINCIPAL PRODUCT. Key
components of the Company's principal product are currently manufactured to the
Company's specifications by a single supplier. Although these key components
could be obtained from other suppliers, there can be no assurance that the
Company could obtain such components from an alternative supplier without undue
cost and expense.
THE COMPANY FACES COMPETITION. Several competitors or potential
competitors are marketing or have announced the development of stolen vehicle
recovery products directly competitive with the LoJack System. To the Company's
knowledge, competitors have not developed stolen vehicle recovery products
directly compatible with the LoJack System. In addition, the Company is unaware
of any competitor who proposes a system capable of being operated or actively
monitored exclusively by law enforcement agencies as is the LoJack System.
However, there can be no assurance that the Company will be able to compete
successfully against existing companies or new entrants to the marketplace.
Furthermore, the development by competitors of new or improved products or
technologies may render the Company's products or proposed products obsolete or
less competitive.
