<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--
SECURITIES ACT OF 1934
For the quarterly period ended November 30, 1999
OR
___TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
For the transition period from ______________ to _______________.
Commission File Number 2-74238-B
LOJACK CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2664794
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
333 Elm Street Dedham, Massachusetts 02026
(Address of principal executive offices) (Zip code)
781-326-4700
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO___
APPLICABLE ONLY TO CORPORATE ISSUERS:
There were 16,081,481 shares issued and outstanding of common stock,
$.01 par value, as of January 11, 2000.
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
INDEX
Part I. Financial Information PAGE
----
Item 1. Financial Statements
Consolidated Balance Sheets:
November 30, 1999 and February 28, 1999......................... 3
Consolidated Statements of Operations:
Three Months Ended November 30, 1999 and 1998................ 4
Nine Months Ended November 30, 1999 and 1998................. 5
Consolidated Statements of Cash Flows:
Nine Months Ended November 30, 1999 and 1998................. 6
Notes to Consolidated Financial Statements...................... 7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition........................ 10
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................................ 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................... 16
Signatures..................................................... 17
Exhibit 99..................................................... 18
Exhibit 27..................................................... 20
<PAGE>
<TABLE>
<CAPTION>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS NOVEMBER 30, FEBRUARY 28,
1999 1999
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents............................ $ 5,292,360 $ 10,230,215
Accounts receivable - net....................... 11,654,243 9,679,102
Inventories..................................... 4,351,030 5,666,718
Prepaid expenses and other...................... 223,534 217,609
Prepaid income taxes............................ 1,247,932 779,118
Deferred income taxes........................... 1,062,981 796,237
------------ ------------
Total current assets.......................... 23,832,080 27,368,999
MARKETABLE SECURITIES........................... - 999,232
PROPERTY AND EQUIPMENT - Net.................... 9,442,801 9,873,105
OTHER ASSETS - Net.............................. 776,785 237,321
------------ ------------
TOTAL........................................... $ 34,051,666 $ 38,478,657
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease
obligations................................... $ 1,440,143 $ 1,297,046
Accounts payable................................ 4,402,315 3,437,895
Accrued and other liabilities................... 1,347,500 1,098,274
Deposits........................................ 69,411 54,416
Current portion of deferred revenue............. 1,480,041 1,516,875
Accrued compensation............................ 1,273,353 1,229,970
------------ ------------
Total current liabilities..................... 10,012,763 8,634,476
------------ ------------
DEFERRED REVENUE................................ 3,200,018 3,113,683
------------ ------------
DEFERRED INCOME TAXES........................... 276,915 241,855
------------ ------------
CAPITAL LEASE OBLIGATIONS....................... 1,246,114 1,372,760
------------ ------------
COMMITMENTS AND CONTINGENCIES...................
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized,
35,000,000 shares; issued, 22,475,081 and
22,399,381 shares at November 30, 1999
and February 28, 1999, respectively........... 224,746 223,994
Additional paid-in-capital...................... 60,560,060 60,329,803
Accumulated other comprehensive income.......... - 235,323
Retained earnings............................... 23,830,104 16,559,076
Treasury stock, at cost, 6,393,600
and 4,736,600 shares of common stock at
November 30, 1999 and February 28, 1999,
respectively.................................. (65,299,054) $(52,232,313)
------------ ------------
Total stockholders' equity................... 19,315,856 25,115,883
------------ ------------
TOTAL........................................... $ 34,051,666 $ 38,478,657
============ ============
</TABLE>
See notes to consolidated financial statements.
(3)
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(Unaudited)
NOVEMBER 30, NOVEMBER 30,
1999 1998
<S> <C> <C>
Revenues................................... $22,168,276 $20,863,621
Cost of goods sold......................... 10,404,030 9,550,509
----------- -----------
Gross margin............................... 11,764,246 11,313,112
----------- -----------
Costs and expenses:
Systems costs and research and
development.............................. 483,710 304,395
Marketing.................................. 4,505,668 4,773,160
General and administrative................. 2,265,015 2,119,422
Depreciation and amortization.............. 490,823 452,972
----------- -----------
Total.................................... 7,745,216 7,649,949
----------- -----------
Operating income .......................... 4,019,030 3,663,163
----------- -----------
Other income (expense):
Interest income............................ 93,967 117,815
Interest expense........................... (67,204) (87,165)
Gain on sale of fixed assets and other..... 62,318 45,183
----------- -----------
Total.................................... 89,081 75,833
----------- -----------
Income before provision
for income taxes.......................... 4,108,111 3,738,996
Provision for income taxes................. 1,603,000 1,460,000
----------- -----------
Net income ................................ $ 2,505,111 $ 2,278,996
=========== ===========
Earnings per share:
Basic...................................... $ 0.15 $ 0.13
=========== ===========
Diluted.................................... $ 0.15 $ 0.12
=========== ===========
Weighted average shares:
Basic...................................... 16,337,491 17,767,033
=========== ===========
Diluted.................................... 17,073,619 18,896,581
=========== ===========
</TABLE>
See notes to consolidated financial statements.
(4)
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(Unaudited)
NOVEMBER 30, NOVEMBER 30,
1999 1998
<S> <C> <C>
Revenues.......................................... $68,754,389 $62,938,199
Cost of goods sold................................ 31,553,043 27,914,397
----------- -----------
Gross margin...................................... 37,201,346 35,023,802
----------- -----------
Costs and expenses:
Systems costs and research and
development..................................... 1,479,488 920,893
Marketing......................................... 16,033,013 13,825,707
General and administrative........................ 6,957,053 6,343,540
Depreciation and amortization..................... 1,369,944 1,264,633
----------- -----------
Total........................................... 25,839,498 22,354,773
----------- -----------
Operating income.................................. 11,361,848 12,669,029
----------- -----------
Other income (expense):
Interest income................................... 309,709 325,014
Interest expense.................................. (193,406) (201,837)
Gain on sale of fixed assets...................... 58,473 152,714
Other expense..................................... (480,687) -
Gain on sale of marketable securities............. 864,091 1,099,597
----------- -----------
Total........................................... 558,180 1,375,488
----------- -----------
Income before provision
for income taxes................................. 11,920,028 14,044,517
Provision for income taxes........................ 4,649,000 5,480,000
----------- -----------
Net income........................................ $ 7,271,028 $ 8,564,517
=========== ===========
Earnings per share:
Basic............................................. $ 0.43 $ 0.48
=========== ===========
Diluted........................................... $ 0.41 $ 0.44
=========== ===========
Weighted average shares:
Basic............................................. 16,858,246 17,997,374
=========== ===========
Diluted........................................... 17,711,782 19,358,699
=========== ===========
</TABLE>
See notes to consolidated financial statements.
(5)
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(Unaudited)
NOVEMBER 30, NOVEMBER 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 7,271,028 $ 8,564,517
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................................................... 2,719,293 2,363,295
Provision for doubtful accounts................................................. 154,025 109,103
Deferred income taxes........................................................... (81,232) (242,527)
Advances to licensee and related costs.......................................... 480,687 -
Gain on sale of marketable securities........................................... (864,091) (1,099,597)
Increase (decrease) in cash from changes in assets and liabilities:
Accounts receivable.......................................................... (2,129,166) (1,077,495)
Inventories.................................................................. 1,315,688 (682,310)
Vendor deposit............................................................... - 1,432,000
Prepaid expenses and other................................................... (5,925) (126,196)
Prepaid income taxes......................................................... (468,814) (618,766)
Other assets................................................................. (4,335) (11,481)
Accounts payable............................................................. 964,420 (145,747)
Accrued and other liabilities................................................ 357,105 726,727
-------------- -----------
Net cash provided by operating activities.................................. 9,708,683 9,191,523
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment ............................................ (1,092,627) (727,614)
Purchase of patent.................................................................. (425,000) -
Expenditures for product development................................................ (157,013) -
Purchase of marketable securities................................................... - (1,259,170)
Advances to licensee and related costs.............................................. (480,687) -
Proceeds from sale of marketable securities......................................... 1,477,548 1,745,310
-------------- -----------
Net cash used for investing activities.................................... (677,779) (241,474)
-------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock............................................................ 231,009 482,687
Repayment of capital lease obligations.............................................. (1,133,027) (1,112,759)
Repurchase of common stock.......................................................... (13,066,741) (7,913,425)
-------------- -----------
Net cash used for financing activities..................................... (13,968,759) (8,543,497)
-------------- -----------
(DECREASE) INCREASE IN CASH AND EQUIVALENTS.......................................... (4,937,855) 406,552
BEGINNING CASH AND EQUIVALENTS....................................................... 10,230,215 5,498,348
-------------- -----------
ENDING CASH AND EQUIVALENTS.......................................................... $ 5,292,360 $ 5,904,900
============== ===========
</TABLE>
See notes to consolidated financial statements.
(6)
<PAGE>
LOJACK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. The accompanying consolidated financial statements and notes do not include
all of the disclosures made in the Company's Annual Report to Stockholders,
which should be read in conjunction with these statements. Certain fiscal
1999 amounts have been reclassified to conform with the fiscal 2000
presentation. In the opinion of the Company, the statements include all
adjustments necessary for a fair presentation of the quarterly results and
any and all such adjustments were of a normal recurring nature.
2. The results of operations for the three and nine months ended November 30,
1999 and 1998 are not necessarily indicative of the results to be expected
for the full year.
3. Supplemental cash flow information:
Cash paid for interest for the nine months ended November 30, 1999 and 1998
was $193,000 and $202,000, respectively. Cash paid for income taxes for the
nine months ended November 30, 1999 and 1998 was $5,110,000 and $5,460,000,
respectively. For the nine months ended November 30, 1999 and 1998 the
Company incurred capital lease obligations of $1,149,000 and $2,600,000
respectively.
4. Earnings per share:
The Company computes earnings per share under the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share."
SFAS No. 128 requires the dual presentation of basic and diluted earnings
per share. Basic earnings per common share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per common share reflects the effect of the Company's outstanding
options (using the treasury stock method), except where such options would
be antidilutive.
A reconciliation of the weighted average shares used for the basic and
diluted computations for the three months ended November 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Weighted average shares for basic 16,337,491 17,767,033
Dilutive effect of stock options 736,128 1,129,548
---------- ----------
Weighted average shares for diluted 17,073,619 18,896,581
========== ==========
</TABLE>
A reconciliation of the weighted average shares used for the basic and
diluted computations for the nine months ended November 30 is as follows:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Weighted average shares for basic 16,858,246 17,997,374
Dilutive effect of stock options 853,536 1,361,325
---------- ----------
Weighted average shares for diluted 17,711,782 19,358,699
========== ==========
</TABLE>
(7)
<PAGE>
5. 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 $1,259,000. In April 1998 the Company sold
150,000 of these shares and recognized a pre-tax gain of approximately
$1,100,000. 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
approximately $999,000. In June 1999, the Company sold the remaining
142,507 shares and recognized a pre-tax gain of approximately $864,000.
6. Comprehensive Income:
Effective March 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." In addition to net income, the only
item which was included in comprehensive income is unrealized gains or
losses on available-for-sale securities. Comprehensive income for the three
months ended November 30, 1999 and 1998 totaled approximately $2,505,000
and $2,218,000, respectively. For the nine months ended November 30, 1999
and 1998, comprehensive income totaled approximately $7,036,000 and
$8,993,000, respectively.
7. Recent Developments:
On December 17, 1999, the Company announced that its Board of Directors had
adopted a shareholder rights plan (the "Plan"). Under the Plan, each
shareholder of record as of the close of business on December 31, 1999
received one right for each share of common stock held by such shareholder
to purchase, upon the occurrence of certain triggering events, one one-
hundredth of a share of preferred stock of the Company at a purchase price
of $42.00. Until and unless the rights are triggered, the rights will be
evidenced by the common stock certificates directly, and will transfer
automatically with the transfer of any common stock. The initial issuance
of the rights has no dilutive effect on the outstanding shares of the
Company or the Company's earnings, is not taxable to the Company or to the
shareholders, and does not otherwise affect the trading of the Company's
shares. If the rights are not triggered or otherwise redeemed by the Board
of Directors at an earlier date, the rights will expire on December 17,
2009.
(8)
<PAGE>
8. Segment Reporting:
Effective March 1, 1998, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS No. 131
requires disclosure of segmented information about the Company's operations
based upon how management oversees and evaluates the results of operations.
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.
The following table presents information about the Company's operating
segments for the three months ended November 30, 1999 and 1998:
<TABLE>
<CAPTION>
Domestic International
Segment Segment Consolidated
------------------- ---------------- -----------------
<S> <C> <C> <C>
1998
----
Revenues:
Product sales $ 18,382,846 $ 2,368,463 $ 20,751,309
License fees and
system component revenues - 112,312 112,312
------------------- ---------------- ----------------
Total revenues $ 18,382,846 $ 2,480,775 $ 20,863,621
=================== ================ ================
Segment net income $ 1,839,740 $ 439,256 $ 2,278,996
=================== ================ ================
1999
----
Revenues:
Product sales $ 19,612,045 $ 1,983,871 $ 21,595,916
License fees and
system component revenues - 572,360 572,360
------------------- ---------------- ----------------
Total revenues $ 19,612,045 $ 2,556,231 $ 22,168,276
=================== ================ ================
Segment net income $ 2,015,092 $ 490,019 $ 2,505,111
=================== ================ ================
</TABLE>
The following table presents information about the Company's operating
segments for the nine months ended November 30, 1999 and 1998:
<TABLE>
<CAPTION>
Domestic International
Segment Segment Consolidated
------------------- ---------------- ----------------
<S> <C> <C> <C>
1998
----
Revenues:
Product sales $ 55,312,288 $ 6,205,756 $ 61,518,044
License fees and
system component revenues - 1,420,155 1,420,155
------------------- ---------------- ----------------
Total revenues $ 55,312,288 $ 7,625,911 $ 62,938,199
=================== ================ ================
Segment net income $ 6,873,947 $ 1,690,570 $ 8,564,517
=================== ================ ================
1999
----
Revenues:
Product sales $ 61,259,402 $ 5,708,396 $ 66,967,798
License fees and
system component revenues - 1,786,591 1,786,591
------------------- ---------------- ----------------
Total revenues $ 61,259,402 $ 7,494,987 $ 68,754,389
=================== ================ ================
Segment net income $ 6,154,411 $ 1,116,617 $ 7,271,028
=================== ================ ================
</TABLE>
(9)
<PAGE>
Management Discussion and Analysis of Results of Operations and Financial
Condition
Three and nine months ended November 30, 1999 ("fiscal 2000")
versus three and nine months ended November 30, 1998 ("fiscal 1999")
Results of Operations
Revenues for the three and nine months ended November 30, 1999 increased by
$1,304,000 and $5,816,000, or 6% and 9%, respectively to $22,168,000 and
$68,754,000, from $20,864,000 and $62,938,000, respectively, for the same
periods a year earlier. Revenues from domestic markets increased by $1,229,000
and $5,947,000, or 7% and 11%, for the three and nine months ended November 30,
1999, respectively, to $19,612,000 and $61,259,000, from $18,383,000 and
$55,312,000, respectively, for the same periods a year earlier. Revenues from
product sales and licensing fees related to international licensing agreements
increased by $75,000, or 3% for the three months ended November 30, 1999 to
$2,556,000 from $2,481,000 for the same period last year. International revenues
for the nine months ended November 30, 1999 decreased by $131,000 or 2% to
$7,495,000, from $7,626,000 for the same period last year.
The increase in domestic revenues resulted primarily from an increase of 10% and
15% in the number of LoJack Units sold for the three and nine months ended
November 30, 1999, respectively, as compared to the same periods 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, and by decreases in
the penetration of sales of optional alarm products.
The increase in international revenues for the three months ended
November 30, 1999 of $75,000 resulted from an increase of $460,000, or 410% in
license fees and revenues from the sale of system components, which are
generally non-recurring in nature, and a decrease of $385,000, or 16%, in sales
of and royalties on the international version of the LoJack Unit and related
products. The decrease in international revenues for the nine months ended
November 30, 1999 of $131,000 resulted from a decrease in revenues from the sale
of the international version of the LoJack Unit and related products of
$497,000, offset by an increase in revenues from license fees and the sale of
system components of $366,000.
Cost of goods sold for the three and nine months ended November 30, 1999
increased to 47% and 46%, respectively, from 46% and 44% for the same periods a
year earlier. Domestically, cost of goods sold for the three months ended
November 30, 1999 and 1998 was 46% and 45%, respectively, of related revenues.
For the nine months ended November 30, 1999 cost of goods sold was 45% of
domestic revenues as compared with 44% for the same period a year earlier. The
reason for the variance in domestic cost of goods sold was principally related
to a reduction in average revenues per LoJack unit sold resulting from volume
variable pricing discounts. International cost of goods sold decreased to 51% of
related revenues for the three months ended November 30, 1999, from 55% for the
same period a year earlier. For the nine months ended November 30, 1999,
international cost of goods sold increased to 50% of related revenues from 49%
for the same period a year earlier. Both period changes in cost of goods sold
resulted from changes in the mix of product sales and license fee revenue.
(10)
<PAGE>
During the third quarter of fiscal 2000 the Company maintained total operating
expenses at close to fiscal 1999 levels.
Systems costs and research and development increased by $180,000 and $558,000
for the three and nine months ended November 30, 1999, respectively to $484,000
and $1,479,000 from $304,000 and $921,000 for the same periods a year earlier.
Systems costs increased by $147,000 and $305,000 for the three and nine months
ended November 30, 1999 as compared with the same periods a year earlier
primarily as of a result of increases in systems and engineering salaries and
benefits and system maintenance costs. Research and development expense
increased by $33,000 and $253,000 for three and nine months ended November 30,
1999, respectively, primarily as a result of the timing of certain work related
to a redesign of the LoJack Unit and other research and development initiatives.
Marketing expense decreased by $267,000 for the three months ended November 30,
1999, to $4,506,000 from $4,773,000 for the same period a year earlier primarily
as a result of an increase in marketing salaries of $186,000 and a decrease in
media expense of $500,000. Media was more heavily weighted in the first six
months this year than in previous years. Marketing expense increased by
$2,207,000 for the nine months ended November 30, 1999 to $16,033,000 from
$13,826,000. These increases related to increases in media expense of $829,000
and an additional increase of $1,378,000 resulting from an increase 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 $146,000 and $613,000 for the
three and nine months ended November 30, 1999 and 1998, respectively to
$2,265,000 and $6,957,000, from $2,119,000 and $6,344,000 for the same periods a
year earlier. These increases were 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 and consulting fees.
Depreciation and amortization increased by $38,000 and $105,000 for the three
and nine months ended November 30, 1999, respectively, to $491,000 and
$1,370,000, from $453,000 and $1,265,000 for the same periods a year earlier.
Interest income decreased by $24,000 and $15,000 for the three and nine months
ended November 30, 1999, respectively, to $94,000 and $310,000, from $118,000
and $325,000 for the same periods a year earlier.
Interest expense decreased by $20,000 and $9,000 for the three and nine months
ended November 30, 1999, respectively, to $67,000 and $193,000, from $87,000 and
$202,000 for the same periods a year earlier, as the result of lower interest
expense on capital leases of installation vehicles.
Gain on sale of fixed assets decreased by $23,000 and $95,000 for the three and
nine months ended November 30, 1999, respectively, to $22,000 and $58,000, from
$45,000 and $153,000 for the same periods a year earlier, due to a decrease in
the number of fully depreciated installation vehicles sold during the periods in
the normal course of business.
(11)
<PAGE>
Other expense of $481,000 for the nine months ended November 30, 1999 represents
the write-off of $521,000 of advances to the Company's German licensee who was
experiencing severe financial difficulties and costs incurred related to such
advances offset partially by a $40,000 change in estimate of these related costs
during the three months ended November 30, 1999. The licensee filed for
bankruptcy in October 1999.
Gain on sale of marketable securities for the nine months ended
November 30, 1999 of $864,000 was the sale of the remaining portion of the
Company's stock in its United Kingdom licensee. For the nine months ended
November 30, 1998 the gain on marketable securities of $1,100,000 was the result
of the sale of a portion of the stock mentioned above.
The provision for income taxes increased by $143,000 for the three months ended
November 30, 1999, and decreased $831,000 for the nine months ended
November 30, 1999 for the same periods a year earlier as the result of the
change in the Company's taxable income during the respective periods. The
Company's effective tax rate remained at 39% during both periods.
As a result of the foregoing, net income increased by $226,000 for the three
months ended November 30, 1999, and decreased $1,293,000 for the nine months
ended November 30, 1999 for the same periods a year earlier.
Liquidity and Capital Resources
In the nine months ended November 30, 1999 cash and equivalents decreased by
$4,938,000. Cash flow from operations was $9,709,000, cash flow used for
investing activities was $678,000 and cash flow used for financing purposes was
$13,969,000. Cash flow from operations included net income of $7,271,000, plus
non-cash additions to net income of $2,792,000, less $864,000 related to the
sale of marketable securities, plus $481,000 of advances to a licensee and
related net costs, and increases from changes in assets and liabilities of
$29,000. The increase in cash flow from changes in assets and liabilities
includes an increase in accounts receivable of $2,129,000 which was primarily
related to the increase in domestic revenues in third quarter fiscal 2000 versus
fourth quarter fiscal 1999 and timing of certain international shipments, an
increase in prepaid income taxes of $469,000, an increase in other assets of
$4,000, and an increase in prepaid expenses of $6,000. These decreases in cash
flow were offset partially by a decrease in inventories of $1,316,000 resulting
from timing of certain international shipments and continued reduction of
inventory of the Company's current product in preparation of production of the
new version of LoJack Unit (LJU 3), increase in accounts payable of $964,000 due
to the timing of a payment to a certain inventory supplier and increases in
accrued and other liabilities of $357,000.
Cash flows used for investing activities included expenditures for property and
equipment of $1,093,000 (exclusive of additions under capital leases of
$1,149,000), purchase of a patent for $425,000, related product development
charges of $157,000, and net expenses related to the financial difficulties of a
licensee of $481,000 for the nine months ended November 30, 1999. During the
nine months ended November 30, 1999, the Company sold the remaining shares of
United Kingdom licensee stock and netted proceeds of $1,478,000.
(12)
<PAGE>
Cash flows used for financing activities included the repurchase of 1,657,000
shares of the Company's common stock during the nine months ended
November 30, 1999 for $13,067,000. Total cumulative common shares repurchased
under the Company's stock repurchase program were 6,393,600 as of
November 30, 1999. 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 January 10, 2000 there were 806,400 remaining shares authorized
for repurchase under the repurchase program.
As of November 30, 1999 the Company had working capital of $13,819,000. The
Company believes that it can meet its anticipated capital and operating
requirements for the remainder of fiscal 2000 using existing working capital,
cash flow from operations, and if necessary, the Company's $7,500,000 line of
credit, which was unused as of November 30, 1999.
The Company presently is pursuing expansion efforts in several additional
domestic jurisdictions. The Company expects that, pending receipt of necessary
governmental approvals, certain potential expansion markets may become
operational during the last quarter of fiscal 2000. The Company plans to fund
these expansions as well as other capital expenditures during fiscal 2000 using
existing working capital, cash flow from operations, and/or the line of credit.
The Company expects that it will spend approximately $750,000 on capital
expenditures (excluding assets purchased under capital lease agreements) during
the remainder of fiscal 2000.
The Company is also continuing to explore possible investment opportunities,
including, but not limited to, possible acquisitions of, or investments in,
other companies.
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.
Year 2000
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. Computer programs
and hardware that are date sensitive may recognize a date using "00" as the year
1900 rather than the year 2000. The products sold by the Company do not contain
internal date-sensitive components which would in any way effect their operation
on or beyond the date January 1, 2000.
The Year 2000 issue could cause some disruptions of internal operations,
including, among other things, a temporary inability to process transactions or
engage in normal business activities. The Company has focused its Year 2000
review in the following areas: (1) information technology ("IT") systems such as
hardware and software; (2) non-IT systems such as distribution and facility
equipment containing embedded microprocessors; and (3) the readiness of third-
parties
(13)
<PAGE>
such as suppliers and customers. An inventory of all IT and non-IT systems has
been taken and the Company believes that the appropriate testing and remediation
or replacement has been accomplished. Virtually all of the Company's critical
accounting information systems have been tested for Year 2000 compliance. Many
of the critical information systems were replaced with Year 2000 compliant
programs in the normal course of business. The Company replaced or upgraded non-
compliant IT hardware and software systems. Testing of non-IT systems and
equipment indicates that many of these systems rely on time intervals rather
than dates in their operation.
The Company implemented hardware and software upgrades to its law enforcement
infrastructure. Although the Company cannot provide absolute assurance, these
systems have been designed to prevent date field-related operation interruptions
and miscalculations. The Company also worked with the government agencies in our
areas of operation to attempt to ensure that the government systems that
communicate with the Company's law enforcement infrastructure were tested and
modified, if necessary. There can be no assurance, however, that government
agencies addressed the Year 2000 issue in a timely manner. Most suppliers and
customers who replied to our inquiries indicated that they expected to be Year
2000 compliant on a timely basis. There can be no assurance, however, that third
parties addressed the Year 2000 issue in a timely manner. Events beyond the
Company's reasonable control could adversely affect the Company's ability to
deliver its products in a timely manner. These events could include failure of
infrastructure systems, including power, heat and water; disruptions in
distribution channels; or the inability of suppliers and customers to engage in
normal business activities.
Since the century rollover on January 1, 2000, the Company has not noted any
significant disruption to its operations that could have potentially occurred as
described in the preceding paragraphs. Internal employees, whose salaries and
wages are included in normal operating expenses, have modified many of the
Company's information technology systems. Approximately $225,000 has been spent
to date out of the normal course of business. Future costs have been estimated
to be minimal.
Cautionary 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 attached hereto.
(14)
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
The Company has limited exposure to market risk due to the nature of its
financial instruments. The Company's financial instruments consist of cash and
equivalents, accounts receivable, marketable securities, accounts payable,
deposits, accrued liabilities, and capital lease obligations. The fair value of
these financial instruments as of November 30, 1999 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 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 have been 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. There have been no material changes in
the market risk to which the Company is exposed since the end of the Company's
preceding fiscal year.
(15)
<PAGE>
PART II - OTHER INFORMATION
Item 1. Not Applicable
Item 2. Not Applicable
Item 3. Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Not Applicable
Item 6a. Exhibit 27. Financial Data Schedule
b. The Company adopted a shareholder's rights plan. Reference is made
to Form 8-K dated December 1999.
(16)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LoJack Corporation
------------------
Registrant
January 14, 2000 /s/ C. Michael Daley
---------------- --------------------
Date C. Michael Daley
Chief Executive Officer
January 14, 2000 /s/ Joseph F. Abely
---------------- -------------------
Date Joseph. F. Abely
President and Chief
Operating Officer
(Principal Financial Officer)
(17)
<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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER AND NINE MONTHS ENDED 11/30/99 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> FEB-29-2000 FEB-29-2000
<PERIOD-START> SEP-01-1999 MAR-01-1999
<PERIOD-END> NOV-30-1999 NOV-30-1999
<CASH> 5,292,360 0
<SECURITIES> 0 0
<RECEIVABLES> 12,276,546 0
<ALLOWANCES> 622,303 0
<INVENTORY> 4,351,030 0
<CURRENT-ASSETS> 23,832,080 0
<PP&E> 30,172,287 0
<DEPRECIATION> 20,729,486 0
<TOTAL-ASSETS> 34,051,666 0
<CURRENT-LIABILITIES> 10,012,763 0
<BONDS> 0 0
0 0
0 0
<COMMON> 224,746 0
<OTHER-SE> 19,091,110 0
<TOTAL-LIABILITY-AND-EQUITY> 34,051,666 0
<SALES> 21,835,189 68,039,887
<TOTAL-REVENUES> 22,168,276 68,754,389
<CGS> 10,404,030 31,553,043
<TOTAL-COSTS> 10,404,030 31,553,043
<OTHER-EXPENSES> 7,745,216 25,839,498
<LOSS-PROVISION> 85,976 154,025
<INTEREST-EXPENSE> 67,204 193,406
<INCOME-PRETAX> 4,108,111 11,920,028
<INCOME-TAX> 1,603,000 4,649,000
<INCOME-CONTINUING> 2,505,111 7,271,028
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,505,111 7,271,028
<EPS-BASIC> .15 .43
<EPS-DILUTED> .15 .41
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