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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---- SECURTIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________.
Commission File Number 1-8439
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)
200 Lowder Brook Drive, Suite 1000
Westwood, Massachusetts 02090
(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 14,667,127 shares issued and outstanding of the registrant's
common stock, $.01 par value, as of August 13, 2002.
LOJACK CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
Part I. Financial Information PAGE
----
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets:
June 30, 2002 and December 31, 2001 ...................... 1
Consolidated Statements of Income:
Three and Six Months Ended June 30, 2002 and 2001 ........ 2
Consolidated Statements of Cash Flows:
Six Months Ended June 30, 2002 and 2001 .................. 4
Notes to Unaudited Consolidated Financial Statements ..... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ........................................ 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ...... 13
Item 6. Exhibits and Reports on Form 8-K ......................... 14
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
JUNE 30, DECEMBER 31,
2002 2001
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and equivalents ............................ $ 3,468 $ 5,889
Accounts receivable - net ....................... 21,422 16,207
Inventories ..................................... 6,960 5,865
Prepaid expenses and other ...................... 315 387
Prepaid income taxes ........................... 319 141
Deferred income taxes ........................... 2,244 1,942
-------- --------
Total current assets ........................ 34,728 30,431
PROPERTY AND EQUIPMENT - Net .................... 13,767 12,764
DEFERRED INCOME TAXES ........................... 2,473 2,205
OTHER ASSETS - Net............................... 2,859 2,794
-------- --------
TOTAL ........................................... $ 53,827 $ 48,194
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of capital lease
obligations .................................. $ 1,855 $ 1,539
Accounts payable ................................ 11,342 6,689
Current portion of deferred revenue ............ 3,559 3,086
Accrued and other liabilities ................... 1,640 1,288
Customer deposits ............................... 1,639 1,635
Accrued compensation ............................ 2,269 1,835
-------- --------
Total current liabilities ................... 22,304 16,072
ACCRUED COMPENSATION ............................ 613 747
DEFERRED REVENUE ................................ 11,650 10,660
CAPITAL LEASE OBLIGATIONS........................ 1,704 1,038
STOCKHOLDERS' EQUITY:
Common stock - $.01 par value; authorized,
35,000,000 shares; issued, 23,330,161 and
22,700,281 shares at June 30, 2002 and
December 31, 2001, respectively .............. 233 227
Additional paid-in capital ...................... 62,791 61,530
Retained earnings ............................... 33,234 33,123
Treasury stock, at cost, 8,663,034
and 7,995,840 shares of common stock at
June 30, 2002 and December 31, 2001,
respectively ................................. (78,702) (75,203)
-------- --------
Total stockholders' equity ................. 17,556 19,677
-------- --------
TOTAL............................................ $ 53,827 $ 48,194
======== ========
See notes to unaudited consolidated financial statements.
1
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
THREE MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001
------------ ------------
(Unaudited)
Revenues ..................................... $ 30,419 $ 24,392
Cost of goods sold:
Product and installation costs ............... 15,024 11,888
Systems costs (exclusive of depreciation
shown below) .............................. 586 340
------------ ------------
Total ..................................... 15,610 12,228
Gross margin ................................. 14,809 12,164
------------ ------------
Costs and expenses:
Research and development...................... 409 425
Sales and marketing........................... 9,675 4,905
General and administrative.................... 4,106 3,199
Depreciation and amortization................. 552 473
------------ ------------
Total...................................... 14,742 9,002
------------ ------------
Operating income ............................. 67 3,162
------------ ------------
Other income (expense):
Interest income............................... 24 116
Interest expense.............................. (59) (62)
Gain on sale of fixed assets.................. 12 47
------------ ------------
Total...................................... (23) 101
------------ ------------
Income before provision
for income taxes........................... 44 3,263
Provision for income taxes.................... 16 1,207
------------ ------------
Net income ................................... $ 28 $ 2,056
============ ============
Earnings per share:
Basic......................................... $ 0.00 $ 0.13
============ ============
Diluted....................................... $ 0.00 $ 0.13
============ ============
Weighted average shares:
Basic......................................... 14,669,147 15,484,844
============ ============
Diluted....................................... 14,681,784 16,076,446
============ ============
See notes to unaudited consolidated financial statements.
2
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001
------------ ------------
(Unaudited)
Revenues ..................................... $ 57,819 $ 47,637
Cost of goods sold:
Product and installation costs ............... 28,529 23,829
Systems costs (exclusive of depreciation
shown below) ........................... 1,081 794
------------ ------------
Total ..................................... 29,610 24,623
Gross margin ................................. 28,209 23,014
------------ ------------
Costs and expenses:
Research and development...................... 856 1,013
Sales and marketing .......................... 18,969 10,015
General and administrative ................... 7,219 7,537
Depreciation and amortization ................ 1,018 1,021
------------ ------------
Total ..................................... 28,062 19,586
------------ ------------
Operating income ............................. 147 3,428
------------ ------------
Other income (expense):
Interest income .............................. 47 241
Interest expense ............................. (108) (135)
Gain on sale of fixed assets ................. 91 109
------------ ------------
Total ..................................... 30 215
------------ ------------
Income before provision
for income taxes .......................... 177 3,643
Provision for income taxes ................... 66 1,348
------------ ------------
Net income ................................... $ 111 $ 2,295
============ ============
Earnings per share:
Basic ........................................ $ 0.01 $ 0.15
============ ============
Diluted ...................................... $ 0.01 $ 0.14
============ ============
Weighted average shares:
Basic ........................................ 14,707,515 15,519,529
============ ============
Diluted ...................................... 14,770,027 16,147,567
============ ============
See notes to unaudited consolidated financial statements.
3
LOJACK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001
--------- ---------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 111 $ 2,295
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred revenue recognized..................... (2,411) (1,021)
Deferred revenue additions...................... 3,874 4,358
Depreciation and amortization................... 2,046 2,170
Provision for doubtful accounts................. 341 (14)
Deferred income taxes........................... (570) (2,569)
Increase (decrease) in cash from changes in
assets and liabilities:
Accounts receivable......................... (5,556) (777)
Inventories................................. (1,095) 12
Prepaid expenses and other.................. 72 339
Prepaid income taxes........................ (178) (139)
Other assets................................ (85) 113
Accounts payable............................ 4,653 (967)
Customer deposits........................... 4 1,500
Accrued and other liabilities............... 1,632 2,348
-------- --------
Net cash provided by operating activities. 2,838 7,648
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment - net....... (2,010) (1,830)
Expenditures for product development................ -- (133)
-------- --------
Net cash used for investing activities.... (2,010) (1,963)
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options........................... 1,268 100
Repayment of capital lease obligations.............. (1,019) (982)
Repurchase of common stock.......................... (3,498) (1,571)
-------- --------
Net cash used for financing activities.... (3,249) (2,453)
(DECREASE) INCREASE IN CASH AND EQUIVALENTS........... (2,421) 3,232
BEGINNING CASH AND EQUIVALENTS........................ 5,889 8,389
-------- --------
ENDING CASH AND EQUIVALENTS........................... $ 3,468 $ 11,621
======== ========
See notes to unaudited consolidated financial statements
4
LOJACK CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
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. In the opinion
of the Company, the accompanying consolidated financial 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. The
results of operations for the three and six months ended June 30, 2002 are
not necessarily indicative of the results to be expected for the full year.
On October 24, 2001, the Company's Board of Directors approved a change in
the Company's fiscal year end from the last day of February to December 31,
effective beginning December 31, 2001. Accordingly, the unaudited interim
financial statements as of and for the three and six months ended June 30,
2001 have been presented to conform to the calendar quarter presentation in
2002.
2. Change in accounting principle
Effective March 1, 2000, the Company changed its method of revenue
recognition for international license fees to comply with SEC Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"). The new method of revenue recognition records the license
fee revenue ratably over the initial term of the license, typically ten
years. For the three and six months ended June 30, 2002, the Company
recognized approximately $217,000 and $416,000, respectively, of revenue
that was included in the 2000 cumulative effect adjustment. For the three
and six months ended June 30, 2001, the Company recognized approximately
$212,000 and $424,000, respectively, of revenue that was included in the
2000 cumulative effect adjustment.
3. Supplemental cash flow information
Cash payments for interest for the six months ended June 30, 2002 and 2001
were $99,000 and $127,000, respectively. Cash payments for income taxes for
the six months ended June 30, 2002 and 2001 were $413,000 and $1,838,000,
respectively. For the six months ended June 30, 2002 and 2001 the Company
incurred capital lease obligations of $2,056,000 and $1,301,000,
respectively.
4. 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 reflect the effect of the exercise of the Company's
outstanding options (using the treasury stock method), except where such
exercises would be antidilutive.
A reconciliation of weighted average shares used for the basic and diluted
computations for the three months ended June 30, 2002 and 2001 is as
follows:
5
2002 2001
---- ----
Weighted average shares for basic ..... 14,669,147 15,484,844
Dilutive effect of stock options ...... 12,637 591,602
---------- ----------
Weighted average shares for diluted ... 14,681,784 16,076,446
=========== ===========
A reconciliation of weighted average shares used for the basic and diluted
computations for the six months ended June 30, 2002 and 2001 is as follows:
2002 2001
---- ----
Weighted average shares for basic ..... 14,707,515 15,519,529
Dilutive effect of stock options ...... 62,512 628,038
---------- ----------
Weighted average shares for diluted ... 14,770,027 16,147,567
=========== ===========
Options to purchase 3,503,020 and 3,129,280 shares of common stock at June
30, 2002 and 2001, respectively, were not included in the computation of
diluted earnings per share because the options' exercise prices were
greater than the average market price of the common stock on those dates
and, as a result, their effect would have been antidilutive.
5. Comprehensive Income
For the three and six months ended June 30, 2002 and 2001, there were no
items of other comprehensive income.
6. Segment Reporting
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 of 37%.
The following table presents information about the Company's segments for
the three months ended June 30, 2002 and 2001:
6
Domestic International
Segment Segment Consolidated
-------------- ------------- ------------
2002
----
Revenues:
Product sales $ 24,782,000 $ 3,905,000 $ 28,687,000
License fees and
system component revenues - 1,732,000 1,732,000
------------ ----------- ------------
Total revenues $ 24,782,000 $ 5,637,000 $ 30,419,000
============ =========== ============
Segment net income (loss) $ (661,000) $ 689,000 $ 28,000
============ =========== ============
2001
----
Revenues:
Product sales $ 20,507,000 $ 3,309,000 $ 23,816,000
License fees and
system component revenues - 576,000 576,000
------------ ----------- ------------
Total revenues $ 20,507,000 $ 3,885,000 $ 24,392,000
============ =========== ============
Segment net income $ 1,489,000 $ 567,000 $ 2,056,000
============ =========== ============
The following table presents information about the Company's segments for
the six months ended June 30, 2002 and 2001:
Domestic International
Segment Segment Consolidated
------------- ------------- -------------
2002
----
Revenues:
Product sales $ 48,298,000 $ 7,321,000 $ 55,619,000
License fees and
system component revenues - 2,200,000 2,200,000
------------ ----------- ------------
Total revenues $ 48,298,000 $ 9,521,000 $ 57,819,000
============ =========== ============
Segment net income (loss) $ (1,033,000) $ 1,144,000 $ 111,000
============ =========== ============
2001
----
Revenues:
Product sales $ 39,494,000 $ 7,402,000 $ 46,896,000
License fees and
system component revenues - 741,000 741,000
------------ ----------- ------------
Total revenues $ 39,494,000 $ 8,143,000 $ 47,637,000
============ =========== ============
Segment net income $ 1,454,000 $ 841,000 $ 2,295,000
============ =========== ============
7. New Accounting Pronouncements
In July 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business
Combinations" and Statement of Financial Accounting Standards No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets" SFAS 141 requires the
purchase method of accounting for business combinations initiated after
June 30,
7
2001 and eliminates the pooling of interests method. SFAS 142 requires,
among other things, the discontinuance of goodwill amortization. The
adoption of these statements on January 1, 2002 did not have any effect on
the Company's financial condition or results of operations.
In August 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale. The
adoption of this statement on January 1, 2002 did not have any effect on
the Company's financial condition or results of operations.
8. Line-of-Credit Facility
In June 2002, the Company entered into a new line-of-credit facility which
provides for up to a maximum of $10,000,000 and expires in June 2005.
Outstanding borrowings under the new line-of-credit facility bear annual
interest, payable monthly, at the bank's base rate (4.75% at June 30,
2002), or if converted at the option of the Company, based upon the LIBOR
rate plus 200 basis points (3.84% at June 30, 2002). No borrowings were
outstanding under the line-of-credit facility as of June 30, 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, a minimum ratio of total liabilities to tangible net
worth, a minimum current ratio and minimum adjusted earnings before
interest, taxes, depreciation and amortization. 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 facility.
At June 30, 2002, the Company was not in compliance with the minimum total
liabilities to tangible net worth covenant under the line-of-credit
facility. This non-compliance reflects the increase in accounts payable
balances resulting from the timing of vendor payments. The Company has
received a waiver of the loan agreement default as of June 30, 2002 from
its bank.
8
Management's Discussion and Analysis
of Financial Condition and Results of Operations
Results of Operations for the three and six months ended June 30, 2002 versus
the three and six months ended June 30, 2001
Revenues for the three and six months ended June 30, 2002 increased by
$6,027,000, or 25%, and $10,182,000, or 21%, to $30,419,000 and $57,819,000 from
$24,392,000 and $47,637,000, respectively, for the same periods a year ago.
Domestic revenues increased by $4,275,000, or 21%, for the three months ended
June 30, 2002 to $24,782,000 from $20,507,000 for the same period a year ago.
For the six months ended June 30, 2002, domestic revenues increased by
$8,804,000, or 22%, to $48,298,000 from $39,494,000 for the same period a year
ago. International revenues increased by $1,752,000, or 45%, for the three
months ended June 30, 2002, to $5,637,000 from $3,885,000 for the same period a
year ago. For the six months ended June 30, 2002, international revenues
increased by $1,378,000, or 17%, to $9,521,000 from $8,143,000 for the same
period a year ago.
Domestic revenues for the three and six months ended June 30, 2002, increased by
21% and 22%, respectively. These increases resulted primarily from volume
increases in the number of LoJack units sold. The number of LoJack units sold
for the three and six months ended June 30, 2002 increased by 21% and 23%,
respectively, as compared to the same periods a year earlier, reflecting the
success of the Company's continued advertising and marketing initiatives. The
volume increase during the three months ended June 30, 2002 resulted in an
increase in net revenue from the sale of LoJack units of $3,944,000 after a
reduction of $321,000 as a result of standard volume discounts earned by
customers. The volume increase in the six months ended June 30, 2002 resulted in
an increase in net revenue from the sale of LoJack units of $8,228,000 after a
reduction of $512,000, as a result of standard volume discounts earned by
customers. Revenues from sales of other automobile security products increased
by $331,000 and $576,000 in the three and six months ended June 30, 2002 as
compared to the same periods a year ago. Revenue recognized from the sale of
warranty products increased by $666,000 and $690,000 in the three and six months
ended June 30, 2002 as compared to the same periods a year ago. In most domestic
jurisdictions the Company sells contractual extended warranty products and
recognizes payments in revenues ratably over the term of the contract. In
certain jurisdictions the Company sells an insurance indemnity product as to
which an insurer, and not the Company, is the primary obligor on the contract at
the time of sale. The Company recognizes payments for these insurance contracts,
net of related costs, in revenues at the time of sale.
International revenues increased by $1,752,000 and $1,378,000 for the three and
six months ended June 30, 2002, respectively. These increases resulted primarily
from increased product sales to the Company's licensees in Latin America during
such periods of $1,395,000 and $1,599,000, respectively. In addition, the
Company had increased revenues of $1,058,000 and $1,042,000 for the three and
six months ended June 30, 2002, respectively, which resulted from shipments to
newly opened territories in France and Puerto Rico. These increases were
partially offset by reduced product sales of $813,000 and $1,728,000 to the
Company's South African licensee for the three and six months ended June 30,
2002, respectively due to accelerated purchases of inventory made at the end of
2001 to take advantage of year-end volume rebates. The Company granted extended
payment terms to its Argentine licensee for amounts not covered by export
insurance and deferred revenue recognition of approximately $9,000 and $285,000
for the three and six months ended June 30, 2002 in product shipments to that
licensee until payment becomes reasonably assured. Argentina is presently
experiencing difficult economic conditions and the Company is in the process of
converting existing accounts receivable into a secured long-term financing
agreement with this licensee. Revenues from the sale of products and components
of the LoJack system to international licensees generally are recognized upon
shipment to the licensee or, if later, when payment becomes reasonably assured.
9
Cost of goods sold was 51% of revenues for both the three and six months ended
June 30, 2002, compared to 50% and 52% for the three and six months ended June
30, 2001. Domestically, cost of sales remained relatively constant as both the
three and six months ended June 30, 2002 were 50% of related revenues as
compared to 49% and 50% for the same periods a year ago. Internationally, cost
of sales increased to 59% of related revenues for the three months ended June
30, 2002 from 58% for the same period a year ago. International cost of sales
for the six months ended June 30, 2002 decreased to 56% from 61% for the same
period a year ago as a result of changes in the mix of revenues generated by
royalties and license fees versus product and component sales, as well as the
mix of product sales sold to different international licensees.
Research and development expense decreased by $16,000 and $157,000 for the three
and six months ended June 30, 2002 to $409,000 and $856,000, respectively, from
$425,000 and $1,013,000 for the same periods a year earlier. The decrease for
the three months ended June 30, 2002 was attributable to $189,000 more in costs
recognized in the second quarter of 2001 due to the attainment of new product
development milestones by the Company's contract manufacturer as compared to the
second quarter of 2002, partially offset by additional personnel costs of
$151,000 incurred in the second quarter of 2002 as compared to the second
quarter of 2001 as the Company continued to prepare for future growth. The
decrease for the six months ended June 30, 2002 was attributable to $528,000
more in costs recognized in the first half of 2001 due to the attainment of new
product development milestones, partially offset by additional personnel related
costs of $127,000 as well as additional consulting and test equipment costs. The
Company does not anticipate incurring additional expense relating to achievement
of product milestones by its contract manufacturer during the remainder of 2002.
Sales and marketing expense increased $4,770,000 for the three months ended June
30, 2002 to $9,675,000 from $4,905,000 for the same period a year earlier. The
increase resulted primarily from additional media and advertising spending of
$3,135,000 in the second quarter of fiscal 2002, as well as increased sales and
marketing salaries and benefits of $1,115,000 and travel of $127,000 in support
of the Company's strategic plan for growth. In addition, the Company recorded
additional bad debt reserves of $151,000 relating primarily to the Company's
licensee located in Argentina, a country experiencing difficult economic
conditions. For the six months ended June 30, 2002, sales and marketing expense
increased $8,954,000 to $18,969,000 from $10,015,000 for the same period a year
earlier. The increase resulted primarily from additional media and advertising
spending of $6,080,000 in the first half of fiscal 2002, as well as increased
sales and marketing salaries and benefits of $2,329,000 and travel of $135,000
in support of the Company's strategic plan for growth. In addition, the Company
incurred additional bad debt reserves of $341,000 relating primarily to the
Company's licensee located in Argentina. The Company expects its profits in 2002
to be impacted by significantly higher general advertising and marketing
programs relating to the Company's existing products as well as advertising and
marketing programs relating to the introduction of the Early WarningTM system,
which is expected to be sold as an enhanced feature of the LoJack unit in late
2002.
General and administrative expense increased by $907,000 for the three months
ended June 30, 2002, to $4,106,000 from $3,199,000 for the same period a year
earlier. This increase was primarily due to increased professional fees of
$347,000, increased rent and related office expenses of $225,000, and staffing
and other expenses of $266,000 to support future growth. For the six months
ended June 30, 2002, general and administrative expense decreased by $318,000 to
$7,219,000 from $7,537,000 for the same period last year. The decrease was
primarily the result of a severance and retirement charge of $1,513,000 recorded
in February 2001 related to a management reorganization. This decrease was
partially offset by the additional costs of professional fees, increased rent
and related office costs, and staffing and other expenses incurred in the first
six months of 2002.
Other income (expense) declined by $124,000 and $185,000 for the three and six
months ended June 30, 2002 to $(23,000) and $30,000, respectively, from $101,000
and $215,000 for the same periods a year
10
earlier, primarily as a result of lower interest income due to lower interest
rates and lower cash balances available for investment.
The provision for income taxes decreased by $1,191,000 and $1,282,000 for the
three and six months ended June 30, 2002 to $16,000 and $66,000, respectively,
from $1,207,000 and $1,348,000 for the same periods a year earlier as a result
of a decrease in related taxable income. Effective tax rates remained at 37% for
all periods.
As a result of the foregoing, net income decreased by $2,028,000 and $2,184,000
for the three and six months ended June 30, 2002 to $28,000 and $111,000,
respectively, from $2,056,000 and $2,295,000 for the three and six months ended
June 30, 2001.
New Accounting Pronouncements
In July 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations" and
Statement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill and
Other Intangible Assets". SFAS 141 requires the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminates the
pooling of interests method. SFAS 142 requires, among other things, the
discontinuance of goodwill amortization. The adoption of these statements on
January 1, 2002 did not have any effect on the Company's financial condition or
results of operations.
In August 2001 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 ("SFAS 144"), "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS 144 establishes a single
accounting model for long-lived assets to be disposed of by sale. The adoption
of this statement on January 1, 2002 did not have any effect on the Company's
financial condition or results of operations.
Liquidity and Capital Resources
For the six months ended June 30, 2002 cash and equivalents decreased by
$2,421,000. The overall decrease was the result of cash provided by operating
activities of $2,838,000 offset by cash used for investing activities of
$2,010,000 and cash used for financing activities of $3,249,000.
Cash flows provided by operating activities for the six months ended June 30,
2002 of $2,838,000 were primarily attributed to net income of $111,000, the
adding back of non-cash expenses for depreciation and amortization of
$2,046,000, increases in accounts payable of $4,653,000 due to the timing of
vendor payments, and deferred revenue additions totaling $3,874,000 of which
$2,871,000 related to payments received for warranty products sold, $350,000
related to new foreign licensee agreements entered in to during the period and
$610,000 related to payments received for shipments to dealers certified by the
Company to install the LoJack unit. Revenue has been deferred on these shipments
and will be recognized when the LoJack units are installed in the consumers'
vehicles. These sources of cash were partially offset by an increase in accounts
receivable of $5,556,000 relating mainly to increased business with four
international licensees, an increase in inventories of $1,095,000 in response to
increased forecasted sales volumes, and the recognition of deferred revenue of
$2,411,000, which consisted primarily of $1,499,000 related to warranty revenue
recognized, $441,000 from the installation of LoJack units by the Company's
certified dealer installers and $416,000 of deferred international license fee
revenue recognized from the 2000 SAB No. 101 cumulative effect adjustment.
Cash flows used for investing activities included expenditures for property and
equipment for the six months ended June 30, 2002 of $2,010,000. These
expenditures were made in support of the Company's strategic plan for growth.
11
Cash flows used for financing activities during the six months ended June 30,
2002 included repayment of capital leases of $1,019,000, as well as the
repurchase of 667,194 shares of the Company's common stock for $3,498,000 made
in the first quarter of 2002. Total cumulative common shares repurchased under
the Company's stock repurchase program were 8,663,034 shares as of June 30,
2002. As of June 30, 2002, there were approximately 537,000 additional common
shares authorized for repurchase under the Company's existing repurchase
program. Management does not anticipate any share purchases during the third
quarter of 2002.
As of June 30, 2002 the Company had working capital of $12,424,000. The Company
believes that it has sufficient capital resources to meet its anticipated
capital and operating requirements for at least the next twelve months using
existing working capital and cash flows from operations, and if necessary, the
Company's $10,000,000 line-of-credit facility, which had no borrowings
outstanding as of June 30, 2002.
In June 2002, the Company entered in to a new line-of-credit facility. The new
line-of-credit provides for up to a maximum of $10,000,000 under an unsecured
line-of-credit facility which expires in June 2005. Outstanding borrowings under
the new line-of-credit facility bear annual interest, payable monthly, at the
bank's base rate, or if converted, based upon the LIBOR rate plus 200 basis
points. No borrowings were outstanding under the line-of-credit facility as of
June 30, 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, a
minimum ratio of total liabilities to tangible net worth, a minimum current
ratio and minimum adjusted earnings before interest, taxes, depreciation and
amortization. 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 facility.
At June 30, 2002, the Company was not in compliance with the minimum total
liabilities to tangible net worth covenant under the line-of-credit facility.
This non-compliance reflects the increase in accounts payable balances resulting
from the timing of vendor payments. The Company has received a waiver of the
default under the loan agreement as of June 30, 2002 from its bank.
The Company's expansion to additional international markets has generally been
achieved through licensing agreements and in the past has not required capital
investment on the part of the Company. However, in December 2001, the Company
invested $1,366,000 to obtain a 7.9% equity investment in its French licensee,
Traqueur, S.A. The Company anticipates making similar capital investments in the
future.
The Company is continuing to explore other possible investment opportunities,
including, but not limited to, possible acquisitions of, investments in, or
joint ventures with other companies.
Cautionary Statements
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. From time to time, information
provided by the Company or statements made by its employees may contain
"forward-looking" information which involves risks 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
12
differences include, but are not limited to: the continued and future acceptance
of the company's products and services; the effectiveness of the company's
marketing initiatives; 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 the Company's Annual Report on Form 10-K for the
period ended December 31, 2001.
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 at June 30, 2002
consisted of cash and equivalents, accounts receivable, accounts payable,
deposits, accrued liabilities, and capital lease obligations. The fair value of
these financial instruments as of June 30, 2002 approximated their carrying
values.
The Company's interest rate exposure is limited primarily to the effect of
interest rate changes on its investment portfolio and amounts outstanding under
its $10,000,000 variable rate line-of-credit facility. As of June 30, 2002, the
Company's cash and equivalents were $3,468,000. Due to the average maturity and
conservative nature of the Company's investment portfolio, the Company believes
that a sudden change in interest rates would not have a material effect on the
value of its investment portfolio. Amounts outstanding under the Company's
$10,000,000 variable rate line-of-credit 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 for the three and six
months ended June 30, 2002, as there were no borrowings outstanding at any time
during those periods under any line-of-credit facility.
In addition, the Company did not have any significant foreign currency exposure
as all transactions with customers and vendors were denominated in U.S. dollars.
Currently, the Company does not enter into financial instrument transactions for
trading or other speculative purposes. The Company does not have any interest in
a special purpose entity and does not have any material off balance sheet
financing transactions.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of LoJack Corporation was held on May 30,
2002. At the meeting, Ronald J. Rossi, Joseph F. Abely, Lee T. Sprague, Robert
J. Murray, Larry C. Renfro, Harvey Rosenthal, John H. MacKinnon and Robert L.
Rewey were elected to serve as directors of the Company until the next annual
meeting of stockholders or until their successors shall have been duly elected
and qualified. In addition, the 2002 Employee Stock Purchase Plan was approved.
The results of the votes were as follows:
1. Election of Directors
For Withhold Authority
--- ------------------
Ronald J. Rossi 12,314,537 1,566,471
Joseph F. Abely 12,314,362 1,566,646
Lee T. Sprague 13,670,667 210,341
Robert J. Murray 13,670,667 210,341
13
Larry C. Renfro 13,670,817 210,191
Harvey Rosenthal 13,670,817 210,191
John H. MacKinnon 13,670,817 210,191
Robert L. Rewey 13,670,817 210,191
2. Adoption of the 2002 Employee Stock Purchase Plan
For: 13,496,170
Against: 325,681
Abstain: 59,157
Broker Non-Votes: 0
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit No. Description
----------- -----------
10.1 Loan Agreement, dated June 21, 2002, among Citizens
Bank of Massachusetts and LoJack Corporation, LoJack
International Corporation, LoJack of New Jersey
Corporation, Recovery Systems, Inc., LoJack Holdings
Corporation, LoJack of Pennsylvania, Inc., LoJack
Recovery Systems Business Trust, LoJack Arizona, LLC,
Vehicle Recovery Systems Company.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
B. Reports on Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LoJack Corporation
------------------
Registrant
Date: August 14, 2002 By: /s/ Joseph F. Abely
--------------------- -------------------
Joseph F. Abely
President and Chief Operating Officer
Date: August 14, 2002 By: /s/ Keith E. Farris
--------------------- -------------------
Keith E. Farris
Chief Financial Officer
(Principal Financial Officer)
15