UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
Form 10-K
|
|
|
|
þ
|
|
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|
|
|
For the fiscal year ended December 31,
2010
|
or
|
o
|
|
Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|
Commission File
No. 001-08439
LOJACK CORPORATION
(Exact Name of Registrant as
Specified in its Charter)
|
|
|
Massachusetts
|
|
04-2664794
|
(State or Other Jurisdiction
of
Incorporation or Organization)
|
|
(IRS Employer
Identification No.)
|
|
|
|
200 Lowder Brook Drive, Suite 1000
Westwood, Massachusetts
(Address of Principal
Executive Offices)
|
|
02090
(Zip
Code)
|
(781) 251-4700
(Registrants Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
(Title of Each Class)
|
|
(Name of Exchange on Which Registered)
|
|
Common Stock, $.01 par value
Preferred Share Purchase Rights
|
|
NASDAQ Global Select Market
|
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405) is not contained herein, and will not be
contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendments to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer o
|
Accelerated
filer þ
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act) Yes o No þ
The aggregate market value of our common stock, $.01 par
value held by non-affiliates was approximately $61,343,000 as of
June 30, 2010. The aggregate market value of common stock
indicated is based upon the last traded price of the common
stock as reported by NASDAQ on June 30, 2010.
As of March 7, 2011, there were 18,388,243 shares of
our common stock issued and outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain information required in Part III of this Annual
Report on
Form 10-K
is incorporated by reference to our to be filed definitive Proxy
Statement for the Annual Meeting of Shareholders, scheduled to
be held on May 20, 2011.
LOJACK
CORPORATION AND SUBSIDIARIES
Table of
Contents
In this Annual Report on
Form 10-K,
the terms LoJack, the Company,
we, us, or our, include
LoJack Corporation and its consolidated subsidiaries unless
otherwise expressly stated or the context otherwise requires.
In as much as the calculation of shares of our 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 our best good faith estimate for purposes of
this Annual Report on
Form 10-K.
All outstanding shares beneficially owned by our executive
officers and directors or by any shareholder beneficially owning
more than 10% of our common stock, as disclosed herein, were
considered for purposes of this disclosure to be held by
affiliates.
i
PART I
OVERVIEW
LoJack is a leading global provider of technology products and
services for the tracking and recovery of valuable mobile assets
and people at risk of wandering. LoJack was organized as a
Massachusetts corporation in 1978. Our unique integration with
law enforcement agencies in the United States, together with our
proprietary technology and radio frequency, or RF, network
provide an effective means for the tracking and recovery of
stolen vehicles, motorcycles, construction equipment, cargo and
people at risk. As of December 31, 2010, LoJack products
were operational in 28 states and the District of Columbia
in the United States, Canada and 32 other countries
internationally. Our technology has led to the recovery of
300,000 vehicles globally valued at more than $5 billion.
SEGMENT
OPERATIONS
We have three separately reported business segments: North
America, International and All Other. Our North America segment
is comprised of our domestic operation, which sells products
that operate in 28 states and the District of Columbia in
the United States, as well as Boomerang, a provider of stolen
vehicle recovery products in Canada. Our International segment
sells products, licenses or owns and operates LoJack proprietary
vehicle recovery technology in 32 countries and territories
throughout Europe, Asia, Africa and Latin America and through
our wholly owned subsidiary in Italy, LoJack Italia, SRL, or
LoJack Italia. Our All Other segment includes LoJack SafetyNet
and SC-Integrity, Inc., or SCI, which are providers of
technology for the tracking and rescue or recovery of people at
risk and of valuable cargo and business information,
respectively.
For financial information about our segments, and for
information reported by geographic area, see Note 12 to our
consolidated financial statements contained herein at
Item 8.
THE
LOJACK AND BOOMERANG SYSTEMS
The
LoJack Stolen Vehicle Recovery System
The LoJack Stolen Vehicle Recovery System, or the LoJack System,
is based on RF technology. In the United States, the LoJack
System is comprised of a Registration System, which we maintain
and operate; a Sector Activation System, or SAS, and Vehicle
Tracking Units, collectively the Law Enforcement Components,
each maintained by us and operated by law enforcement officials;
and a LoJack Unit, which is installed in customers
vehicles. The LoJack System is designed to be integrated with
existing law enforcement computer systems and telecommunication
systems and procedures. If a vehicle equipped with a LoJack Unit
is stolen, its owner reports the theft to the local police
department. If the theft is reported in a jurisdiction where the
LoJack System is operational, a unique radio signal is
automatically transmitted to the LoJack Unit in the stolen
vehicle, activating its tracking signal. The Vehicle Tracking
Unit, installed in police patrol cars and aircraft in the
coverage areas (for detail see Global Presence section below),
is used by law enforcement officers to lead them to the stolen
vehicle using RF direction-finding technology to locate the
source of the tracking signal emitted from the LoJack Unit in
the stolen vehicle.
Pursuant to agreements with state and local governmental
agencies, we furnish the Law Enforcement Components to state,
county and municipal law enforcement agencies at no cost to the
agencies. The installation, testing and maintenance of the Law
Enforcement Components are primarily our responsibility. Local
law enforcement agencies operate the Law Enforcement Components
pursuant to the terms of our agreements with states, counties or
municipalities, as the case may be. The agreements with
applicable law enforcement agencies generally are for initial
terms of up to five years. Substantially all such agreements
that would have expired have been formally renewed or informally
continued upon completion of their initial term. The renewal or
extension of any such agreement may be subject to competitive
bidding. We have no legal obligation to customers to provide
ongoing systems support and maintenance or to refund any of the
purchase price if these agreements expire and are not renewed,
or are terminated either by us or by the local law enforcement
agencies.
1
We believe that the benefits to consumers from the LoJack System
include the following:
|
|
|
|
|
Approximately 90% recovery rate for cars and light trucks in the
United States;
|
|
|
|
Covert installation of the LoJack Unit which decreases the
chance of discovery and system disablement;
|
|
|
|
RF based technology that penetrates buildings and containers to
facilitate tracking and recovery of vehicles that are hidden
from view;
|
|
|
|
Direct integration with law enforcement in the United States and
in some foreign jurisdictions, which results in (a) the
automatic activation of the LoJack Unit upon a report of theft
to police, and (b) tracking and recovery by police; and
|
|
|
|
Insurance premium discounts which are mandated or offered in
some foreign markets and some states within the United States.
|
The
Boomerang System
The Boomerang System is based on RF and cellular technology and
uses tracking devices internally developed by LoJack and the
wireless network of a major Canadian telecommunications company
for locating and tracking stolen assets. The cellular coverage
area for Boomerangs tracking of stolen assets includes
most of North America; however its service area is primarily in
certain Canadian provinces. The Boomerang System consists of the
Boomerang Unit that is installed in a purchasers vehicle,
the cellular network, the Boomerang Security Center and
Boomerang Vehicle Tracking Units. If a vehicle equipped with a
Boomerang Unit is stolen, the vehicle owner is instructed to
report the theft to the local police department and the
Boomerang Security Center. When the Boomerang Security Center is
advised of a theft, it obtains the approximate location of the
Boomerang Unit via a secure connection with the cellular carrier
and then transmits a unique code causing the Boomerang Unit to
transmit a tracking signal. Upon transmission of a tracking
signal by the Boomerang Unit, a tracking vehicle, equipped with
a Boomerang Vehicle Tracking Unit, is dispatched to the
approximate location of the Boomerang Unit. In the provinces of
Ontario and British Columbia, we use third parties to perform
tracking. The Boomerang Vehicle Tracking Units use
direction-finding technology to locate the source of the
tracking signal emitted by the Boomerang Unit which, with the
integration
and/or
assistance of local law enforcement personnel, leads to the
recovery of the stolen vehicle.
THE
LOJACK ADVANTAGE OVER GPS FOR STOLEN VEHICLE RECOVERY
Unlike systems based on Global Positioning System, or GPS
technology, our technologies can penetrate buildings and
containers for the effective tracking and recovery of stolen
mobile assets hidden from view, while GPS technology is easily
jammed by such interferences. We differ from such GPS products
in that our products are covert without any visible antennas or
markings on the vehicle indicating presence of the LoJack
System. Additionally, the direct integration of the LoJack
System with law enforcement in the United States results in the
automatic activation of the LoJack Unit upon the vehicle
owners report of the theft to police and therefore no
third party intermediaries are involved in the activation or
tracking process.
PRODUCTS
AND TECHNOLOGY
LoJack®
The LoJack Unit is the component of the LoJack System that is
installed in a consumers vehicle. The LoJack Unit consists
of a very high frequency, or VHF, transponder with a hidden
antenna; microprocessor and power supply and contains a set of
secret codes unique to the LoJack Unit. The LoJack Units
transmitter is activated upon receipt of its unique activation
code from the SAS. In the United States, the entry of a stolen
vehicle report into law enforcement information systems in
jurisdictions where the LoJack System is operational causes the
SAS to broadcast the unique activation code to the LoJack Unit
in the stolen vehicle, in turn causing the LoJack Unit to
transmit a signal. An activated LoJack Unit will continue to
broadcast until it receives a properly coded message to stop.
The deactivation command is automatically sent to the LoJack
Unit upon entry of theft recovery information in the law
enforcement information system. All transmissions are made on a
nationwide radio frequency allocated by
2
the Federal Communications Commission, or FCC, for a variety of
law enforcement tracking and recovery applications, including
tracking and recovery of stolen vehicles, people at risk,
individuals of interest to law enforcement, lost or stolen cargo
and hazardous materials.
LoJack Early
Warning®,
sold as an optional component of the LoJack System, provides
early notification to a vehicle or motorcycle owner in the event
of operation by an unauthorized user. LoJack Early Warning
consists of a uniquely coded key pass and a motion sensor that
works with the LoJack Unit to monitor vehicle movement and
detect the presence of the registered owners key pass.
Should the vehicle move without the registered owners key
pass present, a communication from the LoJack Unit in the
vehicle is transmitted to the LoJack Control Center, a
company-maintained database that provides automatic notification
to the registered vehicle owner via
e-mail, text
message
and/or phone
call.
LoJack for Construction Equipment is designed specifically for
installation on heavy equipment. It functions similarly to the
traditional LoJack Unit, but has been modified to meet the
Society of Automotive Engineers design standards for use on
heavy-duty vehicles.
LoJack for Motorcycles is designed specifically for installation
in on road motorcycles. It functions similarly to
the traditional LoJack Unit, but has been modified and reduced
in size so that it can be covertly installed in the limited
space of a motorcycle. LoJack Early Warning is a standard
feature in most markets on LoJack for Motorcycles.
We also offer warranty products that may be purchased as a
supplement to the original purchasers warranty. These
warranty products include: LoJack Extended Limited Recovery
Warranty, LoJack Guarantee Plus 5000 (offered in all
U.S. states except New York) and LoJack Protection Plus
5000 (New York only). For more information on our warranty
products see the Product Warranty section below.
We license to Absolute Software, a Vancouver, British Columbia
company, or Absolute, the right to market its portable computer
theft recovery products under the brand name LoJack for
Laptops®.
When a computer with LoJack for
Laptops®
is reported stolen and subsequently connects to the internet,
the computer sends a signal to Absolutes monitoring center
to identify its location and provide certain other information.
Absolute then works with local law enforcement and internet
service providers to recover the computer.
Boomerang®
The Boomerang Unit is the component of the Boomerang System that
is installed in a purchasers vehicle. The Boomerang Unit
consists of a cellular band RF transponder with antenna,
microprocessor and power supply.
If a vehicle equipped with a Boomerang Unit is stolen, the
vehicle owner reports the theft to the local police department
and the Boomerang Security Center. When the Security Center is
advised of a theft and after a police report has been filed, the
Security Center locates the approximate location of the
Boomerang Unit via a secure connection with the cellular carrier
network and then sends a unique code causing the Boomerang Unit
to transmit a tracking signal. A tracking vehicle, equipped with
a Boomerang Vehicle Tracking Unit is dispatched to the general
area reported by the Boomerang Unit. The Boomerang Vehicle
Tracking Units use sophisticated direction-finding technology to
locate the source of the tracking signal emitted from the
Boomerang Unit. Upon location of the stolen vehicle, Boomerang
Vehicle Tracking personnel notify local law enforcement, who
recovers the vehicle.
Our BoomerangXpress product is similar in design and
functionality to our Boomerang Unit but given the price point of
the Boomerang Unit, it is generally installed in high-end luxury
vehicles while our BoomerangXpress Unit is priced to address the
needs of the mid-price vehicle market.
The Boomerang Espion and Espion Alert utilize multiple wireless
sensors, to significantly increase the effectiveness of the
Boomerang System. In the event that one of the sensors is
compromised, the remaining sensors will continue to operate and
transmit tracking data to the Boomerang Security Center or
tracking vehicle.
The Boomerang2 and Boomerang Espion Alert Units are products
that build upon the Boomerang Unit by integrating two-way
communication and diagnostics to provide automatic theft
notification by sending a tracking signal upon any unauthorized
vehicle movements. A key fob, used in connection with both
Units, contains a uniquely coded key pass and a motion sensor,
which monitors vehicle movement and detects the presence of the
3
registered owners key pass. The Boomerang2 and Boomerang
Espion Alert Units also monitor any tampering with the car
battery. Should the motion sensor detect that the vehicle is
moving without the presence of the registered owners key
pass, an automatic call is made by the Unit to the Boomerang
Security Center indicating an alarm on the customer vehicle. The
Security Center then contacts the customer to verify the status
of the vehicle. If it is determined the vehicle has been stolen,
the Security Center proceeds with the same tracking and recovery
steps as noted for the traditional Boomerang Unit.
A water resistant Boomerang Unit is designed specifically for
installation on construction equipment and marine craft. It
functions similarly to the traditional Boomerang Unit, but is
enclosed in a water resistant housing.
A portable Boomerang Unit is designed for installation in
special applications such as cargo. It functions similarly to
the traditional Boomerang Unit, but is equipped with a longer
lasting battery, enabling its operation without a connection to
an independent power source.
LoJack
SafetyNet
The LoJack SafetyNet System is comprised of a Personal Locator
Unit, or PLU, worn on the wrist of the subscriber, a Search and
Rescue, or SAR, Receiver used by public safety agencies, a
database of key information about the subscribers to assist in
the search and rescue, and training for law enforcement and
public safety agencies in the use of our technology in the
search and rescue process. The PLU constantly emits an RF signal
which can be tracked by trained search and rescue agencies using
a SAR Receiver. RF signal enables the police to pinpoint the
precise location of a missing subscriber using a handheld,
portable SAR Receiver.
SC
Integrity
We own approximately 60% of SCI. We license to SCI the use of
the LoJack brand name for its cargo and tracking recovery
solution, called LoJack
InTransittm.
LoJack
InTransittm
uses three technologies (RF, GPS and Global System for Mobile
Communication, or GSM) in combination to deliver a comprehensive
solution for the prevention, detection, investigation and
recovery of stolen cargo.
GLOBAL
PRESENCE
As of December 31, 2010, the LoJack System was operational
in 28 states and the District of Columbia in the United
States. We have available statewide coverage, defined as
coverage of at least 80% of the state population, in Arizona,
California, Connecticut, the District of Columbia, Maryland,
Massachusetts, Michigan, New Jersey and Rhode Island. We have
coverage available in major metropolitan areas, cities and high
crime areas in Colorado, Delaware, Florida, Georgia, Illinois,
Louisiana, Nevada, New Hampshire, New York, North Carolina,
Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Tennessee,
Texas, Utah, Virginia and Washington. We identify and
define coverage areas based on a qualitative analysis of
population density, new car sales and geography.
Internationally, we operate Canadas leading stolen vehicle
recovery provider, Boomerang, with sales concentrated in the
provinces of Quebec and Ontario. Our stolen vehicle recovery
technology is also operational in 32 other countries and
territories around the world. We have a licensed presence in
countries located in Latin and South America, Europe, Africa and
Asia. In 2006, we began commercial activities in Italy through a
wholly-owned subsidiary, and now have a national presence in
Italy.
BUSINESS
MODEL
North
America Segment
Our revenue in the United States is derived primarily from the
sale of LoJack Units, LoJack Early Warning Units and related
products and extended product and recovery warranties to
automobile dealers who resell the units to consumers. There are
no additional monthly fees or service contracts associated with
the sale of LoJack Units, LoJack Early Warning Units or extended
product and recovery warranties. Approximately 87% of our
revenue in the United States originates through this
distribution network of automobile dealers. Expansion into
additional markets beyond the automotive market through the
introduction of new products, such as LoJack for Construction
Equipment and LoJack for Motorcycles, leverages our existing
network and requires no additional infrastructure.
4
Approximately 4% of our revenue in the United States was derived
from the sale of LoJack for Construction Equipment units and
LoJack for Motorcycles units during the year ended
December 31, 2010.
We contract with and certify select dealers and other third
parties to install our products. In 2010, 60% of our products
sold in the United States were installed by third parties,
compared to 56% and 51% for the years ended December 31,
2009 and 2008, respectively. We monitor the quality of these
installations through an extensive quality control process.
Our revenue in Canada is derived primarily from the sale and
installation of Boomerang Espion, Boomerang Espion Alert,
Boomerang, Boomerang2 and BoomerangXpress Units and related
service contracts. Purchasers of Boomerang Units are required to
enter into a service contract with Boomerang. The terms of
service contracts offered range from 12 to 60 months and
are generally payable in full upon activation of the related
unit or renewal of a previous service contract. Customers are
also offered a monthly payment option. Approximately 17% of our
revenue in Canada is derived from the sale of Boomerang Units
through automotive accessory retailers and automobile dealers,
while the remaining 83% of revenue is derived from associated
service contracts. As of December 31, 2010, there was
approximately $8,645,000 of deferred revenue resulting from
approximately 62,000 active service contracts.
Many insurance companies based in Quebec and Ontario offer
rebates to customers who install a Boomerang Unit in their
vehicles, and in many instances, insurance companies require
installation of a Boomerang Unit in such vehicles.
Revenue from the North America segment accounted for 66%, 71%
and 67% of our consolidated revenue for the years ended
December 31, 2010, 2009 and 2008, respectively.
International
Segment
LoJack technology is operational in 32 countries and territories
outside of North America. We have developed our technology such
that the LoJack System can be used by local law enforcement, by
our licensees own security organizations, or by a
combination of both. International revenue is derived from the
sale of LoJack Units, system infrastructure components,
royalties, licensing fees and subscription and installation
services. International licensing agreements are primarily
denominated in U.S. dollars and are structured with
up-front licensing fees, which may be substantial and are
non-recurring. The agreements provide that we will supply
components and products at prices to be determined from time to
time and/or
receive royalties based upon the licensees LoJack based
revenue. Approximately 95% of our international revenue was from
the sale of LoJack Units during the year ended December 31,
2010.
At December 31, 2010, we held a 12.5% equity investment,
with a carrying value of $1,541,000, in our Mexican licensee, a
5.5% equity investment, with a carrying value of $314,000, in
our French licensee, and a 17.5% equity investment with a
carrying value of $496,000, in our Benelux licensee. In
addition, we hold less than a 10% equity interest in our
licensees in Argentina and Hong Kong, for which we have no
carrying value in our financial statements.
We have commercial operations in Italy through LoJack Italia.
Since 2005, we have invested approximately $23,000,000
(comprised of LoJack network build out and operating losses) in
LoJack Italia. We estimate this ownership will require an
additional investment of approximately $1,000,000 to $2,000,000
over the next two to three years. Based on our experience with
our current international licensees, we believe that LoJack
Italia will generate long-term profitability and value after the
investment period.
Our revenue in Italy is derived primarily from the sale and
installation of LoJack Units and related service contracts.
Purchasers of LoJack Units in Italy are required to enter into a
service contract with LoJack Italia. The terms of service
contracts offered range from 12 to 84 months and are
generally payable in full upon activation of the related unit or
renewal of a previous service contract. Customers are also
offered a monthly payment option. Approximately 64% of our
revenue in Italy is derived from the sale of LoJack Units, while
the remaining 36% of revenue is derived from associated service
contracts. As of December 31, 2010, there was approximately
$1,859,000 of deferred revenue resulting from approximately
13,000 active service contracts.
5
Revenue from the International segment accounted for 32%, 27%,
and 32% of our consolidated revenue for the years ended
December 31, 2010, 2009 and 2008, respectively.
All
Other Segment
Revenue in our All Other segment is derived primarily from SCI
and LoJack SafetyNet and accounted for 2% of total revenue in
2010. SCI revenue is derived from the sale of tracking devices
as well as subscription fees for monitoring service alerts and
activity reporting. At December 31, 2010, there was
approximately $186,000 of deferred revenue relating to SCI
subscription based services.
LoJack SafetyNet revenue is derived primarily from of the sale
of SAR Receivers, PLUs and replacement parts. In 2010, LoJack
SafetyNet continued the transition of the business model from an
order fulfillment revenue model servicing one primary customer,
to a fulfillment and service model, providing the LoJack
SafetyNet offering to caregivers and consumers for an upfront
product fee, followed by a monthly service fee. As part of this
new business model, we provide SAR Receivers directly to
participating law enforcement at no cost.
VEHICLE,
ASSET THEFT AND PEOPLE AT RISK
North
America Segment
According to the most recent Federal Bureau of Investigation
Uniform Crime Report for 2009, a motor vehicle is stolen in the
United States every 40 seconds. In 2009, total motor vehicle
theft in the United States was approximately 800,000 vehicles,
with an estimated value of $5.2 billion. Most auto theft is
carried out by sophisticated thieves, rather than amateur
thieves. Thieves typically steal vehicles because of the profit
potential of the vehicles components on the black market.
Also, in the United States, the national recovery rate for
stolen vehicles has declined from a high in 1999 of 67% to 57%
in 2009. The National Insurance Crime Bureau also reported that
motorcycle theft totaled 56,093 stolen motorcycles in the United
States in 2009. This represents a loss of over $370 million
to motorcycle owners and the insurance industry.
According to Statistics Canada, a federally commissioned
statistics bureau, more than 108,000 vehicles were stolen in
Canada during 2009. Such crimes cost auto insurers and their
policyholders approximately CAD$419 million in 2009. In
addition, when considering emergency response, court, policing,
legal and
out-of-pocket
expenses, such as deductibles, the annual cost of auto theft in
Canada approached $1 billion.
International
Segment
Interpol, which provides services for the law enforcement
community to optimize the international effort to combat crime,
indicated in a recent report that more than 6.2 million
vehicles were stolen globally in 2009, which represented a 34%
increase over the number of reported stolen vehicles globally in
2008.
All
Other Segment
In the cargo security market, it is estimated that $10 to
$30 billion in merchandise is stolen from cargo ships,
trucks, ports, railroads and highways annually in the United
States.
It is estimated that 5.3 million Americans suffer from
Alzheimers disease and that there will be between 11 and
16 million Americans affected by 2050. Wandering, the most
life-threatening behavior associated with Alzheimers
disease, affects 59% of such patients, and 45% of the cases
where the person is not located within 24 hours end in
death. Additionally, Autism afflicts one in every 110 children
in the United States and children with Autism are prone to
wandering.
SALES AND
MARKETING
North
America Segment
Our sales and marketing approach in the United States focuses on
the automotive channel, through which automobile dealers offer
the LoJack Unit as an option for both their new and used car
sales. We market LoJack Early Warning and extended warranties
through automobile dealers. We market our products to these
dealers primarily
6
through a national sales force, supplemented by outside sales
agents, that routinely visits new and used car dealers to
educate and train dealership personnel on the benefits of the
LoJack System and related products. We have developed and are
investing in new sales programs to address the need that
automobile dealers have to generate new sources of sustained
income. Our new sales programs are being rolled out to targeted
dealers with the specific goal of driving deeper penetration,
increasing profitability and developing stronger long-term
relationships with our dealer base. We are developing
arrangements with major finance companies to help improve the
availability of credit for the end consumers to ensure that the
LoJack Unit and related products can continue to be financed as
a part of the purchase price of the vehicle.
The LoJack brand has an aided and unaided brand awareness of
approximately 87% in the United States according to a brand
study performed in 2008. This brand awareness is beneficial to
all existing sales channels, including automotive, commercial,
motorcycle and laptops and may prove beneficial to new channels
we may enter in the future.
To supplement installation efforts, we have cooperative
arrangements with third parties specializing in after-market
sales and installation of vehicle accessories to increase
penetration in existing markets in a cost effective manner.
We also market LoJack for Construction Equipment directly to
owners of commercial equipment and to consumers using (a) a
sales force that calls on construction equipment owners and
manufacturers, (b) telemarketing representatives, and
(c) direct mail.
We market LoJack for Motorcycles through the motorcycle dealer
channel.
We license the LoJack brand name to Absolute for use in
connection with theft recovery products for laptop computers.
All sales and marketing efforts associated with the LoJack for
Laptops product are controlled and funded by Absolute.
Our Canadian sales and marketing efforts are concentrated in
Quebec because this market represents the most populated region
of the country and provides the greatest concentrated channel
for our Boomerang products. It is also where we have maintained
a direct sales force. In Quebec, we partner with insurance
companies that mandate a stolen vehicle recovery system as a
condition for insurance coverage on high priced or high risk of
theft vehicles. We maintain a direct sales force in Quebec,
which works directly with insurance companies, insurance brokers
and local resellers of the Boomerang Tracking System, including
the Boomerang Unit, Boomerang2, and Boomerang Espion and Espion
Alert. We also sell these products directly to consumers through
two company-owned distribution centers. Subscribers in Quebec
accounted for 75% of our total subscribers in Canada in 2010.
International
Segment
In territories where our licensees operate, the business, sales
and marketing efforts are typically controlled and funded by our
international licensees and their respective management teams.
In Italy, our sales and marketing approach is focused on the
automotive channel, fleet operators and participants in the
insurance segment. In the automotive channel, LoJack Units,
LoJack Early Warning and extended warranties are offered as
options on new and used vehicle sales. We use a direct sales
force, supplemented by outside sales agents, to visit automotive
dealerships and to educate and train dealership personnel on the
benefits of the LoJack System and related products. We engage
with insurance companies, agents and brokers to provide premium
discounts and to facilitate the distribution of LoJack products
and services. We continue to use public relations campaigns and
cooperative advertising initiatives with certain car dealers to
promote consumer awareness of our product in Italy.
All
Other Segment
SCIs sales and marketing efforts are concentrated in the
United States and target customers who transport high value
cargo by truck or rail. In addition, SCIs sales efforts
target companies who want to track valuable business information
and clinical data between multiple locations.
7
Our sales and marketing efforts for LoJack SafetyNet are
concentrated in select markets the United States, specifically
major metropolitan areas within Massachusetts, Florida and
Pennsylvania, where we are expanding our network of law
enforcement and public safety agencies that provide the tracking
and rescue of people at risk. We are marketing the LoJack
SafetyNet offering directly to caregivers of those with
Alzheimers, autism and other cognitive disorders.
GROWTH
STRATEGY
Our goal is to strengthen our leadership position in the markets
for vehicle and mobile asset tracking and recovery, while
building our business in newer markets such as cargo and people
at risk. We plan to accomplish this through new product
development, market expansion, relationships with new and
established distributors and the global development of the
LoJack brand. In addition, if appropriate, we may make
acquisitions as a means to add channels of distribution for the
LoJack brand or as a way to acquire new technology which could
be sold through our existing channels of distribution.
North
America Segment
Our growth strategy in North America is to use internal
resources and partnerships with third parties to increase unit
sales and profitability in the automotive, motorcycle and
commercial channels, develop new alternative channels, and
develop and introduce new products to leverage our strong brand
recognition and reputation for tracking and recovering.
Since late 2007, changes have taken place in the United States
automotive dealer network, including overall contraction of the
channel, as well as a decrease in the profitability per car sold
and a decrease in the revenue generated from service. We have
worked to reposition our business within the automotive channel
in the United States given these changes. We have developed and
are investing in new sales programs to address the need that
automobile dealers have to generate new sources of sustained
income. We are strategically restructuring our relationships
with targeted dealers to make it easier for them to sell our
solutions, increase their profits and create a new business
model. To this end, we are developing arrangements with major
finance companies to help improve the availability of credit for
consumers to ensure that the LoJack Unit and related products
can continue to be financed as a part of the purchase price of
the vehicle. We are also implementing a more robust system
interface with our dealers and are offering expanded services to
our dealers to generate higher penetration rates and stronger
long term relationships. We will continue to expand our varied
distribution and installation programs to sell and install
LoJack Systems more cost effectively.
As of December 31, 2010, the LoJack System operated in
28 states and the District of Columbia, covering about
two-thirds of the population in the United States. We will
expand into additional markets as they become commercially
feasible.
Our Canadian growth strategy focuses on sales and marketing
efforts in Quebec. We are planning to introduce the LoJack
technology in Quebec in 2011. We intend to continue to develop
relationships with insurance companies to maintain and extend
mandates for the LoJack or Boomerang System as a condition for
consumers to obtain insurance coverage and to further educate
insurance companies and insurance brokers about our services. We
plan to maintain a direct sales force in Quebec that works with
automotive accessory retailers and automobile dealers who sell
and install LoJack and Boomerang products. We intend to continue
to utilize our two distribution centers, which sell and install
Boomerang Units and to install LoJack units in vehicles once the
technology is introduced in the Quebec market.
International
Segment
Our international growth strategy is to drive more aggressive
unit sales growth in countries where the LoJack System presently
operates, by leveraging strategic relationships with our
licensees, insurance companies and automobile manufacturers. We
intend to drive unit sales growth through existing licensees by
helping them develop their business models and expand their
system infrastructure. In addition, we expect to expand into new
geographic markets. From time to time, we may make direct
strategic investments in international licensees, some of which
may be substantial, in order to enable them to gain market
share. Our investment strategy has focused on those
8
markets which we believe represent the best opportunities for
significant revenue generation or markets that we can positively
impact market penetration and revenue growth.
Our growth strategy is to target international markets in which
the combination of new vehicle sales, population density and
incidence of vehicle theft is high. Market expansion may be in
the form of (a) licensing the use of the LoJack System
technology,
and/or
(b) making strategic investments or acquisitions.
We have a common global platform which utilizes the same basic
unit to operate on the varying global radio frequencies used for
stolen vehicle recovery. This common platform has contributed to
growth in our international business due, in large part, to
reduced product costs achieved through manufacturing
efficiencies.
In Italy, our growth strategy is to use our internal and
external sales and marketing resources to penetrate the stolen
vehicle recovery market through the automotive dealership
channel, automobile manufacturers, fleet operators and
participants in the insurance segment.
Our International segment headquarters is located in Dublin,
Ireland. Our subsidiary LoJack Equipment Ireland Limited, or
LoJack Ireland, supports business development, administrative
and distribution activities for our International segment and
provides nearby support to our European operations.
All
Other Segment
SCIs growth strategy focuses on the expansion of its
nationwide sales efforts and targets companies who transport
valuable cargo by truck or rail in the United States as well as
companies that want to track the movement of valuable business
information and clinical data between multiple locations.
LoJack SafetyNets growth strategy focuses on creating
consumer awareness of our technology to assist in the search and
rescue process for people at risk in select markets in 2011.
Prior to entering each such market, we plan to identify and
engage with prospective public safety agencies, educate those
agencies about our product, obtain commitments from them to
provide search and rescue services, and develop the market
through public relations and awareness campaigns.
PRODUCT
DEVELOPMENT
We concentrate our research and development activities on
enhancing our proprietary stolen vehicle recovery network and
creating new products that meet market needs for tracking and
recovery of valuable assets. Our product development efforts
utilize our knowledge of law enforcement processes and systems
to provide products that integrate into law enforcement
operations and facilitate the tracking and recovery or rescue
processes. Our engineering staff develops products either
internally or in conjunction with third parties.
Our core LoJack Unit provides a common platform for both
domestic and international operations by utilizing the same
basic unit to operate on various radio frequencies used in the
countries where our technology is utilized for stolen vehicle
recovery. In the fourth quarter of 2009, we introduced the next
generation LoJack Unit. The next generation self-powered LoJack
Unit is based on a newly developed proprietary power management
protocol. This self-powered unit does not draw any power from a
vehicles battery or electrical system, which makes it well
suited for the vehicles of today and the future, including
hybrid and electric cars. Additionally, this next generation
solution can be installed in more locations inside a vehicle,
which makes the LoJack Unit even more covert. This is
particularly important in countries in Latin America and in
Africa where theft rates are especially high. Lastly, the
installation process is simpler and thus more efficient for our
technicians, dealers who are certified to install such devices
and our global licensees and their installation partners.
We coordinate the research and development efforts for our North
America and International segments in order to offer new
products that meet market needs for the tracking and recovering
of stolen mobile assets.
Costs for product development are expensed as incurred and
include salaries, fees to consultants, and other related costs
associated with the development of new products. Product
development expenses totaled $6,162,000, $6,994,000 and
$7,290,000 for the years ended December 31, 2010, 2009 and
2008, respectively. A portion of our product development efforts
has been outsourced to third parties. The contracts with third
parties require payments based upon completion of defined
milestones. Expenses related to milestone achievements, which
are expensed to
9
operations as the milestones are achieved, are included in the
above-mentioned expenses, and were not material for the periods
presented.
GOVERNMENT
REGULATION AND APPROVAL
North
America Segment
The FCC-allocated frequency used by the LoJack System in the
United States is set aside for nationwide use by state and local
law enforcement and public safety agencies for stolen vehicle
recovery, the tracking and recovery of stolen or missing cargo
and hazardous materials, the tracking and rescue of people at
risk and people of interest to law enforcement when established
boundaries are violated, automatic notifications of vehicle
fires or collisions, and carjacking alerts. Law enforcement and
public safety agencies in jurisdictions where we operate have
been granted authority by the FCC to use this frequency.
In connection with our domestic operations, we must obtain the
cooperation of law enforcement or public safety agencies for
implementation of the LoJack System before sales of LoJack Units
may commence in a given jurisdiction. This process may be time
consuming and costly and is subject to considerations generally
affecting the process of governmental decision-making. In some
jurisdictions, governmental participation may be terminable at
the convenience of the executive or legislative body. Any such
termination could have a material adverse effect on future sales
in such jurisdictions.
If we 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 us additional delay and expense. To date, we
have not sought to charge law enforcement agencies for the Law
Enforcement Components and do not expect to do so in the near
future.
The Boomerang tracking beacon operates on an unlicensed
frequency and does not require specific government approval.
Tracking of stolen Boomerang equipped vehicles is performed by
our personnel or by private parties under contract with us.
Although specific governmental licensing and approval are not
required, once a Boomerang equipped stolen vehicle is located by
our tracking team, we rely on local law enforcement agencies for
the actual recovery. Establishing and maintaining a good
relationship with law enforcement agencies is important to our
business.
The planned expansion of the LoJack System technology into
Canada requires approval by Industry Canada of equipment and
authorization from Industry Canada for LoJack to transmit in
Canada on the same radio frequency allocated by the FCC for the
LoJack System in the United States. The necessary equipment
approvals have been obtained, and LoJack has received temporary
low power frequency authorization for system installation and
testing. We anticipate that we will receive full power broadcast
authority region by region in Canada as we expand our Canadian
RF operations.
International
Segment
Our international licensees and LoJack Italia are each subject
to government regulation and approval risks similar to those in
our North America segment.
All
Other Segment
In August 2008, the FCC granted us a Rule and Order in response
to our 2005 petition to use our existing frequency, which was
previously limited to stolen vehicle recovery, for the tracking
and recovery of stolen or missing cargo and hazardous materials,
the tracking and rescue of people at risk and people of interest
to law enforcement when established boundaries are violated,
automatic notifications of vehicle fires or collisions, and
carjacking alerts. As a result of this ruling, we are able to
leverage our technical infrastructure and extend our integration
with law enforcement and public safety agencies beyond stolen
vehicles to include the other diverse applications. This Rule
and Order complements our efforts to diversify the LoJack
business, including the introduction of LoJack SafetyNet and our
efforts to penetrate the cargo space, through our investment in
SCI.
10
PRODUCT
WARRANTY
North
America Segment
LoJack Parts & Labor Warranty. We
warrant to original purchasers that the LoJack Unit and LoJack
Early Warning will be free from defects in material or
workmanship for a period of two years from the date of
installation. If the product proves to be defective in material
or workmanship within that period, we will, at our option,
either replace or repair the product.
LoJack Limited Recovery Warranty. We also
warrant to original purchasers of LoJack Units that if their
LoJack equipped vehicle is stolen and reported to police in a
covered jurisdiction within two years of installation and not
recovered within 24 hours from the time that the theft is
reported to the police, we will pay the consumer an amount equal
to the full purchase price paid for the LoJack Unit up to a
maximum of $695 (up to $995 if the consumer also purchased
LoJack Early Warning). For an additional charge, the original
purchaser of the LoJack Unit can elect to extend the warranty
period from two years to a period equal to the time they own
their LoJack equipped vehicle, not to exceed seven years.
LoJack Guarantee Plus 5000 (sold in all U.S. states in
which we do business other than New
York). Consumers may purchase an additional five
year warranty in which we, or in most jurisdictions an
independent third party insurer, warrant to original purchasers
of LoJack Units that, if the vehicle becomes a total loss due to
theft, or is not recovered within 30 days from the time the
theft is reported to the police, the consumer may receive up to
$2,500 to cover theft-related expenses plus up to an additional
$2,500 towards the purchase or lease of a replacement vehicle if
the consumer purchases the replacement vehicle from the original
dealer. We have insured the risk relating to these warranty
claims with an independent third party provider.
LoJack Protection Plus 5000 (sold in New York State
only). Certain dealers sell LoJack Units with an
additional five year certificate in which an independent third
party insurer guarantees to original purchasers of LoJack Units
that, if the vehicle becomes a total loss due to theft or is not
recovered within 30 days from the time the theft is
reported to the police, the consumer may receive up to $2,500 to
cover theft-related expenses such as insurance deductible,
substitute vehicle rental, airfare if the vehicle is stolen more
than 100 miles away from home, or nightly accommodations
and meals. In addition, the consumer may be eligible to receive
$2,500 towards the purchase or lease of a replacement vehicle if
the consumer purchases the replacement vehicle from the original
dealer.
Boomerang Parts & Labor Warranty. We
warrant to original purchasers of Boomerang tracking systems
that the units will be free from defects in material or
workmanship for a period of two years from the date of purchase.
A one-year limited warranty on parts and labor applies to
BoomerangXpress Units. If the product proves to be defective in
material or workmanship, during such period, we will, at our
option, replace or repair the product or reimburse the purchase
price paid.
Boomerang Limited Recovery Warranty. We
warrant to purchasers of Boomerang tracking systems that if a
Boomerang equipped vehicle is stolen and not recovered within
60 days of the reported theft, we will pay the consumer an
amount equal to the actual purchase price of the unit, the
installation fees and service fees for the current contract
term, up to a maximum of CAD$1,000 for the Boomerang tracking
systems and CAD$2,000 for the Boomerang tracking systems with
automatic theft notification. For the BoomerangXpress Units we
will offer the consumer a new unit, including installation,
during such period.
All
Other Segment
SCI warrants its hardware devices to be free of defects in
materials or workmanship for a period of one year after date of
purchase. All external batteries, cases or wiring provided by
SCI as part of an assembled device are warranted for a period of
30 days from date of purchase. Any hardware item covered by
SCIs warranty and found to be defective during the
warranty period will be repaired or replaced at SCIs
discretion.
We warrant to consumers that the SafetyNet PLU will be free from
defects in material, workmanship or design for a period of one
year from the date of purchase. If the product proves to be
defective in material, workmanship or design within that period,
we will replace the PLU. Under the SafetyNet warranty, our
maximum liability may not exceed $500.
11
PATENTS,
TRADEMARKS AND LICENSES
North
America Segment
Our strategy regarding intellectual property in our North
America segment is multifaceted. We apply for trademarks and for
patents for our inventions whenever appropriate. We protect
certain intellectual property as trade secrets. We are actively
involved in protecting our intellectual property and have
undertaken administrative and legal measures against companies,
which, in our opinion, have infringed on our rights.
We hold a patent portfolio that covers vehicle tracking,
security and recovery technology. The portfolio includes United
States Patent Nos. 5,917,423, 6,229,988B1 and 6,522,698B1 which
expire in 2015, 2018 and 2017, respectively, each of which
covers portions of the LoJack System. Each of these patents adds
to the predecessor patents by adding additional functionality
that we believe yields a competitive advantage. Additional
patent applications, including the patent covering LoJack Early
Warning, are pending. In addition, we hold unpatented trade
secrets that are integral to the operation of the LoJack System.
We believe that protection of the unpatented intellectual
property will continue beyond the expiration of the stated
patents.
In Canada we hold a patent portfolio that covers location,
tracking and recovery using an existing network, vehicle
location using a kinetic network, our two-way tracking beacon
and anti-jamming technology. The portfolio includes United
States Patent No. 5,895,436 which expires in 2016
(corresponding to Canadian Patent No. 2,203,302 which
expires in 2017), United States patent No. 7,091,835B2
which expires in 2023 and Canadian Patent No. 2,395,843
(corresponding to United States Patent 6,498,565B2) which
expires in 2021.
Although management believes the patents and trade secrets have
value, there can be no assurance such patents and trade secrets
will effectively deter others from manufacturing and marketing a
competitive stolen vehicle recovery system.
The LoJack name and logo are registered trademarks in the United
States and many other countries. We believe that the LoJack
trademark and other trademarks have sufficient recognition to
give us a competitive advantage.
We have registered or filed for the registration of our
trademarks Boomerang, Boomerang2, Boomerang & Design
(logo), BoomerangXpress, Boomerang Espion and Boomerang Espion
Alert in Canada. We believe these trademarks have sufficient
recognition to give us competitive advantage in the Canadian
market.
We license to Absolute the use of our trademark for their
consumer mobile device theft recovery and data protection
products which are marketed under the name LoJack for
Laptops®.
We have a registered trademark for LoJack for
Laptops®
in several jurisdictions.
International
Segment
We hold patents corresponding to United States Patent Nos.
5,917,423, 6,229,988B1 and 6,522,698B1 in a number of
jurisdictions. Additional patent applications corresponding to
pending United States applications are pending in various
countries where we or our licensees either currently do business
or intend to do business. In addition, we protect
internationally the unpatented trade secrets that are integral
to the operation of the LoJack System. We believe that
protection of the unpatented intellectual property will continue
beyond the expiration of the stated patents, and we license
those patents and our trade secrets to our international
licensees.
The LoJack name and logo are registered trademarks in many
countries internationally.
All
Other Segment
LoJack SafetyNet, Inc. and SC-Integrity, Inc. have unpatented
intellectual property which they believe is valuable to their
respective businesses which they protect as trade secrets.
12
COMPETITION
North
America Segment
We believe that we have several competitive advantages in the
United States, including our proprietary RF technology and
two-way tracking beacon, our distribution networks, our
distributed installation capacity, our well-known brand and our
integration with law enforcement. Our RF technology is proven to
be effective for the tracking and recovery of stolen vehicles
and mobile assets. We hold a patent portfolio that covers
vehicle tracking, security and recovery. We have developed a
network in the United States that would be very expensive for a
competitor to replicate. We have an established distribution
network in the automotive, motorcycle and construction channels
in the United States. Additionally, in the United States, we
have a distributed installation capacity which allows us to go
to the customer, rather than requiring the customer to come to
us. Based on a brand study performed in 2008, we have a
well-known brand with an aided and unaided brand awareness of
approximately 87% in the United States, which provides us a
strong competitive advantage. The LoJack System is directly
integrated with law enforcement in the United States and, as a
result, we have a detailed understanding of law enforcement
systems and procedures. We are unaware of any competitor who
provides a system capable of being operated or actively
monitored exclusively by law enforcement agencies. We believe
these competitive advantages present substantial barriers to
competitive entry into our existing markets.
We market the LoJack System and our Boomerang products as stolen
vehicle recovery devices. Our management believes, however, that
makers of auto theft prevention devices and GPS devices view the
LoJack System as competitive, and, consequently, we face
competition from companies that sell vehicle security and theft
prevention devices. Some of the competitors and potential
entrants into the vehicle tracking market have greater resources
than we do. In addition, there can be no assurance that a
competitor will not develop a system of theft detection or
recovery which would compete with or be superior to the LoJack
System.
We believe that we face competition in both the United States
and Canada from companies selling GPS products, technologies
offering concierge types of services, vehicle alarms and third
party warranty and insurance products; not because the products
are comparable to the products we offer, but because they are
competing for the same available consumer funds in the
automobile security products after-market space. Several
competitors or potential competitors are marketing or have
announced the development of products, including those that are
based on GPS technology, which claim to have stolen vehicle
tracking features that may compete directly with the LoJack
System. To our knowledge, none of these products are directly
integrated with law enforcement systems or operated and
monitored exclusively by law enforcement agencies, as is the
LoJack System.
We believe that our Boomerang products and technology have
several competitive advantages including proprietary cellular
tracking and location technology and established relationships
with insurance companies in Quebec.
International
Segment
We believe that we have several competitive advantages in the
International segment, including an established network though
our licensees and wholly owned operations in Italy. Several
competitors or potential competitors are marketing or have
announced the development of products, including those that are
based on RF technology, cellular technology, GPS technology or
some combination of these technologies, which claim to have
stolen vehicle tracking features that may compete directly with
the LoJack System in our International segment. In some
instances, competitors have a market share comparable or larger
than that of our licensees. The competitive environment in
regions with relatively high rates of auto theft, such as many
countries in South America and parts of Africa, is generally
more intense than in regions with lower rates of theft.
Competition in Europe has become more intense, with many
competitors offering stolen vehicle tracking devices that
utilize cellular and GPS technologies. In addition, certain
competitors have established relationships with automobile
manufacturers to promote or incorporate their product offerings.
13
All
Other Segment
We believe SCI and LoJack SafetyNet face competition from
companies selling GPS and cellular phone systems which market
themselves as solutions for cargo tracking and tracking and
rescuing people as a service offering.
CONTRACT
MANUFACTURING ARRANGEMENTS
We have a contract manufacturing arrangement for the LoJack Unit
and other LoJack System components sold in the North America and
International segments with Celestica Inc., and Plextek Limited
(which subcontracts the physical manufacturing to Clarion
Malaysia). We believe that several companies have the capability
to manufacture LoJack Units.
INVENTORY
We generally seek to maintain a
75-day
domestic and international supply of LoJack Units, which we
believe is in line with current sales levels and is sufficient
to fulfill orders.
We assemble the Boomerang Units in our own facility. We maintain
a supply of inventory, of which, as of December 31, 2010,
23% was raw materials, 29% was work in process and 48% was
finished goods.
We fill orders as they are received and maintain no order
backlog.
We maintain an inventory of certain LoJack System Law
Enforcement Components beyond our current requirements in order
to facilitate expansion into additional markets.
Seasonality
We generally record the sale of a LoJack Unit and recognize
revenue when it is installed or delivered to our customer (i.e.,
the dealership, or licensee). See the Overview
section in Item 7 for additional discussion of revenue
recognition practices.
We manage our production schedule based on a number of factors,
including domestic sales volume trends (i.e., units sold by
dealerships to their customers at retail) and orders from our
licensees. In the past, we have experienced some seasonal
fluctuation in the business, primarily with respect to the
International segment, with sales in many of our international
markets tending to be higher in the fourth quarter of the year
to meet demand caused by insurance mandates. First quarter sales
have tended to be the lowest. As a result, revenue and operating
results for the first quarter typically have been lower than
other quarters.
EMPLOYEES
As of February 2011, we had a total of 624 full-time
employees, 557 of whom were working in the North America
segment, 37 of whom were working in the International segment
and 30 of whom were working in the All Other segment.
INTERNET
ADDRESS AND SEC REPORTS
We maintain a website with the address www.lojack.com. We are
not including the information contained on our website as a part
of, or incorporating it by reference into, this Annual Report on
Form 10-K.
We make available free of charge through our website our Annual
Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and amendments to these reports, as soon as reasonably
practicable after we electronically file such material with, or
furnish such material to, the Securities and Exchange
Commission, or the SEC. We also include our corporate governance
guidelines, certain policies and the charters for each of the
major committees of our board of directors on our website and
intend to update these documents if amended as soon as
reasonably practicable. You may read and copy any materials we
file with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, DC 20549. You may obtain
information on the operation of the Public Reference Room by
calling the SEC at
1-800-SEC-0330.
The SEC maintains an internet site that contains reports, proxy
and information statements, and other information regarding
issuers that file electronically with the SEC, and the address
of that site is www.sec.gov.
14
EXECUTIVE
OFFICERS OF THE REGISTRANT
Information concerning our executive officers is set forth below.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Title
|
|
Richard T. Riley
|
|
|
54
|
|
|
Chairman, President and Chief Executive Officer
|
Timothy P. OConnor
|
|
|
46
|
|
|
Executive Vice President and Chief Financial Officer
|
Paul J. Weichselbaum
|
|
|
53
|
|
|
Executive Vice President
|
Steven G. Schlerf
|
|
|
58
|
|
|
Senior Vice President, Order Fulfillment
|
Kevin M. Mullins
|
|
|
56
|
|
|
Senior Vice President and General Manager (U.S. Automotive)
|
Thomas M. Camp
|
|
|
47
|
|
|
Senior Vice President and General Manager (International)
|
Kathleen P. Lundy
|
|
|
34
|
|
|
Vice President and General Counsel
|
Mr. Riley was elected as LoJacks Chairman of the
Board, President and Chief Executive Officer on May 24,
2010. Prior to becoming our Chairman of the Board, President and
Chief Executive Officer, Mr. Riley served as our Executive
Chairman of the Board of Directors from January 2009 until May
2010. Prior to becoming our Executive Chairman, Mr. Riley
served as our Chairman and Chief Executive Officer from November
2006 until December 2008. From February 2005 until November 2006
Mr. Riley was our President and Chief Operating Officer and
a member of our Board. Mr. Riley has served as a Director
of the Company since February 2005. Prior to joining the
Company, Mr. Riley served as an officer and director of New
England Business Service, Inc., or NEBS, then a public company
listed on the New York Stock Exchange prior to its acquisition
by Deluxe Corporation. He served as President and Chief
Operating Officer of NEBS from 2002 to 2003 and as President,
Chief Executive Officer and Chief Operating Officer from 2003 to
2004. Prior to that, he served as a Senior Vice President of
NEBS from 1998 to 2002, as President, NEBS Direct Marketing from
2001 to 2002, as President, Integrated Marketing Services from
2000 to 2001 and as President of Rapidforms (acquired by NEBS in
1997) from 1992 to 2000. Mr. Riley served as a
director of NEBS from 2002 to 2004. He serves as Chairman of the
Supervisory Board of VistaPrint, N.V., a publicly held company
in the printing and graphic arts business, and Micro-Coax, Inc.,
a manufacturer of microwave and cable products, a privately held
company. Mr. Riley also serves on the Board of Directors of
Dorman Products, Inc., a publicly held supplier of automotive
replacement parts and service line products.
Mr. OConnor joined LoJack in November 2008 and is
Executive Vice President and Chief Financial Officer. From
November 2008 to June 2010, Mr. OConnor served as
Senior Vice President and Chief Financial Officer. Prior to
joining the Company, Mr. OConnor served as Senior
Vice President, Finance Operations for American Tower
Corporation, U.S. Tower Division, since 2007. From 2005
until joining American Tower Corporation, Mr. OConnor
served as Vice President, Finance for the Global Technology and
Manufacturing Group with Procter & Gamble. From 1988
to 2005, Mr. OConnor held various finance,
administration, and internal audit positions with The Gillette
Company.
Mr. Weichselbaum joined LoJack in November 2009 and is
currently an Executive Vice President. From November 2009 to
June 2010, Mr. Weichselbaum served as Senior Vice
President, Business Management. Prior to joining the Company,
from 2008 to 2009, Mr. Weichselbaum served as a principal
in a private consultancy, providing strategic and
go-to-market
advice to investors and CEOs. Prior to that he served as Chief
Marketing Officer of One Communications from 2006 to 2008,
Senior Vice President of Marketing and Operations of CTC
Communications from 2004 to 2006 and Chief Executive Officer and
President of OpenReach, Inc. from 2001 to 2003. In these
executive positions, Mr. Weichselbaums
responsibilities included strategic planning, marketing,
operations, information technology, engineering, new product
development, business development and sales.
Mr. Schlerf joined LoJack in May 2006 and is Senior Vice
President, Order Fulfillment. From May 2006 to April 2008,
Mr. Schlerf served as Vice President of Operations. Prior
to joining the Company, from 2004 to 2006, Mr. Schlerf was
a private investor. Mr. Schlerf served in various positions
for NEBS prior to 2004, serving as Senior Vice President of
Manufacturing and Technical Operations from 1998 to 2004, Vice
President, Manufacturing and Technical Operations from 1996 to
1998, and as Vice President, Image Manufacturing and Product
Development from 1995 to 1996.
15
Mr. Mullins joined LoJack in February 1996 and is Senior
Vice President and General Manager of U.S. Sales. From June
2001 to January 2005 Mr. Mullins served as Vice President
of Sales and from February 1996 until May 2001, Mr. Mullins
served as Vice President of Sales and Marketing. From 1976 until
joining LoJack, Mr. Mullins served in a variety of
positions at Procter & Gamble Company, Inc., including
District Sales Manager, Customer Business Development Manager
and Northeast Operation Manager.
Mr. Camp joined LoJack in May 2002 and is Senior Vice
President and General Manager, International. He served as Vice
President of Corporate Development from May 2002 to September
2004. From 1999 until joining LoJack, Mr. Camp held
executive positions with Go2Net, Inc. from 1999 to 2000 and
InfoSpace, Inc. from 2000 to 2001. He was a corporate and
securities attorney with the law firm of Hutchins, Wheeler and
Dittmar from 1990 to 1999.
Ms. Lundy joined LoJack in January 2007 and is Vice
President and General Counsel. Ms. Lundy served as Deputy
General Counsel from January 2007 to February 2010. Prior to
joining the Company, Ms. Lundy served as Legal Counsel at
Dunkin Brands Inc. since 2006. She was a corporate and
securities attorney with the law firm of Sullivan &
Worcester LLP from 2001 to 2006.
There are no arrangements or understandings pursuant to which
any executive officer was or is to be selected for appointment,
election or reelection. There are no family relationships among
any directors or executive officers.
RISKS
RELATING TO OUR BUSINESS
Our business faces many risks. The risks described below may not
be the only risks we face. Additional risks that we do not yet
know of, or that we currently think are immaterial, may also
impair our business operations or financial results. If any of
the events or circumstances described in the following risks
actually occur, our business, financial condition or results of
operations could suffer and the trading price of our equity
securities could decline. Our shareholders should consider the
following risks and the information contained under the heading
Warning Regarding Forward-Looking Statements in
Item 7 before deciding to invest in our securities.
The
automotive industry is sensitive to changing economic conditions
and various other factors. Our business and results of
operations are substantially dependent on new vehicle sales
levels in the United States and the sales of LoJack products in
our particular geographic markets.
We believe that many factors affect sales of new vehicles in the
United States and the sales of LoJack products in our particular
geographic markets, including the U.S. economy, fuel
prices, credit availability, interest rates, consumer
confidence, the level of personal discretionary spending,
unemployment rates, manufacturer incentives (and consumers
reaction to such offers), product quality and affordability and
innovation. Current and future economic conditions could
adversely affect consumer spending in the automobile industry,
as such spending is often discretionary and may decline during
economic downturns when consumers have less disposable income.
The great majority of our domestic gross unit sales for the year
ended December 31, 2010 were made through a distribution
network consisting of automobile dealers that offer LoJack Units
as an option on both their new and used automobiles. Changes in
interest rates or in the availability of financing for vehicles
and accessories can significantly impact industry new vehicle
sales and LoJack sales due to the direct relationship between
interest rates and monthly loan payments, a critical factor for
many vehicle buyers, and the impact on customers borrowing
capacity and disposable income. Such impact also affects LoJack
sales. The United States automotive market may remain
challenging in 2011. Our product sales may differ from overall
automotive industry sales due to particular economic conditions
and other factors in the geographic markets in which we operate.
Our ability to adequately respond to the changes in the
automotive market and to maintain our competitiveness is key to
our success and there can be no assurance that we will be able
to compete successfully in the future.
16
Any
negative impact on the sales, licensing and marketing efforts of
our principal products would adversely affect our business and
results of operations.
Our business depends primarily on the sale, licensing and market
acceptance of our principal product, the LoJack System and
related products and services, in the United States and 32
foreign countries and the Boomerang Stolen Vehicle Recovery
System in Canada. Because our revenue is dependent on the
success of our principal products, any factor affecting their
marketability could have a material adverse affect on our
business and results of operations. Factors that could harm the
successful sale and licensing of the products include, among
others:
|
|
|
|
|
If automobile dealers with whom we have relationships stop
selling or emphasizing our products in connection with their
vehicle sales;
|
|
|
|
If law enforcement agencies who currently utilize our LoJack
System in the United States do not renew our service contracts
or if such law enforcement agencies grant service contracts to
our competitors;
|
|
|
|
If we are unable to fully develop and sustain a market for our
products and services in Italy;
|
|
|
|
If our foreign licensees are unable to establish or maintain a
market for our products in their jurisdictions;
|
|
|
|
If we are unable to develop enhancements to our products as
required by market demand;
|
|
|
|
If we are unable to protect our proprietary rights;
|
|
|
|
If one or more of our competitors introduces a product or system
that renders our products obsolete or less competitive;
|
|
|
|
If third parties are able to locate or impair the function of
LoJack Units or Boomerang Units in vehicles, potentially
adversely affecting our recovery rates; or
|
|
|
|
If vehicle manufacturers adopt practices, implement new
technologies or create systems which adversely affect the
efficacy of the LoJack System.
|
Unfavorable
results of pending legal proceedings could materially adversely
affect us.
We are subject to various legal proceedings and claims that have
arisen which are not yet resolved and additional claims may
arise in the future. Some of these matters are described in
greater detail in Item 3 Legal
Proceedings below. Regardless of merit, litigation may be
both time-consuming and disruptive to our operations and cause
significant expense and diversion of management attention.
Should we fail to prevail in certain matters, we may be faced
with significant monetary damages or injunctive relief that
could materially adversely affect our business and financial
condition and operating results.
We
face significant competition from original equipment
manufacturers, or OEMs, and makers of location based services
and automobile products to be sold by automobile dealers, which
could make our products less effective or obsolete, and harm our
business.
We compete with other makers of stolen vehicle recovery devices,
but more significantly, we also face competition from all
products which are sold by automobile dealers in the
after-market space, including vehicle security devices, GPS
products and navigation systems, as such products compete with
us for consumer funds in the automobile products after-market.
We also face competition from OEMs, including divisions of
well-known automobile manufacturers, who have diversified their
product offerings and place increased sales pressure on dealers
to purchase OEM-supplied or approved equipment and products.
Our
growth depends in part on the development, production and market
acceptance of new products and sales channels which we cannot
assure will happen successfully.
To maintain competitiveness in our industry, we must support and
enhance our existing products and develop new products in
response to market demands. Product development involves a high
degree of risk and uncertainty due to unforeseen difficulties
and costs. We may not be successful in developing, marketing and
releasing new products that we believe are necessary to respond
to technological developments, evolving industry standards,
17
increasing sophistication and complexities in vehicles or
changing customer preferences. In addition, our new product
enhancements may not adequately meet the requirements of the
marketplace and may not achieve the broad market acceptance
necessary to generate significant revenue. If the release date
of any future products or enhancements is delayed, or if these
products or enhancements fail to achieve market acceptance when
released, we may not be able to recover our research and
development costs and our competitive position in the
marketplace may be harmed.
If we
are unable to maintain our brand and product quality, it may
damage our reputation which could have an adverse effect on our
business, financial condition and results of
operations.
We have established a strong reputation for the quality and
effectiveness of our products in the tracking and recovery of
stolen mobile assets. Our continued success depends on our
ability to market our products and develop sales techniques
tailored to the needs of our customers, maintain our brand image
for our existing products and effectively establish brand image
for new products and brand extensions. Brand value is largely
based in part on consumer perceptions. Even isolated business
incidents that erode consumer trust can significantly reduce
brand value. Product quality issues could tarnish the image of
the LoJack brand and may reduce demand for our products and
cause consumers to choose other products. Poor product quality,
low consumer acceptance, poor installation practices, or low
recovery rates could affect our profitability and could
negatively affect brand image. If we fail to maintain high
standards for product quality and recovery, our reputation could
be harmed. Damage to our reputation or loss of consumer
confidence in our products for any of these reasons could have a
material adverse effect on our business, financial condition and
results of operations, as well as require additional resources
to rebuild our reputation.
We
depend on a limited number of third parties to manufacture and
supply quality infrastructure components for our principal
products. If our suppliers cannot provide the components or
services we require and in such quality as we expect, our
ability to market and sell our products could be
harmed.
We rely on third-party manufacturers of our LoJack Units, a
critical component of our LoJack System. If our suppliers fail
to supply these components in a timely manner that meets our
quantity, quality, cost requirements, or technical
specifications, we may not be able to access alternative sources
of these components within a reasonable period of time or at
commercially reasonable rates. Our manufacturers are located
outside the United States and their facilities are
geographically concentrated in a specific region. We outsource
much of the transportation and logistics management and while
these arrangements may lower operating costs, they reduce our
direct control over production and distribution. Such diminished
control may reduce our flexibility and ability to quickly
respond to changing conditions. A reduction or interruption in
the supply of LoJack Units, or a significant increase in the
price of these units, could have a material adverse effect on
our marketing and sales initiatives, which could adversely
affect our financial results domestically and internationally.
Our agreements with our manufacturers include warranties and
quality control measures, but any unanticipated product defect
or warranty liability, whether pursuant to arrangements with
contract manufacturers or otherwise, could have a material
adverse effect on our reputation, financial condition and
operating results.
We may
need additional financing in the future, which could be
difficult to obtain on acceptable terms or at all. Any such
financing could also dilute shareholder value.
We may require additional financing to make future investments
in new technologies, products, international markets, or to
provide additional working capital. We believe the lenders
participating in our revolving credit facility will be willing
and able to provide financing in accordance with their
contractual obligations. However, the current economic
environment may adversely impact the availability and cost of
credit in the future. Furthermore, if our current business does
not generate sufficient cash flow from operations, we may fail
to comply with our loan covenants and such failure could result
in an event of default that, if not cured or waived, could
adversely impact our financial condition. In the future we may
decide to raise additional funds through public or private debt
or equity financings to fund our activities. If we issue
additional equity securities, shareholder value will be diluted
and the new equity securities may have rights, preferences or
privileges senior to those of our common stock. In addition, if
we raise funds through debt financings, we will have to pay
interest and may be subject to restrictive and other
18
covenants, which could negatively impact our business. If we
cannot raise funds on acceptable terms, if and when needed, we
may not be able to make strategic investments, develop or
enhance our products, take advantage of acquisition and other
opportunities, or otherwise respond to competitive challenges or
unanticipated industry changes, any of which could have a
material adverse effect on our business.
If we
are unable to hire or retain key employees, it could have a
negative impact on our business.
Our success as a company depends substantially on the
contributions and abilities of key executives and other
employees. We must continue to recruit, retain and motivate
management and other employees sufficient to maintain our
current business and support our strategic initiatives. Our
operating results could be adversely affected by increased costs
due to greater competition for employees, higher employee
turnover or increased employee benefit costs. Any unplanned
turnover could diminish our institutional knowledge base and
erode our competitive advantage.
Failure
to procure and maintain contracts with local law enforcement
agencies would materially adversely affect the marketability of
the LoJack System and would inhibit sales in the United States
and Italy.
In the United States and Italy, the LoJack System is designed to
be integrated into existing law enforcement computer systems and
telecommunication systems and procedures. A LoJack Unit will not
be effective if the vehicle in which it is installed is located
outside a covered jurisdiction where we have procured an
agreement with local law enforcement agencies. We have
agreements covering 28 states and the District of Columbia
in the U.S. and certain geographical areas of Italy. These
agreements are generally for terms of up to five years. Renewal
or extension of any of these agreements, either formally or
informally, may be subject to competitive bidding. We cannot
guarantee that we will be able to renew or extend our existing
agreements with local law enforcement agencies or obtain
agreements in new target jurisdictions in the future. Our
competitors may seek agreements with local law enforcement
agencies and if they obtain such agreements, we may be adversely
affected. Furthermore, if we are unable to procure and maintain
contracts with local law enforcement agencies in our existing
and target markets, our financial results will be materially and
adversely affected.
We are
subject to government regulations and approvals which may result
in costs and delays that could impede our ability to
competitively offer our services and products in the
market.
We must obtain the approval of law enforcement agencies, as well
as other governmental agencies, for implementation of our LoJack
System in any domestic jurisdiction. The approval process may be
time consuming and costly and, in some jurisdictions, the
governmental approvals that we obtain may be terminable by an
executive or legislative body. The LoJack System is operated by
law enforcement agencies utilizing a frequency assigned by the
FCC and our LoJack System depends on the continued availability
of the frequency which we cannot guarantee. Our international
licensees may encounter similar or additional regulatory
requirements and uncertainties under applicable local laws. In
addition, certain countries have or may mandate the inclusion of
GPS products in vehicles which may affect our licensees
current business model and may harm our financial condition and
operating results. Governmental regulations, requirements and
approvals required for our services may impede our ability to
offer competitive services, and may increase the cost of or
decrease the demand for our product, either of which would have
a negative impact on our results of operations.
Economic,
political and other risks associated with the operations in our
International Segment could adversely affect our revenue and
earnings.
Our revenue and profit growth is partially dependent on the
continuation of our license agreements with our international
licensees and the success of their operations. Changes to our
licensees existing management teams, or failure of our
licensees to meet their working capital needs or execute fully
on their existing business plans, could negatively impact:
(a) the value of our equity investments, (b) the
collectability of our receivables; (c) our target revenue
and profits from our International segment; and (d) delay
or preclude altogether our ability to generate
19
revenue in key international markets. Moreover, our
licensees operations and our own international operations
expose us to risks inherent in doing business outside of the
United States including:
|
|
|
|
|
Potentially weak protection of intellectual property rights;
|
|
|
|
Economic and geo-political instability and fluctuations;
|
|
|
|
Import or export licensing requirements;
|
|
|
|
Trade or currency restrictions;
|
|
|
|
Business models that are more heavily weighted towards periodic
payments rather than receiving full payment upon sale of the
product;
|
|
|
|
Changes in regulatory requirements, tariffs or government
mandates;
|
|
|
|
Seasonal reductions in business activities in some parts of the
world, such as during the summer months in Europe;
|
|
|
|
In-country pricing which may be adversely impacted by
fluctuations in exchange rates;
|
|
|
|
Potentially adverse tax consequences;
|
|
|
|
Limited access to capital to invest in infrastructure, hire and
train employees; and
|
|
|
|
Uncertainties related to product acceptance.
|
Any of these factors could harm the operations of our licensees
and, consequently, adversely affect our business and operating
results.
The
success of the Boomerang System and our Sales in Canada are
heavily dependent on alliances with wireless carriers and
insurance companies.
Wireless carriers are an integral facet of our Boomerang System.
The continued availability and maintenance of the wireless
telecommunications networks that we use in Canada is essential
for operating the Boomerang tracking system.
Some insurance companies in the province of Quebec mandate
installation of Boomerang Units in certain vehicles. Insurance
companies acceptance of LoJack technology and
consumers demand for LoJack products is necessary for the
successful launch of LoJack RF technology in Canada. The
continuation of these strategic alliances and insurance mandates
is important for the continued development of our markets.
Changes in insurance practices and requirements in Canada could
adversely affect the demand for and sales of our Boomerang
products.
If we
fail to protect and enforce our intellectual property rights,
our competitiveness could be impeded and our business and
operating results could be harmed.
We seek to protect our intellectual property rights through
patents, trademarks, copyrights, trade secret laws,
confidentiality agreements and licensing arrangements, but we
cannot ensure that we will be able to adequately protect our
technology from misappropriation or infringement. We cannot
ensure that our existing intellectual property rights will not
be invalidated, circumvented, challenged or rendered
unenforceable. In addition, the laws of some countries in which
we offer or plan to offer our products through our international
licensees may not protect our intellectual property rights to
the same extent as the laws of the United States
and/or
Canada, increasing the possibility of piracy of our technology
which could adversely affect our business and our operating
results.
We may litigate to enforce our intellectual property rights and
to protect our trade secrets. Such litigation can be time
consuming and expensive, with outcomes often difficult to
predict. Our failure to successfully protect or enforce our
intellectual property rights could have an adverse effect on our
business and results of operations.
20
If a
court determines that our technology infringes on third
parties intellectual property, we will likely face
significant costs and we may lose our rights to the technology,
which would harm our business.
We may inadvertently violate the intellectual property rights of
other parties and those third parties may choose to assert
infringement claims against us. If we are unsuccessful in any
litigation based on a claim of infringement, in addition to
exposure to substantial monetary damages, we could be required
to expend considerable resources to modify our products, to
develop non-infringing technology or to obtain licenses to
permit our continued use of the technology that is the subject
matter of the litigation. If we are unsuccessful in these
endeavors, we may be enjoined from using the technology subject
to the infringement claim which could cause us to incur
substantial liabilities and could adversely affect our profits,
perhaps significantly.
Our
failure to successfully integrate businesses that we may acquire
could disrupt our business and negatively impact our future
financial condition and operating results.
We may make strategic acquisitions of complementary companies,
products or technologies, and such acquisitions could disrupt
our business, divert our managements attention from our
core business objectives or involve unforeseen difficulties and
costs. We may not be able to successfully integrate the
business, technology or personnel that we have acquired or those
we might acquire in the future in a timely manner, or at all,
and this could harm our financial condition and operating
results. Any of these risks could negatively impact our ability
to fully realize the expected benefits of our acquisitions. For
example, in May 2008, we acquired the assets of Locator Systems
of Victoria, British Columbia, Canada to provide a technology
solution to track and rescue people at risk. We re-launched the
Locator Systems product and service offerings under the LoJack
SafetyNet brand name. There is no assurance that these efforts
will result in substantial LoJack brand identity or commercial
acceptance of any new or existing LoJack SafetyNet products and
services. Furthermore, the success of LoJack SafetyNet is
interdependent upon law enforcement, public service agencies and
other third party agencies to assist with the search and rescue
aspect of this service. Establishing and maintaining such
relationships is essential to the success of LoJack SafetyNet.
Our
failure to successfully execute on our key investments could
disrupt our business and negatively impact our future financial
condition and operating results.
Since 2005, we have invested approximately $23,000,000
(comprised of LoJack network build out and operating losses) in
LoJack Italia. This initiative will continue to require
significant amount of financial resources and senior management
focus which may impact our core business. There is no assurance
that there will be consumer acceptance in Italy sufficient to
result in an acceptable return on our Italian investment.
Since 2006, we have invested approximately $8,562,000 in SCI and
currently have approximately a 60% equity interest in the
company. There is no assurance that our investment in SCI will
result in substantial LoJack brand identity or commercial
acceptance of any new or existing SCI products in the cargo
tracking market.
RISKS
RELATING TO OUR COMMON STOCK
There
are risks inherent in owning our common stock.
The market price and volume of our common stock have been, and
may continue to be, subject to significant fluctuations. These
may arise from general stock market conditions, the impact of
the risk factors described above on our financial condition and
results of operations, a change in sentiment in the market
regarding us or our business prospects or from other factors.
Sizeable
future sales of our common stock may depress the share price for
our common stock or prevent or delay our ability to sell equity
investments in our Company at competitive rates.
If we or our shareholders sell sizeable amounts of shares of our
common stock, including shares issued upon the exercise of
options, or if the perception exists that we or our shareholders
may sell a substantial number of shares of our common stock, the
market price of our common stock may fall. In addition, any
substantial sales of these
21
securities in the public market might make it more difficult for
us to sell equity or equity related securities in the future at
a time and in a place we deem appropriate or necessary for our
business objectives.
Certain
provisions of our governing documents and Massachusetts law
might make a takeover of us more difficult, which could impede
the ability of our shareholders to effectuate changes in our
management and board of directors.
Provisions in our restated articles of organization and amended
and restated by-laws and in Massachusetts corporate law may make
it difficult and expensive for a third party to pursue a tender
offer, change in control or takeover attempt which is opposed by
our management and board of directors. Shareholders who might
desire to participate in such a transaction may not have an
opportunity to do so. Our board of directors has the authority
to issue preferred stock in the future with voting or other
rights or preferences superior to those of our common stock. The
issuance of preferred stock could make it more difficult for
third parties to acquire a majority of our outstanding voting
stock which could have the effect of delaying, deferring or
preventing a change in our control that may be desired by some
shareholders. Finally, Massachusetts law (1) prohibits us
from engaging in a merger, consolidation, stock or asset sale
and other specified business combinations with a shareholder who
owns or owned, in the past three years, 5% or more of our voting
stock unless the transaction is approved in a prescribed manner
and (2) provides that any shareholder who acquires 20% or
more of our outstanding voting stock may not vote that stock
unless our disinterested shareholders so authorize. These
provisions have the effect of discouraging third parties from
attempting to acquire us or to acquire control of us, even if
the attempt would result in a premium over market price for the
shares of our common stock held by our shareholders. These
anti-takeover provisions could substantially impede the ability
of our shareholders to benefit from a change in control or to
change our management and board of directors.
The foregoing risk factors may be considered forward-looking
statements. We undertake no obligation to release publicly the
result of any revision to these forward-looking statements that
may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
|
|
ITEM 1B
|
UNRESOLVED
STAFF COMMENTS
|
None.
Our executive offices are located in Westwood, Massachusetts and
are under leases for such space expiring in December 2011. We
maintain a facility located in Canton, Massachusetts for our
engineering operations under a lease that expires in December
2011. We also maintain facilities in Westwood, Massachusetts and
Palmdale, California for our Call Center operations under leases
that expire in December 2011 and February 2012, respectively. In
addition, we lease facilities for our sales and operations
personnel in California, Colorado, Florida, Georgia, New Jersey
and Pennsylvania under operating leases that expire from 2011 to
2014.
The Canadian head office, marketing, sales, customer care,
research and development, product assembly and installation
activities are carried out in a single facility located in
leased premises in Montreal, Quebec. We also lease space in
Mississauga, Ontario for certain sales personnel. The Montreal
lease expires in 2017 and the Ontario lease expires in 2011.
We also maintain facilities in Victoria, British Columbia,
Canada, Dublin, Ireland and Rome and Milan, Italy for our
administrative, sales and operations personnel under leases that
expire in 2011, 2019, 2013 and 2012, respectively.
We do not own any real estate.
Because our operations do not require any special facilities, we
do not anticipate any difficulty in finding space adequate for
our purposes at reasonable rates, should the need arise. We
believe that our current facilities are adequate for our current
operations.
22
|
|
ITEM 3
|
LEGAL
PROCEEDINGS
|
As of December 31, 2010, we were subject to various legal
proceedings and claims discussed below, as well as certain other
legal proceedings and claims that have not been fully resolved
and that have arisen in the ordinary course of business. The
results of legal proceedings cannot be predicted with certainty.
Should we fail to prevail in any of these legal matters, our
financial condition and results of operations could be
materially adversely affected.
California
Class Action Litigation
Employee
Claims
In April 2006, a suit was filed against LoJack Corporation in
the United States District Court for the Central District of
California by an employee alleging violations of the Fair Labor
Standards Act, the California Labor Code and the California
Business & Professions Code, and seeking class action
status. In September 2007, our motion for summary judgment was
granted and the district court dismissed all of the
plaintiffs federal law claims. The plaintiff appealed the
dismissal to the Ninth Circuit Court of Appeals and in August
2009, the Ninth Circuit affirmed the district courts grant
of summary judgment on all claims except as to the claim for
compensation for the required postliminary data transmission, or
the data transmission claim, for which the dismissal was
vacated. The plaintiff filed a petition for rehearing to the
Ninth Circuit and on March 2, 2010, the Ninth Circuit
affirmed the district courts grant of summary judgment on
all claims except as to (a) the claim for compensation for
commuting under state law and (b) the data transmission
claim, which are the two remaining claims. The plaintiff seeks
to pursue the claim for compensation for commuting time in the
State Court case referenced below. The plaintiff moved for
conditional class certification for the data transmission claim
and on January 14, 2011, the District Court for the Central
District of California granted the plaintiffs motion for
conditional certification. Trial for this claim in federal court
currently scheduled for November 2011.
Due to the dismissal of the plaintiffs claims in federal
court in September 2007 as discussed above, in November 2007,
the plaintiff also filed state law claims in California State
Court. In June 2009, the California State Court granted class
certification with respect to nine claims and denied class
certification with respect to five claims. The Company appealed
this decision and on March 26, 2010, the California State
Appellate Court granted our appeal in part, denying
certification with respect to certain claims and affirming
certification with respect to other claims, including claims
related to meal and rest breaks, postliminary data transmission,
and time traveling to UPS stores. There are currently six claims
class certified in this State Court case. The plaintiff seeks to
pursue the claim for compensation for commuting time in
California State Court.
In both the Federal and State Court cases, the plaintiff, on
behalf of the class, seeks unpaid wages, penalties, interest and
attorneys fees. In November 2010, the parties had a
mediation hearing to address all remaining Federal and State
claims. However, the parties did not reach any resolution as a
result of the mediation.
On February 14, 2011, the Company filed a Notice of Removal
to remove this State Court case to the Federal Court, thereby
requesting to consolidate both the Federal and State Court cases
to be heard in the Federal Court. The Company believes that it
has substantial legal and factual defenses to these claims and
intends to defend its interests vigorously.
Consumer
Claims
On June 15, 2010, a suit was filed by a consumer against
LoJack Corporation in the Los Angeles County Superior Court of
the State of California (Central District) alleging, amongst
other claims, violations of the California Consumers Legal
Remedies Act, the California Business and Professions Code
§ 17200 (unfair competition) and § 17500
(false advertising), and breach of implied warranty with respect
to LoJack Early Warning for motorcycles, and seeking class
action status. On July 29, 2010, the Company removed the
case to the United States District Court for the Central
District Court of California. On August 23, 2010, the
Company filed a motion to dismiss all claims, which was granted
by the Court on September 27, 2010, without prejudice. The
dismissal without prejudice provided plaintiff with the
opportunity to amend its complaint, and on October 25,
2010, the plaintiff filed an amended complaint, for alleged
fraud, violations of the California Consumers Legal Remedies
Act, the California Business and Professions Code
§ 17200 (unfair competition) and § 17500
(false
23
advertising), and breach of implied warranty and again seeks
class certification. On November 12, 2010, the Company
filed a motion to dismiss all claims and a motion to strike
certain claims. On December 28, 2010, the Court denied the
Companys motion to dismiss. The plaintiff, on behalf of
the class, seeks injunctive relief, restitution, disgorgement,
punitive damages, and attorneys fees in unspecified
amounts. The parties are currently engaged in discovery. On
March 3, 2011, the plaintiff filed a motion for class
certification. The Company is currently preparing its opposition
to class certification. The parties have scheduled a mediation
hearing for March 29, 2011 to address all claims. There can
be no guarantee of the possible outcome of the mediation between
the parties, and there may or may not be a resolution of the
above matters as a result of the mediation. The Company believes
that it has substantial legal and factual defenses to these
claims and intends to defend its interests vigorously.
New York
Litigation
On October 13, 2010, a suit was filed by G.L.M.
Security & Sound, Inc. against LoJack Corporation in
United States District Court for the Eastern District of New
York alleging breach of contract, misrepresentation, violation
of the New York franchise law, and price discrimination.
Plaintiff seeks damages of $10,000,000, punitive damages,
interest and attorneys fees, and treble damages. On
December 14, 2010, the Company filed a motion to dismiss
all claims. On February 1, 2011, the plaintiff filed a
motion to amend the complaint and sought to add a claim for
breach of fiduciary duty. On February 15, 2011, the Company
filed its opposition to the motion to amend and sought the
dismissal of all claims. The Company believes that it has
substantial legal and factual defenses to these claims and
intends to defend its interests vigorously.
|
|
ITEM 4
|
REMOVED
AND RESERVED
|
PART II
|
|
ITEM 5
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our common stock is traded on the NASDAQ Global Select Market
under the symbol: LOJN.
Stockholders
On March 1, 2011, there were approximately 1,900 record
holders of our common stock. We believe the actual number of
beneficial owners of our common stock is approximately 6,400
because a large number of the shares of our common stock are
held in custodial or nominee accounts for the benefit of persons
other than the record holders.
Dividends
We have never paid a dividend, and have no current intention to
pay a dividend. At the present time we expect that future
earnings will be retained for use in our business. The payment
of dividends is permitted per the terms of our credit agreement
and is limited only to the extent such payments affect our
ability to meet certain financial performance measures.
Issuer
Purchases of Equity Securities
On February 15, 2008 our Board of Directors authorized
1,000,000 shares to be repurchased under our stock
repurchase plan, or the 2006 Repurchase Plan, pursuant to a plan
intended to comply with
rule 10b5-1
under the 1934 Securities and Exchange Act of 1934, as amended,
or the Exchange Act, and renewed the remaining management
discretionary authority to repurchase 2,000,000 shares, for
a total repurchase authorization of 3,000,000 shares.
During the years ended December 31, 2010, 2009 and 2008 we
repurchased 98,942, 8,186 and 1,318,222 shares of common
stock at an average price per share of $5.33, $4.02 and $10.83,
respectively. No shares have been purchased by us other than
through our publicly announced stock repurchase program. At
December 31, 2010 there were 1,681,778 shares
available for purchase under the 2006 Repurchase Plan.
24
During the fourth quarter of 2010, there were no common stock
repurchases under the 2006 Repurchase Plan. All repurchases in
2010 were shares acquired from our employees or directors in
accordance with our 2008 Stock Incentive Plan as a result of
share withholdings to pay income tax related to the lapse of
restrictions on restricted stock.
Unregistered
Sales of Equity Securities
None.
Common
Stock Sales Price Information
The following table sets forth the range of the high and low
sales price information for our common stock for the periods
indicated, as reported by the NASDAQ Global Select Market. This
information reflects inter-dealer prices, without retail
mark-up,
markdown or commission and may not necessarily reflect actual
transactions.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
Low
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
4.60
|
|
|
$
|
4.01
|
|
Second Quarter
|
|
|
5.26
|
|
|
|
3.58
|
|
Third Quarter
|
|
|
3.95
|
|
|
|
3.19
|
|
Fourth Quarter
|
|
|
7.05
|
|
|
|
3.72
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
5.33
|
|
|
$
|
2.53
|
|
Second Quarter
|
|
|
5.40
|
|
|
|
3.14
|
|
Third Quarter
|
|
|
5.85
|
|
|
|
3.53
|
|
Fourth Quarter
|
|
|
5.30
|
|
|
|
3.70
|
|
Stock
Performance Graph
The following line graph compares the yearly percentage change
in the cumulative shareholder return on our Common Stock to the
NASDAQ Composite Index and a Company-selected peer group index
over the five-year period beginning December 31, 2005 and
ending December 31, 2010. Cumulative shareholder return has
been measured on a weighted-average basis based on market
capitalizations of the component companies comprising the peer
group index at the close of trading on the last trading day
preceding the beginning of each year assuming an initial
investment of $100 and reinvestment of dividends.
In 2010, we established a new peer group index based upon the
following primary selection criteria: (a) public,
U.S. based companies with products
and/or in an
industry similar to the Company; (b) companies with annual
revenue between $100 million and $450 million; and
(c) companies with market capitalization between
approximately $40 million and $650 million. The peer
group was further refined based on input from management as to
which businesses were most comparable to the Company. In 2010,
our peer group was comprised of the following 10 companies:
Applied Signal Technology Inc, Audiovox Corporation, CalAmp
Corporation, EMS Technologies Inc., Herley Industries Inc.,
iRobot Corporation, Sparton Corporation, STRATTEC Security
Corporation, TiVo Inc. and Universal Electronics Inc.
Our old peer group index, presented below for comparative
purposes, consisted of Audiovox Corporation, I.D. Systems, Inc.,
Ituran Location & Control Ltd., Garmin Ltd., Numerex
Corporation and Trimble Navigation Ltd. The former peer group
was selected based on products and markets similar to ours.
25
Our peer group will change from time to time to reflect changes
in the market. The stock price performance shown on the graph is
not necessarily indicative of future performance.
COMPARISON
OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among LoJack Corporation, the NASDAQ Composite Index,
an Old Peer Group and a New Peer Group
|
|
|
|
*
|
$100 invested on 12/31/05 in stock or index, including
reinvestment of dividends.
Fiscal year ending December 31.
|
Source : Returns were derived from
Research Data Group, Inc.
Note: The stock price performance shown on the graph above is
not necessarily indicative of future price performance. This
graph shall not be deemed filed for purposes of
Section 18 of the Exchange Act or otherwise subject to the
liabilities of that section nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933 or
the Exchange Act, regardless of any general incorporation
language in such filing.
26
|
|
ITEM 6
|
SELECTED
FINANCIAL DATA
|
The selected condensed consolidated financial data set forth
below are derived from our audited consolidated financial
statements. The information set forth below should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations at
Item 7 and the consolidated financial statements and notes
thereto included herein at Item 8.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except share and per share information):
|
|
|
Revenue
|
|
$
|
146,635
|
|
|
$
|
135,013
|
|
|
$
|
198,679
|
|
|
$
|
222,749
|
|
|
$
|
213,288
|
|
Cost of goods sold
|
|
|
72,961
|
|
|
|
64,096
|
|
|
|
94,517
|
|
|
|
98,625
|
|
|
|
99,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
73,674
|
|
|
|
70,917
|
|
|
|
104,162
|
|
|
|
124,124
|
|
|
|
113,355
|
|
Costs and expenses(1)
|
|
|
74,059
|
|
|
|
101,065
|
|
|
|
92,975
|
|
|
|
90,559
|
|
|
|
89,866
|
|
Impairment of intangible assets and goodwill(2)
|
|
|
|
|
|
|
14,038
|
|
|
|
38,090
|
|
|
|
3,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(385
|
)
|
|
|
(44,186
|
)
|
|
|
(26,903
|
)
|
|
|
30,267
|
|
|
|
23,489
|
|
Other income (expense)
|
|
|
(823
|
)
|
|
|
1,133
|
|
|
|
(4,983
|
)
|
|
|
2,479
|
|
|
|
1,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before provision (benefit) for income taxes and
net loss of noncontrolling interest
|
|
|
(1,208
|
)
|
|
|
(43,053
|
)
|
|
|
(31,886
|
)
|
|
|
32,746
|
|
|
|
24,535
|
|
Provision (benefit) for income taxes(3)
|
|
|
17,428
|
|
|
|
(7,771
|
)
|
|
|
803
|
|
|
|
11,341
|
|
|
|
8,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
|
(18,636
|
)
|
|
|
(35,282
|
)
|
|
|
(32,689
|
)
|
|
|
21,405
|
|
|
|
16,507
|
|
Less: Net loss attributable to the noncontrolling interest
|
|
|
(330
|
)
|
|
|
(621
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to LoJack Corporation
|
|
$
|
(18,306
|
)
|
|
$
|
(34,661
|
)
|
|
$
|
(32,530
|
)
|
|
$
|
21,405
|
|
|
$
|
16,507
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share attributable to LoJack
Corporation
|
|
$
|
(1.06
|
)
|
|
$
|
(2.02
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
1.17
|
|
|
$
|
0.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share attributable to LoJack
Corporation
|
|
$
|
(1.06
|
)
|
|
$
|
(2.02
|
)
|
|
$
|
(1.88
|
)
|
|
$
|
1.13
|
|
|
$
|
0.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
17,348,433
|
|
|
|
17,170,492
|
|
|
|
17,301,390
|
|
|
|
18,321,826
|
|
|
|
18,334,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
17,348,433
|
|
|
|
17,170,492
|
|
|
|
17,301,390
|
|
|
|
18,933,532
|
|
|
|
19,243,563
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED
CONSOLIDATED BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|
2006
|
|
|
(In thousands):
|
|
Working capital
|
|
$
|
48,874
|
|
|
$
|
58,766
|
|
|
$
|
86,741
|
|
|
$
|
87,604
|
|
|
$
|
58,950
|
|
Total assets
|
|
|
122,311
|
|
|
|
147,490
|
|
|
|
195,876
|
|
|
|
245,811
|
|
|
|
209,953
|
|
Long-term debt and capital lease obligations
|
|
|
8,798
|
|
|
|
13,375
|
|
|
|
23,682
|
|
|
|
26,477
|
|
|
|
9,242
|
|
Total liabilities
|
|
|
87,935
|
|
|
|
95,556
|
|
|
|
111,562
|
|
|
|
117,479
|
|
|
|
99,953
|
|
Total equity
|
|
|
34,376
|
|
|
|
51,934
|
|
|
|
84,314
|
|
|
|
128,332
|
|
|
|
110,000
|
|
27
|
|
|
(1) |
|
In the year ended December 31, 2009, we recognized a charge
of $18,250,000 related to a legal settlement entered into with
our former licensee in China. See a further discussion of the
settlement under the heading Legal Settlement within
Managements Discussion and Analysis of Financial
Condition and Results of Operations at Item 7. |
|
(2) |
|
For the years ended December 31, 2009, 2008 and 2007, we
determined that lower than previously projected operating
profitability at our Boomerang reporting unit caused triggering
events that resulted in our assessment of the carrying value of
this reporting unit. As a result of these assessments, for the
years ended December 31, 2009, 2008 and 2007, we recognized
impairment charges of $411,000, $1,260,000 and $3,298,000,
respectively, relating to Boomerangs intangible assets
consisting of monitoring contracts, completed technology and
trade name and trademark. In the second quarter of 2009 and,
previously, in the third quarter of 2008, we also incurred
impairment charges of $13,627,000 and $36,830,000, respectively,
relating to Boomerangs goodwill. As a result of these
impairments operating income decreased by $14,038,000,
$38,090,000 and $3,298,000, for the years ended
December 31, 2009, 2008 and 2007, respectively. No
impairments were recorded in the years ended December 31,
2010 or 2006. |
|
(3) |
|
For the year ended December 31, 2010, we recorded a
worldwide provision for income taxes of $17,428,000, which
includes a non-cash tax charge of $14,919,000, recorded to
establish a valuation allowance for our net U.S. deferred tax
assets. We have net U.S. deferred tax assets that have arisen as
a result of temporary differences between book and tax
accounting, primarily related to deferred revenue and stock
compensation. The Financial Accounting Standards Board, or FASB,
authoritative guidance on accounting for income taxes, requires
the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. Our ability to
realize a deferred tax asset is based on our ability to generate
sufficient future taxable income. The valuation allowance was
determined in accordance with the guidance, which requires an
assessment of both positive and negative evidence when
determining whether it is more likely than not that deferred tax
assets are recoverable. Such assessment is required on a
jurisdiction-by-jurisdiction
basis. We will maintain a full valuation allowance on our net
U.S. deferred tax assets until sufficient positive evidence
exists to support reversal of the valuation allowance. |
|
|
ITEM 7
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
This Managements Discussion and Analysis of Financial
Condition and Results of Operations should be read in
conjunction with our consolidated financial statements and notes
thereto which appear in Item 8 in this Annual Report on
Form 10-K.
The following discussion contains forward-looking statements and
should also be read in conjunction with the risk factors set
forth in Item 1A.
Overview
We are a leading global provider of technology products and
services for the tracking and recovery or rescue of valuable
mobile assets and people at risk of wandering. Our proprietary
technology, wireless network and unique integration with law
enforcement agencies in the United States provide an effective
means for tracking and recovery or rescue of stolen vehicles,
construction equipment, motorcycles, cargo and people at risk.
We have three separately managed and reported business segments:
North America, International and All Other.
North
America Segment
Our revenue in the United States is derived primarily from the
sale of LoJack Units, LoJack Early Warning, and extended
warranty products to consumers. Approximately 87% of sales in
the United States market are made through a distribution network
consisting of dealers of new and used automobiles. We have
strong consumer brand awareness in the United States.
The price paid by the consumer for a LoJack Unit includes
installation. We maintain a workforce that performs these
installations and we supplement our installation capacity by
contracting with and certifying select dealers and other third
parties to install our products. We continually seek to minimize
the fixed costs related to the installation
28
of a LoJack Unit by increasing our installation volumes with
certified dealers and other third parties. We monitor the
quality of these installations through the use of an expanded
quality control process.
We also offer warranty products at the point of sale to new
customers and through direct sales efforts to our existing
customers.
We record additions to deferred revenue for our LoJack Early
Warning product and for certain warranty products for which we
are the primary obligor of the underlying contract. We typically
receive full payment within 60 days of the transaction, but
recognition of the deferred revenue is recognized over the
estimated life of the product or service. These payments are a
significant component of our cash flow from operations.
Additions to deferred revenue, net of deferred costs, were
$8,379,000 for the year ended December 31, 2010, compared
to additions of $9,776,000 for the year ended December 31,
2009.
Our revenue in Canada is derived primarily from the sale of
Boomerang Espion, Boomerang Espion Alert, Boomerang, Boomerang2
and BoomerangXpress Units, related products, and service
contracts. Several insurance companies in Quebec and Ontario
offer rebates to customers who install a Boomerang Unit in their
high priced or high risk of theft vehicles, and in many
instances, require installation of a Boomerang Unit in such
vehicles.
Those who purchase Boomerang Units are also required to enter
into a service contract. The terms of service contracts offered
range from 12 to 60 months and are payable in full upon
activation of the related unit or renewal of a previous service
contract. As of December 31, 2010, there was approximately
$8,645,000 of deferred revenue, compared to $9,354,000 as of
December 31, 2009, resulting from approximately 62,000
active service contracts. Boomerang customers are also offered a
monthly payment option.
International
Segment
Internationally, our licensed stolen vehicle recovery technology
is operational in 32 countries and territories around the world.
We have licensed our stolen vehicle recovery technology in Latin
and South America, Europe and Africa, and the Asia Pacific Rim.
Revenue from this segment consists of product sales to our
licensees, royalties, licensing fees, and subscription and
installation services. Revenue from the international segment
accounted for approximately 32% of consolidated revenue for the
year ended December 31, 2010, compared to 27% and 32% in
2009 and 2008, respectively.
We record additions to deferred revenue for international
license fees and recognize the revenue over the term of the
license (generally ten years). Royalty revenue is recognized in
the year it is earned.
Italy is the only country outside the United States and Canada
where we own and operate a stolen vehicle recovery network.
Customers who purchase LoJack Units in Italy are also required
to enter into a service contract with LoJack Italia. The terms
of service contracts offered range from 12 to 84 months and
are payable in full upon activation of the related unit or
renewal of a previous service contract. At December 31,
2010 and December 31, 2009, respectively, there was
approximately $1,859,000 and $828,000 of deferred revenue
relating to LoJack Italia service contracts.
All
Other Segment
SCI revenue is derived from the sale of tracking devices as well
as subscription fees for monitoring service alerts and activity
reporting. At December 31, 2010, there was approximately
$186,000 of deferred revenue relating to SCI subscription based
services.
LoJack SafetyNet revenue in 2010 was primarily comprised of the
sale of SAR Receivers, PLUs and replacement parts. In 2010,
LoJack SafetyNet continued the transition from an order
fulfillment revenue model servicing one primary customer, to a
fulfillment and service model providing the LoJack SafetyNet
solution to caregivers and consumers for a monthly fee. As part
of this new business model, we plan to provide SAR Receivers
directly to participating public safety and law enforcement
agencies at nominal or no cost.
29
Key
Economic Factors and Trends and our Business
North
America Segment
The uncertainty created by the overall economic conditions in
the United States which began in 2008, continues to have an
adverse effect on the automotive industry. As discussed in the
paragraphs that follow, in 2008 and 2009 the demand for new and
used vehicles declined significantly and negatively impacted our
results of operations. In 2010, our North American business
began to stabilize after disruptions caused by the general
economic climate; however, the turnaround of the United States
auto industry was uneven during 2010. Due to the disruptions in
the financial services industry, the availability of credit has
declined substantially for most consumers except those with
particularly high credit scores. Our business is dependent on
consumer confidence and the availability of consumer credit.
In 2008, the domestic auto industry experienced, what was then,
its worst performance in 16 years, with the seasonally
adjusted annual rate, or SAAR, of new vehicle sales in the
United States declining approximately 18% from the prior year to
approximately 13.2 million vehicles sold. This trend
continued to worsen during 2009, with the SAAR of new vehicle
sales in the United States of only 10.4 million units for
the year. With the stabilization that took place in 2010, the
SAAR improved to approximately 11.5 million units for the
year and industry experts are estimating new vehicle sales to be
upwards of 13.0 million units for 2011. Consumer purchases
continue to be impacted by the restrictive credit environment,
continued high unemployment and fewer incentives offered by auto
manufacturers. Our unit volume performance has improved and, as
confidence returns to certain dealerships, we continue to expand
our bulk installation program. As the United States auto market
recovers, we expect that our installations will increase in a
manner that is consistent with the retail market trends.
Our business in Canada has been challenged by increased recall
rates since the conversion from an analog to digital
infrastructure. In response to the challenges experienced as a
result of the conversion from analog to digital technology,
management has decided to launch the LoJack technology in our
Canadian market beginning in 2011.
Additionally, our business in Canada has been challenged by the
economic and credit conditions in Canada and the continued shift
in the Canadian auto market away from high-end vehicles, where
we have historically had a high penetration rate. In 2010,
management took steps to reduce our workforce, both domestically
and in Canada, in order to lower costs and ensure that we are
spending at a level appropriate for the size of our business.
International
Segment
Our international business stabilized in 2010 as our licensees
returned to more normalized purchasing patterns and their orders
reflect demand for our products. Our results from our
International segment reflect the growth in sales across our
licensees, particularly those in Africa and Latin America.
Additionally, some of our licensees have begun to take delivery
of our new self-powered product. Our business in Italy is
continuing to gain traction and has delivered growth in terms of
both revenue and subscribers during 2010.
All
Other Segment
The challenges we have faced in the automotive sector have
reinforced the importance of our diversification efforts, which
include the extension of the LoJack brand and the introduction
of products for cargo and people at risk.
Key
Factors of our Business
In 2010, the United States began to emerge from a global
economic downturn that had resulted in a substantial decline in
the global automotive industry, with sales of aftermarket
products like LoJack Units being particularly adversely
affected. The decline in automotive industry sales volume,
combined with tight credit markets, and other economic factors
and trends described above constrained our earnings and affected
our liquidity. As a result, we embarked upon a critical
evaluation of our business during 2010 and developed a strategy
designed to stabilize the business financially and then develop
a strategy for controlled growth.
30
We believe that our continued focus on executing our strategic
goals for 2011 will enable us to continue our diversification
efforts and:
|
|
|
|
|
Effectively manage our business in a difficult global
macro-economic environment by balancing investment in programs
and technology necessary for future growth while aggressively
managing costs to maintain our financial position;
|
|
|
|
Expand our core domestic automotive business through the
development of new sales programs which strategically
restructure our dealer relationships and help create a new
selling model for our dealers;
|
|
|
|
Continue to drive international expansion by growing our
operations in Italy, and partnering with our existing licensees
to address global economic challenges;
|
|
|
|
Launch the LoJack RF technology in Canada; and
|
|
|
|
Support LoJack SafetyNet and SCI in developing offerings for
people at risk and cargo security, respectively.
|
Many companies in the vehicle security industry have marketed
stolen vehicle recovery solutions and many automobile
manufacturers are installing GPS products at the factory. These
factors have not had a material adverse impact on our revenue,
unit sales or penetration rates to date.
Critical
Accounting Policies and Estimates
The consolidated financial statements include the accounts of
LoJack, our wholly-owned subsidiaries and our majority interest
in SCI. We consolidate entities which we own or control. All
intercompany transactions and balances have been eliminated in
consolidation. Management is required, in certain instances, to
use estimates and assumptions that affect the amounts reported
in the consolidated financial statements and the notes included
herein. The actual results could differ from those estimates.
Our accounting policies are described in Note 1 to the
consolidated financial statements included herein at
Item 8. A critical accounting policy is one that is both
important to the portrayal of our financial condition and
results of operations and requires managements most
difficult, subjective and complex judgments, often as a result
of the need to make estimates about the effect of matters that
are inherently uncertain. The significant accounting policies
and estimates, which we believe to be the most critical in
understanding and evaluating our reported financial position and
results of operations, include:
Revenue Recognition and Deferred Revenue. We
earn revenue primarily from the domestic sale and installation
of LoJack Units and LoJack Early Warning, the sale of products
and components to international licensees, royalties, the sale
of extended warranty programs and the sale of our Boomerang
products and service contracts.
We recognize revenue on domestic sales of LoJack Units and
Canadian sales of Boomerang Units and related products upon
installation, or upon shipment to our installation partners and
distributors when all revenue recognition criteria have been met.
Revenue relating to the sale of LoJack Early Warning is
recognized over the period of the estimated life of new vehicle
ownership, which management estimates is five years. Management
continually monitors and evaluates this estimate based on
published industry data. If the estimated life of new vehicle
ownership proves to vary materially from the estimates we use,
we would be required to change our estimates, which could result
in material differences in the amount of revenue recognized in
any given period. Historically, there have not been any changes
to our five-year estimate.
Revenue relating to the sale of service contracts associated
with our Boomerang product line is recognized over the life of
the contract. The term of service contracts offered ranges from
12 to 60 months and are payable in full upon initial
activation of the Unit or on renewal of a service contract.
We recognize license fees to our international licensees in
revenue over the term of the license (typically ten years) and
we recognize royalty revenue when earned or when payment is
reasonably assured, whichever is later. (Also see Note 5 to
the consolidated financial statements included herein in
Item 8 for a discussion of the license income related to
Absolute Software).
31
Revenue relating to SCI and LoJack SafetyNet consists of the
sale of tracking devices and subscription fees. Sales of units
are recognized upon shipment and subscription fees are
recognized over the life of the contractual agreement which can
range from 12 to 24 months.
We sell several types of extended warranties. For those
warranties for which a third party, and not LoJack, is the
primary obligor, we recognize payments for these insurance
contracts in revenue at the time of sale. Effective January
2007, we changed insurance underwriters for our LoJack Guarantee
Plus 5000 warranty products for automobiles. The new underwriter
is an authorized provider of insurance services in all states in
which we currently operate and thus is the primary obligor.
For those LoJack Guarantee Plus 5000 warranty agreements entered
into before January 1, 2007, as well as for other types of
warranties for which we are the primary obligor, revenue is
deferred and recognized over the estimated term of the
warranties, determined to be equivalent to the estimated life of
new vehicle ownership, which is five years. If the estimated
life of new vehicle ownership varies significantly from the
estimates we use, material differences in the amount of revenue
recognized in any given period could result. Incremental costs
directly related to the provision of such warranties are
deferred and charged to expense proportionately as the revenue
is recognized. Any remaining warranty costs relating to actual
claims made are recognized when incurred. We believe the
likelihood of material changes to the average estimated life of
vehicle ownership is low.
Accounts Receivable and Allowance for Doubtful
Accounts. In our North America segment, our
customers, primarily automobile dealerships in the United
States, are billed for product sales either via bulk sale or at
the time of installation. The customer base is principally
automobile dealers that are geographically dispersed. Payment
terms for LoJack performed installations are generally
10 days. Payment terms for bulk product sales to LoJack
certified dealer installers and expeditors range from 30 to
90 days. Except for contract termination due to misconduct
or insolvency, which requires the return of all LoJack units and
materials, all LoJack Unit sales to these parties are final with
no right of return.
Accounts receivable related to our Canadian customers consists
of payments due from our commercial accounts, automotive
dealers, accessory retailers and, in limited situations,
consumers. Payment terms range from 30 to 60 days from
shipment or invoicing. Initial service contracts and subsequent
renewals are generally recognized as deferred revenue upon
payment via credit card and as a result there is no significant
collection risk for a substantial portion of our revenue in
Canada.
If the creditworthiness or the financial strength of our dealers
were to decline, there could be an adverse effect on our
operating results and cash flows. We provide specific reserves
on known losses and supplement that estimate with additional
reserves based on our historical loss experience. There have
been no changes to our North America segments billing and
returns policy for the periods presented.
Our international customers or licensees are billed for product
sales, royalties and in some cases, license fees. Payment terms
for our international licensees vary, depending on the length of
the supply chain, the financial strength of the licensee and the
business climate in the market our licensee operates and are
generally longer than our North America business. We mitigate
the credit risk in our International segment by obtaining, in
many cases, private trade credit insurance for our large
international customers. Changes in the geopolitical situation
in the countries where we have international customers could
create additional credit risk and bad debt exposure. Sales of
LoJack Units and component systems to international customers
are final with no right of return.
In our All Other segment, our customers are billed for product
sales generally at the time of shipment. Payment terms range
from 30 to 90 days and all sales are final with no right of
return.
32
The following table presents accounts receivable and the related
allowance for doubtful accounts by our segments (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment %
|
|
|
|
|
|
Segment %
|
|
|
|
|
|
|
of Accounts
|
|
|
|
|
|
of Accounts
|
|
|
|
December 31, 2010
|
|
|
Receivable, net
|
|
|
December 31, 2009
|
|
|
Receivable, net
|
|
|
North America Gross
|
|
$
|
10,826
|
|
|
|
|
|
|
$
|
9,940
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(1,536
|
)
|
|
|
|
|
|
|
(1,175
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,290
|
|
|
|
35
|
%
|
|
|
8,765
|
|
|
|
26
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Gross
|
|
|
19,164
|
|
|
|
|
|
|
|
25,804
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(1,895
|
)
|
|
|
|
|
|
|
(1,022
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,269
|
|
|
|
64
|
%
|
|
|
24,782
|
|
|
|
72
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Gross
|
|
|
441
|
|
|
|
|
|
|
|
856
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
(103
|
)
|
|
|
|
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338
|
|
|
|
1
|
%
|
|
|
669
|
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
26,897
|
|
|
|
100
|
%
|
|
$
|
34,216
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the normal course of business, we monitor the financial
condition of our customers and limit the amount of credit
extended when deemed necessary. We maintain reserves for
estimated potential credit losses. We have established an
allowance for doubtful accounts that corresponds to the
creditworthiness of our customers, historical trends and
economic circumstances. Changes to these estimates are possible
and could result in a material effect on our reported results of
operations. At each of December 31, 2010 and 2009,
approximately 80% of the North America segments gross
accounts receivable balances were less than 60 days old.
As of December 31, 2010, two international licensees
accounted for 20% and 14% of our international accounts
receivable. As of December 31, 2009, two international
licensees accounted for 27% and 22% of our international
accounts receivable. For the year ended December 31, 2010,
one international licensee accounted for 10% of revenue. For the
years ended December 31, 2009 and 2008, one international
licensee accounted for 11% of revenue.
Valuation of Investments. Periodically, we
have made equity investments in our international licensees and
other entities. As of December 31, 2010, our investments in
international licensees consisted of: a 12.5% equity investment,
with a carrying value of $1,541,000, in our Mexican licensee; a
5.5% equity investment, with a carrying value of $314,000, in
our French licensee; and a 17.5% equity investment, with a
carrying value of $496,000, in our Benelux licensee. Our
investments in our Mexican and Benelux licensees are accounted
for using the cost method of accounting and are carried at cost
and adjusted only for
other-than-temporary
declines in fair value, returns of capital and additional
investments made. Management periodically reviews the carrying
value of these investments. Based upon projections of
anticipated cash flows, market conditions, legal factors,
operational performance, and valuations, when appropriate, we
have concluded that there is no impairment to the fair value of
these investments that should be viewed as
other-than-temporary.
Our investment in our French licensee, in the form of common
stock, is accounted for as an
available-for-sale
security, and is valued at the quoted closing price on its
market exchange as of the reporting date. When the fair value of
an
available-for-sale
security falls below cost for an extended period or the
magnitude of the unrealized loss is significant, the loss may be
deemed
other-than-temporary.
No realized gains or losses were recorded for the year ended
December 31, 2010. For the years ended December 31,
2009 and 2008, we recorded
other-than-temporary
impairment charges of $308,000 and $1,958,000, respectively, for
our investment in our French licensee.
We also have equity interests of less than 10% in our licensees
in Argentina and Hong Kong, for which we have no carrying value
in our financial statements.
We may be required to record an impairment charge in a future
period with respect to our Mexican or Benelux licensees if
(a) the licensee requires additional capital and is unable
to raise sufficient capital to continue operations, (b) the
licensee raises sufficient capital, but at an enterprise value
less than currently valued, (c) its operations and
33
future cash flows vary significantly from current projections,
adversely affecting the viability of the business, or
(d) other negative events were to occur. If the quoted
price of the investment in our French licensee were to drop
below our new recorded cost basis for an extended period of time
we would have to evaluate the investment for further impairment.
(Also see Note 5 to the consolidated financial statements
included herein at Item 8).
Income Taxes and Deferred Taxes. Our annual
tax rate is based on our income, statutory tax rates and tax
planning opportunities available to us in the various
jurisdictions in which we operate. Significant judgment is
required in determining our annual tax expense and in evaluating
our tax positions.
We file federal and state income tax returns in the United
States and tax returns in 10 international jurisdictions. We
estimate our income tax expense after considering, among other
factors, differing tax rates between jurisdictions, allocation
factors, tax credits, nondeductible items and changes in enacted
tax rates.
Deferred taxes arise because of differences in treatment between
financial statement accounting and tax accounting, known as
temporary differences. The tax effects of these temporary
differences are recorded as deferred tax assets and deferred tax
liabilities on the consolidated balance sheet. Deferred tax
assets generally result in tax deductions or credits subsequent
to the period in which the related item was recorded in the
consolidated statement of operations. At December 31, 2010,
we maintain a full valuation allowance against our worldwide
deferred tax assets with the exception of Ireland, which has a
deferred tax asset of $101,000. If sufficient evidence of our
ability to generate future taxable income in any of the
jurisdictions in which we currently maintain a valuation
allowance becomes more likely than not, we may reduce our
valuation allowance, which would result in an income tax benefit
being recorded in our consolidated statement of operations.
Effective January 1, 2006, LoJack Ireland commenced
operations. As a result of this business structure, a
substantial part of our international business activities are
supported by LoJack Ireland. LoJack Irelands business
activities are taxed at a rate of 12.5%.
As we continue to expand globally, due to complexity within and
diversity among the various jurisdictions in which we do
business, there is a risk that a governmental agency may
disagree with the manner in which we have computed our taxes.
Additionally, due to the lack of uniformity among all of the
foreign and domestic taxing authorities, there may be situations
where the tax treatment of an item in one jurisdiction is
different from the tax treatment in another jurisdiction or that
a transaction causes a tax liability to arise in another
jurisdiction.
As of December 31, 2010, we had $18,591,000 of gross
unrecognized tax benefits, of which approximately $15,302,000,
if not realized, will result in the expiration of a capital loss
carryforward. The liability amounts related to the unrecognized
tax benefits recorded at December 31, 2010 and 2009 were
$3,220,000 and $2,098,000, respectively.
We do not provide for income taxes on undistributed earnings of
our foreign operations that are intended to be invested
indefinitely outside the United States. The undistributed
earnings of our foreign operations are approximately
$85,000,000. We do not believe it is practical to estimate the
income taxes payable on the earnings that are indefinitely
reinvested in our foreign operations.
Recently
Adopted Accounting Guidance
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), or
SFAS 167, as codified in ASC 810, Consolidations, or
ASC 810. ASC 810 amends FIN 46(R),
Consolidation of Variable Interest Entities (revised December
2003) an interpretation previously known as ARB
No. 51, by replacing the quantitative-based risks and
rewards calculation for determining which enterprise, if any,
has a controlling financial interest in a variable interest
entity with a primarily qualitative approach. ASC 810
requires an additional reconsideration event when determining
whether an entity is a variable interest entity when any changes
in facts and circumstances occur, ongoing assessments of whether
an enterprise is the primary beneficiary of a variable interest
entity and additional disclosures about an enterprises
involvement in variable interest entities. Our adoption of
ASC 810 as of January 1, 2010 did not have an impact
on our consolidated results of operations, financial position,
or statement of cash flows.
34
In January 2010, the FASB revised accounting standards related
to fair value measurements to expand disclosure requirements to
include significant transfers of assets and liabilities in and
out of Level 1 and Level 2 fair value measurements and
the reasons for those transfers, as well as a gross presentation
of purchases, sales, issuances and settlements within the
rollforward of changes in Level 3 assets and liabilities.
The revised standards also provide clarification to existing
fair value disclosure requirements related to the level of
disaggregation and disclosure about inputs and valuation
techniques. The majority of the requirements of these revised
accounting standards was effective and adopted by us in the
first quarter of 2010 and had no impact on the consolidated
balance sheet, results of operations, or statement of cash
flows. Certain requirements related to the gross presentation of
activity in the rollfoward of changes in Level 3 assets and
liabilities will become effective for fiscal years beginning
after December 15, 2010 and for interim reporting periods
within those fiscal years.
Accounting
Guidance Issued But Not Yet Adopted
In September 2009, the FASB issued ASU
No. 2009-13
(previously Emerging Issues Task Force, or EITF, Issue
No. 08-1,
Revenue Arrangements with Multiple Deliverables,) as
codified in ASC 605, Revenue Recognition, or
ASC 605. ASC 605 provides greater ability to separate
and allocate arrangement consideration in a multiple element
revenue arrangement. In addition, ASC 605 requires the use
of estimated selling price to allocate arrangement
considerations, therefore eliminating the use of the residual
method of accounting. ASC 605 will be effective for fiscal
years beginning after June 15, 2010 and may be applied
retrospectively or prospectively for new or materially modified
arrangements. Earlier application is permitted. We have
evaluated the impact of ASC 605 and determined that the
adoption will not have a material impact on our consolidated
results of operations, financial position or cash flows.
RESULTS
OF OPERATIONS
Revenue
For the year ended December 31, 2010, consolidated revenue
increased $11,622,000, or 9%, as compared to 2009. Consolidated
revenue for the year ended December 31, 2009 decreased
$63,666,000, or 32%, as compared to 2008. The following table
presents revenue by our segments (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
North America
|
|
$
|
96,228
|
|
|
$
|
95,775
|
|
|
$
|
132,542
|
|
|
|
0
|
%
|
|
|
(28
|
)%
|
International
|
|
|
46,900
|
|
|
|
36,063
|
|
|
|
63,735
|
|
|
|
30
|
|
|
|
(43
|
)
|
All Other
|
|
|
3,507
|
|
|
|
3,175
|
|
|
|
2,402
|
|
|
|
10
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
146,635
|
|
|
$
|
135,013
|
|
|
$
|
198,679
|
|
|
|
9
|
%
|
|
|
(32
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America Segment
Revenue related to our North America segment increased $453,000
for the year ended December 31, 2010 as compared to the
year ended December 31, 2009.
The turnaround of the United States auto industry was uneven
during 2010. In the United States market, LoJack unit volume
trends tracked the retail trends in the broader domestic auto
market in 2010. Consumer purchases continue to be impacted by
the restrictive credit environment, continued high unemployment
and fewer incentives offered by auto manufacturers. Revenue from
our LoJack Units remained flat, because while our 2010 unit
volume performance has improved over 2009, we have continued to
expand our bulk installation program as confidence returns to
certain dealerships, therefore the increases in unit volume were
mostly offset by decreases in average revenue per unit for the
year ended December 31, 2010. Revenue for our motorcycle,
commercial and direct sale channels decreased 17%, 2% and 2%,
respectively, as compared to the same period in 2009, while our
dealer channel saw revenue increase 2%. The increase in North
America segment revenue for the year ended December 31,
2010 as compared to 2009 was primarily attributable to an
increase of $1,574,000 in other revenue
35
driven by a $1,546,000 decrease in payments made by LoJack
pursuant to the recourse agreements in the dealer channel,
offset by:
|
|
|
|
|
A decrease of $410,000, or 4%, in revenue recognized from the
sale of warranty products;
|
|
|
|
A decrease of $406,000, or 17%, in revenue from the motorcycle
channel caused by a 30% decrease in units sold from 6,500 to
4,500, partially offset by a 20% increase in average revenue per
unit sold; and
|
|
|
|
A decrease of $342,000, or 35%, in royalty and other revenue,
primarily related to a decline in royalty revenue from the stock
warrants issued to us by Absolute as all remaining warrants
vested during the year.
|
In 2008 and 2009, revenue related to our North America segment
was adversely impacted by North American economic conditions
which led to a widespread credit freeze, liquidity problems for
businesses and consumers alike, decreased consumer confidence
and a dramatic decline in the capital markets. All of these
factors adversely affected United States businesses, including
the domestic auto industry and related aftermarket products like
LoJack Units. Domestic auto sales declined 21% to approximately
10.4 million vehicles in 2009 from approximately
13.2 million vehicles in 2008.
Revenue related to our North America segment decreased
$36,767,000 in 2009 as compared to 2008. All of our United
States distribution channels were affected by the economic
downturn in the year ended December 31, 2009 as our auto,
commercial, direct to consumer and motorcycle channels
experienced revenue declines of 28%, 41%, 15% and 45%,
respectively, as compared to the year ended December 31,
2008.
The decrease in North America segment revenue for 2009 as
compared to 2008 was primarily attributable to:
|
|
|
|
|
A decrease of $29,468,000, or 33%, in LoJack Unit revenue,
caused by a 35% decrease in the number of units sold from
397,800 to 258,000, partially offset by a 3% increase in average
revenue per unit sold;
|
|
|
|
A decrease of $3,660,000, or 27%, in service revenue related to
our Boomerang product driven by a 21% decline in the average
number of subscribers to 69,000 subscribers as of
December 31, 2009;
|
|
|
|
A decrease of $2,482,000, or 50%, in Boomerang Unit revenue,
driven by a 36% decrease in the number of base units sold from
18,300 to 11,600;
|
|
|
|
A decrease of $1,984,000, or 45%, in revenue from the motorcycle
channel caused by a 57% decrease in units sold from 15,200 to
6,500, partially offset by a 28% increase in average revenue per
unit sold;
|
|
|
|
A decrease of $939,000, or 9%, in revenue recognized from the
sale of warranty products; and
|
|
|
|
A decrease of $609,000, or 6%, in revenue from our Early Warning
product, which is deferred at the time of sale and amortized
over a 5 year period;
|
The decrease in North America segment revenue for 2009 as
compared to 2008 was partially offset by:
|
|
|
|
|
An increase of $1,716,000, or 230%, in royalty and other
revenue, primarily related to royalty revenue from an increase
in the fair value of the stock warrants issued to us by
Absolute; and
|
|
|
|
An increase of $659,000, or 117%, in all other revenue including
a decrease in sales promotions offered to our dealers offset by
an increase fees charged for inspections and offsite
installations.
|
International
Segment
Revenue related to our International segment increased
$10,837,000 in 2010 as compared to 2009, while International
segment revenue decreased $27,672,000 in 2009 as compared to
2008.
For the year ended December 31, 2010 the increase in our
International segment was primarily due to a 42% increase in
unit volume as compared to the prior year. During 2010, our
International business strengthened, principally as a result of
orders from our licensees in Latin America and Africa. Our
licensees are returning to more normalized purchasing patterns
and their orders reflect restored demand for our products. Our
International segment unit volume and revenue in 2009 reflected
the impact of the deteriorating global economic conditions and
the effects of inventory
build-up by
certain licensees at the end of the fourth quarter of 2008.
36
The increase in International segment revenue for 2010 as
compared to 2009 was primarily attributable to:
|
|
|
|
|
An increase of $10,534,000 in product revenue from our licensees
as a result of an increase in the number of units sold from
431,700 to 611,500; and
|
|
|
|
An increase of $303,000, or 12%, in other revenue including
sales of infrastructure components, licensee fees, and other
charges related to our international licensees.
|
The decrease in International segment revenue for 2009 as
compared to 2008 was primarily attributable to:
|
|
|
|
|
A decrease of $27,592,000 in product revenue from our licensees
primarily resulting from a 351,300 decrease in the number of
units sold; and
|
|
|
|
A decrease of $80,000, or 3%, in other revenue, including sales
of infrastructure components, licensee fees, and other charges
related to our international licensees.
|
All Other
Segment
Revenue related to our All Other segment increased $332,000 in
2010 as compared to 2009, and $773,000 in 2009 as compared to
2008.
The increase in All Other segment revenue for 2010 as compared
to 2009 was attributable to:
|
|
|
|
|
An increase of $263,000, or 12%, in revenue from SCI to
$2,413,000 for 2010 from $2,150,000 for 2009; and
|
|
|
|
The inclusion of $1,093,000 in revenue from LoJack SafetyNet for
2010 as compared to $1,025,000 for 2009.
|
The increase in All Other segment revenue for 2009 as compared
to 2008 was attributable to:
|
|
|
|
|
The inclusion of $2,150,000 in revenue from SCI for 2009, for
which only five months of revenue of $1,169,000 was captured in
2008 following its consolidation; offset by
|
|
|
|
The inclusion of $1,025,000 in revenue from LoJack SafetyNet for
2009 as compared to $1,233,000 for 2008.
|
Cost
of Goods Sold
The following table presents cost of goods sold by our segments
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
North America
|
|
$
|
49,532
|
|
|
$
|
45,440
|
|
|
$
|
64,800
|
|
|
|
9
|
%
|
|
|
(30
|
)%
|
International
|
|
|
22,146
|
|
|
|
17,178
|
|
|
|
28,568
|
|
|
|
29
|
|
|
|
(40
|
)
|
All Other
|
|
|
1,283
|
|
|
|
1,478
|
|
|
|
1,149
|
|
|
|
(13
|
)
|
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of goods sold
|
|
$
|
72,961
|
|
|
$
|
64,096
|
|
|
$
|
94,517
|
|
|
|
14
|
%
|
|
|
(32
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a percentage of total revenue, total cost of goods sold was
50%, 47% and 48% in 2010, 2009 and 2008, respectively.
North
America Segment
As a percentage of North America segment revenue, North America
segment cost of goods sold was 51%, 47% and 49% in 2010, 2009
and 2008, respectively.
Unit volumes increased 5% in 2010 as compared to 2009 and
declined 36% in 2009 as compared to 2008. While we undertook a
thorough evaluation of our installation costs in the fourth
quarter of 2008, the continuing decline of the United States
auto market in the first quarter of 2009 led us to make
additional installation staff and expense reductions. These
reductions provided a gross margin benefit beginning in the
third quarter of 2009, as the North America segment gross margin
percentages began to improve from the first half of 2009. With
the expansion
37
of our bulk installation program, which occurred as confidence
returned to certain dealerships, our increases in unit volume
were mostly offset by decreases in average revenue per unit for
the year ended December 31, 2010. The decrease in average
revenue per unit caused an increase in the cost of goods sold as
a percentage of revenue.
In addition, the North America segment cost of goods sold
percentage was adversely impacted in 2010 by a decrease of
$372,000 in royalty revenue associated with the Absolute
warrants which has no corresponding impact on cost of goods
sold. In 2009, the North America segment cost of goods sold
percentage was favorably impacted by a change of $1,876,000 in
royalty revenue associated with the Absolute warrants which has
no corresponding impact on cost of goods sold.
International
Segment
As a percentage of International segment revenue, International
segment cost of goods sold was 47%, 48% and 45% in 2010, 2009
and 2008, respectively. The decrease in cost of goods sold as a
percentage of revenue from 2009 to 2010 was largely the result
of a decrease in the cost of the manufactured unit due to the
increase in the number of units purchased in 2010 as compared to
2009. The increase in cost of goods sold as a percentage of
revenue from 2008 to 2009 was largely the result of an increase
in the cost of the manufactured unit due to the decrease in the
number of units purchased in 2009 as compared to 2008 based upon
our volume based pricing agreement with our contract
manufacturer.
All Other
Segment
As a percentage of All Other segment revenue, All Other segment
cost of goods sold was 37%, 47% and 48% in 2010, 2009 and 2008,
respectively.
Operating
Expenses
The following table presents our consolidated operating expenses
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
Product development
|
|
$
|
6,162
|
|
|
$
|
6,994
|
|
|
$
|
7,290
|
|
|
|
(12
|
)%
|
|
|
(4
|
)%
|
Sales and marketing
|
|
|
29,308
|
|
|
|
31,529
|
|
|
|
44,880
|
|
|
|
(7
|
)
|
|
|
(30
|
)
|
General and administrative
|
|
|
31,479
|
|
|
|
36,435
|
|
|
|
33,592
|
|
|
|
(14
|
)
|
|
|
8
|
|
Legal settlement
|
|
|
|
|
|
|
18,250
|
|
|
|
|
|
|
|
(100
|
)
|
|
|
NM
|
|
Depreciation and amortization
|
|
|
7,110
|
|
|
|
7,857
|
|
|
|
7,213
|
|
|
|
(10
|
)
|
|
|
9
|
|
Impairment of intangible assets and goodwill
|
|
|
|
|
|
|
14,038
|
|
|
|
38,090
|
|
|
|
(100
|
)
|
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
$
|
74,059
|
|
|
$
|
115,103
|
|
|
$
|
131,065
|
|
|
|
(36
|
)%
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM-not measurable
Product
Development
As a percentage of revenue, product development expenses were
4%, 5% and 4% in 2010, 2009 and 2008, respectively. Product
development expense decreased $832,000 in 2010 as compared to
2009 and decreased $296,000 in 2009 as compared to 2008. The
decrease in 2010 was primarily due to lower personnel-related
costs, including salaries, benefits, recruiting, contract labor
and consulting costs. The decrease in 2009 was primarily due to
lower third party product development costs.
We expect product development expenses to increase as a
percentage of revenue in 2011 due to our continuing plans to
develop new products and expand the LoJack technology to other
applications.
38
Sales and
Marketing
As a percentage of total revenue, sales and marketing expenses
were 20%, 23% and 23% in 2010, 2009 and 2008, respectively.
Sales and marketing expenses decreased $2,221,000 in 2010 as
compared to 2009 and decreased $13,351,000 in 2009 as compared
to 2008.
The decrease in 2010 as compared to 2009 was attributable to:
|
|
|
|
|
Decreased personnel related costs of $977,000 based upon a
reduction in the workforce and decreased incentive compensation
as a result of lower sales volumes;
|
|
|
|
Decreased advertising expenses of $2,532,000 due to
managements decision to further reduce the advertising
budget as a cost saving measure; and
|
|
|
|
Decreased costs of $167,000 in maintaining our dealer incentive
program.
|
The decrease in 2010, as compared to 2009 was partially offset
by:
|
|
|
|
|
Increased facilities expenses of $688,000 related to the costs
of maintaining our sales offices which were previously included
in general and administrative expenses and are now classified as
sales and marketing expenses; and
|
|
|
|
Increased bad debt expense of $796,000.
|
The decrease in 2009 as compared to 2008 was primarily
attributable to:
|
|
|
|
|
Decreased personnel related costs of $5,167,000 based upon a
reduction in the workforce and decreased incentive compensation
as a result of lower sales volumes;
|
|
|
|
Decreased travel and entertainment costs of $856,000; and
|
|
|
|
Decreased advertising expenses of $6,202,000 as a result of
expenses incurred in conjunction with the rollout of our cable
television advertising campaign in 2008 with no comparable
expenses incurred in 2009 due to managements decision to
reduce the advertising budget.
|
We expect sales and marketing expenses as a percentage of
revenue to increase slightly in 2011 to support our planned
investment in personnel, continued advertising, expansion at
LoJack Italia and marketing initiatives related to LoJack
SafetyNet.
General
and Administrative
As a percentage of total revenue, general and administrative
expenses were 21%, 27% and 17% in 2010, 2009 and 2008,
respectively. General and administrative expenses decreased by
$4,956,000 in 2010 as compared to 2009 and increased by
$2,843,000 in 2009 as compared to 2008.
The decrease in 2010 as compared to 2009 was primarily
attributable to:
|
|
|
|
|
Decreased legal expenses of $2,828,000, attributable to
decreased costs related to the arbitration proceeding of the
termination of our licensee in China;
|
|
|
|
Decreased general and administrative costs of $817,000 at SCI
and Locator resulting from the workforce reductions which took
place in 2010;
|
|
|
|
Decreased facilities expenses of $688,000 related to the costs
of maintaining our sales offices which were previously included
in general and administrative expenses and are now classified as
sales and marketing expenses; and
|
|
|
|
Decreased tax and accounting costs of $379,000.
|
The increase in 2009 as compared to 2008 was primarily
attributable to:
|
|
|
|
|
Increased general and administrative expenses of $1,859,000
attributable to a full year of expenses for LoJack SafetyNet and
SCI as compared to a partial year of expenses in 2008;
|
39
|
|
|
|
|
Increased legal expenses of $3,057,000, attributable to
increased costs related to the arbitration proceeding of the
termination of our licensee in China; offset by
|
|
|
|
Decreased general and administrative costs of $1,636,000 at
Boomerang resulting from the workforce reductions which took
place in the fourth quarter of 2008 and the first quarter of
2009.
|
General and administrative expenses as a percentage of revenue
in 2011 are expected to decline since 2010 contained several
expenses not expected to recur in 2011. These nonrecurring
expenses primarily related to the compensation costs associated
with the workforce reductions completed during the second
quarter of 2010.
Legal
Settlement
LoJack Ireland and its former China licensee, Kington Holdings
Limited, or Kington, were involved in an arbitration proceeding
relating to the termination of the license agreement between the
parties. The matter was arbitrated in Boston, Massachusetts in
February 2009 and on March 17, 2009, the arbitrator issued
a partial final award. The arbitrator determined that LoJack
Ireland improperly terminated the license agreement and that
LoJack Ireland breached the license agreement. On
September 22, 2009, in resolution of the aforementioned
arbitration and related litigation between the parties, LoJack,
LoJack Ireland, and certain of their affiliates and Kington and
certain of its affiliates, entered into a Release and Settlement
Agreement, or the Settlement Agreement, providing for a
settlement and release of all disputes and claims. Pursuant to
the terms of the Settlement Agreement, the parties agreed to
release any and all claims and disputes, pending or potential,
based on any event or matters occurring on or before the
effectiveness of the releases, including those related to or
arising out of the agreements among the parties and the matters
that were the subject of the pending litigation and arbitration.
In consideration of the release and settlement, LoJack and
LoJack Ireland paid a total of $18,250,000 in cash to Kington on
September 25, 2009 upon satisfaction of the conditions
specified in the Settlement Agreement, including the return to
the Company of the LoJack infrastructure purchased by Kington
and the dismissal with prejudice of all pending litigation and
the arbitration among the parties. LoJack also discharged the
remaining outstanding balance of approximately $950,000 owed to
LoJack under the separate notes and loan agreements between the
parties, a majority of which had been written off in prior
periods.
Depreciation
and Amortization
As a percentage of total revenue, depreciation and amortization
expense was 5%, 6% and 4% in 2010, 2009 and 2008, respectively.
Depreciation and amortization expense decreased by $747,000, or
10%, in 2010 as compared to 2009 while depreciation and
amortization expense increased by $644,000, or 9%, in 2009 as
compared to 2008. The decrease in 2010 was driven by an
adjustment made in 2009 to depreciation of approximately
$750,000 associated with software development and other
equipment placed into service in prior years, offset by a
decrease in depreciation caused by assets that are still in use
becoming fully depreciated in the current year.
Depreciation and amortization expense as a percentage of revenue
in 2011 is expected to remain consistent with 2010.
Impairment
of Intangible Assets and Goodwill
We have adopted an annual measurement date of November 30 for
SCI and LoJack SafetyNet. Tests for impairment are also
performed on an interim basis if there are triggering events
identified. On each measurement date the carrying value of the
reporting unit is compared to its estimated fair value, and an
impairment charge is measured based upon the excess of the
carrying value of goodwill over the implied fair value if
impairment is indicated. There was no goodwill impairment
recognized in the year ended December 31, 2010. For the
years ended December 31, 2009 and 2008 we recognized an
impairment charge relating to goodwill of $13,627,000 and
$36,830,000, respectively, related to our Boomerang reporting
unit within the North America segment. The impairment expense
taken in June 2009 eliminated the goodwill balance for the
Boomerang reporting unit; therefore no impairment analysis was
performed during the year ended December 31, 2010.
40
Intangible assets consist of amortizing intangibles, including
customer relationships, patents, trademarks, trade names and
radio frequencies. Whenever events or changes in circumstances
indicate that the carrying value may not be recoverable, an
assessment is completed to determine whether the fair value of
the asset exceeds the carrying value. When a potential
impairment has been identified, forecasted undiscounted net cash
flows of the operations to which the asset relates are compared
to the current carrying value. If such cash flows are less than
the carrying amounts, the intangible assets are written down to
their respective fair values.
In making this assessment, we rely on a number of factors
including operating results, business plans, economic
projections, anticipated future cash flows, and transactions and
marketplace data. For the years ended December 31, 2010,
2009 and 2008 we recognized impairment charges relating to other
intangible assets of $0, $411,000 and $1,260,000, respectively,
at our Boomerang reporting unit within the North America segment.
Other
Income (Expense)
The following table presents our other income and expenses
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
|
Interest income
|
|
$
|
31
|
|
|
$
|
1,038
|
|
|
$
|
2,084
|
|
|
|
(97
|
)%
|
|
|
(50
|
)%
|
Interest expense
|
|
|
(665
|
)
|
|
|
(524
|
)
|
|
|
(1,243
|
)
|
|
|
27
|
|
|
|
(58
|
)
|
Equity loss in affiliate
|
|
|
|
|
|
|
|
|
|
|
(1,205
|
)
|
|
|
|
|
|
|
(100
|
)
|
Other income (loss)
|
|
|
(189
|
)
|
|
|
619
|
|
|
|
(4,619
|
)
|
|
|
(130
|
)
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
$
|
(823
|
)
|
|
$
|
1,133
|
|
|
$
|
(4,983
|
)
|
|
|
(173
|
)%
|
|
|
(123
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense) for 2010 decreased by $1,956,000 as
compared to 2009. This decrease is attributable to the following:
|
|
|
|
|
Decreased interest income of $1,007,000, due to a decrease in
interest realized on the outstanding accounts receivable
balances of some of our international licensees;
|
|
|
|
Increased interest expense of $141,000, due to the increase in
the interest rate on our debt, offset by the decrease in our
average debt balance versus the prior year; and
|
|
|
|
Increased other loss of $808,000 which was primarily due to:
(a) a $643,000 increase in losses related to valuing
foreign currency and foreign currency transactions (primarily
the Euro); (b) a $27,000 increase in losses associated with
marketable securities; and (c) a $139,000 decrease in
dividends and other items.
|
Other income (expense) for 2009 increased by $6,116,000 as
compared to 2008. This increase is attributable to the following:
|
|
|
|
|
Decreased interest income of $1,046,000, due to the decrease in
our average cash balance versus the prior year, and a decrease
in short-term interest rates; offset by
|
|
|
|
Decreased interest expense of $719,000, due to the decrease in
our average debt balance versus the prior year;
|
|
|
|
Decreased equity loss in affiliate of $1,205,000 as a result of
the consolidation of SCIs results for the full year in
2009 as compared to five months in 2008; and
|
|
|
|
Decreased other loss of $5,238,000 which was primarily due to:
(a) a $1,406,000 increase in gains related to valuing
foreign currency and foreign currency transactions (primarily
the Euro); (b) a $3,952,000 decrease in losses associated
with marketable securities, primarily related to a $1,958,000
other-than-temporary
impairment of our investment in our French licensee and a
$1,663,000 increase in realized gains associated with the
valuation and exercise of Absolute warrants; and was partially
offset by (c) a $120,000 decrease in dividends and other
items.
|
41
Provision
(Benefit) for Income Taxes
We recorded a $17,428,000 provision for income taxes for the
year ended December 31, 2010, which includes the
establishment of a valuation allowance for our net
U.S. deferred tax assets of $14,919,000 and the
establishment of a valuation allowance for deferred tax assets
in a Canadian subsidiary of $276,000. The provision for income
taxes of $17,428,000 for the year ended December 31, 2010
is significantly higher than the statutory federal income tax
benefit of $423,000 due primarily to the establishment of a
valuation allowance on our net U.S. deferred tax assets in
the second quarter of 2010.
We have net U.S. deferred tax assets that have arisen as a
result of temporary differences between book and tax accounting,
primarily related to deferred revenue, stock compensation and
net operating loss and credit carryforwards. The FASB
authoritative guidance on accounting for income taxes requires
the establishment of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. Our ability to
realize a deferred tax asset is based on our ability to generate
sufficient future taxable income. The valuation allowance was
determined in accordance with the guidance, which requires an
assessment of both positive and negative evidence when
determining whether it is more likely than not that deferred tax
assets are recoverable. Such assessment is required on a
jurisdiction-by-jurisdiction
basis. Significant management judgment is required in
determining our provision for income taxes, our deferred tax
assets and liabilities and any valuation allowance recorded
against the net deferred tax assets. At year end 2009 and for
the three months ended March 31, 2010, we had recorded a
U.S. income tax benefit. At that time, management
determined that the ultimate realization of deferred tax assets
for U.S. federal and state income tax purposes was
considered more likely than not, primarily due to taxable income
in the federal carry back period and anticipated sufficient
future taxable income. As a result of U.S. operating losses
incurred in the quarter ended June 30, 2010, cumulative
losses incurred in recent years and uncertainty as to the extent
and timing of profitability in future periods, we recorded a
$15,127,000 valuation allowance against our net
U.S. deferred tax assets. As a result of establishing a
full valuation allowance against our net U.S. deferred tax
assets, we did not recognize any deferred tax benefits related
to U.S. net operating losses incurred in the second, third
or fourth quarters of 2010. We will continue to maintain a full
valuation allowance on our net U.S. deferred tax assets
until sufficient positive evidence exists to support the
reversal of the valuation allowance.
The provision for income taxes decreased by $8,574,000 for 2009,
as compared to 2008. The decrease was in part the result of an
$11,167,000 reduction in pre-tax income. A significant part of
the 2009 tax benefit is related to the legal settlement
payments, which also contributes to reduction of our provision
for income taxes when compared to 2008.
Net
Loss Attributable to LoJack Corporation and Loss Per
Share
As a result of the foregoing, for the years ended
December 31, 2010, 2009 and 2008, net loss attributable to
LoJack Corporation and fully diluted loss per share were as
follows (dollars in thousands, except for per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Change
|
|
|
2010
|
|
2009
|
|
2008
|
|
2010 vs. 2009
|
|
2009 vs. 2008
|
|
Net loss attributable to LoJack Corporation
|
|
$
|
(18,306
|
)
|
|
$
|
(34,661
|
)
|
|
$
|
(32,530
|
)
|
|
|
(47
|
)%
|
|
|
7
|
%
|
Diluted loss per share attributable to LoJack Corporation
|
|
$
|
(1.06
|
)
|
|
$
|
(2.02
|
)
|
|
$
|
(1.88
|
)
|
|
|
(48
|
)%
|
|
|
7
|
%
|
Weighted average shares diluted
|
|
|
17,348,433
|
|
|
|
17,170,492
|
|
|
|
17,301,390
|
|
|
|
1
|
%
|
|
|
(1
|
)%
|
LIQUIDITY
AND CAPITAL RESOURCES
Our liquidity is primarily contingent on continued customer
demand for our products and services and continuing our existing
relationships with automobile dealers, insurance companies,
international licensees and certain law enforcement agencies. In
response to trends in the automotive industry, we developed, and
in the fourth quarter of 2009 we launched, our next generation,
self-powered, product which enables us to expand into the hybrid
42
auto segment, further expedite installations and provide the
opportunity for covert installation of the LoJack units in a
greater number of locations within a vehicle. We believe that we
will be able to keep pace with required technological changes in
our products and expect that our sales and marketing initiatives
will continue to drive demand.
On August 10, 2010, SCI issued a one year, 11% interest
Convertible Promissory Note totaling $400,000 to its
shareholders. As a 64% holder of SCI, a $254,000 note was issued
to LoJack Corporation and is considered an intercompany loan,
eliminated in consolidation. The remaining $146,000 due to the
non controlling holders of SCI is considered a third-party loan
and as such is classified as short-term debt on our consolidated
balance sheet. At December 31, 2010, we had accrued $6,000
in third party interest payable under the note, included in the
Accrued and Other Liabilities total on the consolidated balance
sheet.
On December 29, 2009, we entered into a two year
multicurrency revolving credit agreement, or the Credit
Agreement, with RBS Citizens, N.A., as a Lender, Administrative
Agent and Lead Arranger, and TD Bank, N.A., as a Lender and
Issuing Bank. The Credit Agreement provides for a multicurrency
revolving credit facility in the maximum amount of USD
$30,000,000, subject to a borrowing base calculation (or its
equivalent in alternate currencies). We have the right to
increase the aggregate amount available to be borrowed under the
Credit Agreement to US $50,000,000, subject to certain
conditions, including consent of the lenders.
We entered into two amendments to the Credit Agreement during
2010. The first amendment, entered into on June 30, 2010,
allowed for certain one-time severance costs that would
otherwise be deducted in calculating Consolidated Net Income to
be added back in determining Consolidated EBITDA for the purpose
of determining the Debt Service Coverage Ratio covenant for the
quarters ending June 30, 2010 and September 30, 2010.
The second amendment, entered into on December 29, 2010,
extended the maturity date of the revolving credit loans to
January 10, 2014, increased the Companys
authorization for stock repurchase to $10,000,000 and amended
the definitions of Applicable Margin, Consolidated EBITDA and
Interest Payment Date.
The outstanding borrowings under the Credit Agreement totaled
CAD $8,800,000 (equivalent to USD $8,798,000) as of
December 31, 2010. The interest rate on borrowings under
the Credit Agreement varies depending on our choice of interest
rate and currency options, plus an applicable margin. The
interest rate in effect as of December 31, 2010 was 4.1%.
As of December 31, 2010, we also had three outstanding
irrevocable letters of credit in the aggregate amount of
$1,296,000. These letters of credit reduce our outstanding
borrowing availability under the Credit Agreement.
The Credit Agreement contains limitations on capital
expenditures, repurchases of common stock, certain investments,
acquisitions
and/or
mergers and prohibits disposition of assets other than in the
normal course of business. Additionally, we are required to
maintain certain financial performance measures including
maximum leverage ratio, minimum cash flow coverage ratio,
minimum quick ratio and maximum capital expenditures. The
payment of dividends is permitted but is limited only to the
extent such payments do not affect our ability to meet certain
financial performance measures. Failure to maintain compliance
with covenants could impair the availability of loans under the
facility. At December 31, 2010, based upon the borrowing
base calculation, we had borrowing availability of $13,180,000.
At December 31, 2010, we were in compliance with all
financial covenants in the Credit Agreement.
The Credit Agreement terminates on January 10, 2014, at
which point all amounts outstanding under the revolving credit
facility are due. The Credit Agreement is guaranteed by our
United States domestic subsidiaries and certain Canadian
subsidiaries and is secured by all domestic assets, including
our intellectual property and a pledge of 100% of the stock of
Boomerang Tracking Inc. and 65% of the capital stock of LoJack
Ireland.
In recent years, we have made no attempt to raise capital from
external sources nor do we have any credit rated debt
outstanding. Therefore, it is difficult to predict whether any
efforts to raise capital would be successful. Furthermore, we
believe our ability to raise such funds may be limited due to
the condition of the automotive industry and the United States
economy as a whole. If additional equity securities were to be
issued, shareholder value would be diluted and the new equity
securities may have rights, preferences or privileges senior to
those of our common stock.
43
On February 15, 2008, our Board of Directors authorized the
repurchase of 1,000,000 shares of our common stock under a
trading plan intended to comply with
Rule 10b5-1
under the Exchange Act, and additionally renewed the remaining
management discretion authority to repurchase an incremental
2,000,000 shares, for a total repurchase authorization of
3,000,000 shares. We did not repurchase any shares under
the stock repurchase plan in the fourth quarter of 2010 and
given the current capital market environment, we do not expect
to repurchase any stock under the repurchase program in 2011. At
December 31, 2010 there were 1,681,778 shares
available for repurchase under the 2006 Repurchase Plan.
In 2010, the U.S. economy began to emerge from a global
economic downturn that resulted in a substantial decline in the
global automotive industry, with sales of aftermarket products
like LoJack Units being particularly adversely affected. The
decline in automotive industry sales volume, combined with tight
credit markets, and other economic factors and trends described
above constrained our earnings and affected our liquidity. As a
result, we embarked upon a critical evaluation of our business
during 2010 and developed a strategy designed to stabilize the
business financially so that we could then develop a strategy
for controlled growth. As we move into 2011, we plan to continue
to improve our infrastructure and production processes and
explore opportunities to expand our core businesses in the
United States and internationally.
We expect our initiative to own and operate the Italian stolen
vehicle recovery network, expand the LoJack SafetyNet business
in the United States, fund Boomerang and SCIs
operating cash deficits, combined with our longer term
international investment requirements and domestic growth, to be
funded using existing cash, cash flows from operations and, if
needed, our credit agreement.
We expect capital expenditures for 2011 to be between $4,000,000
and $6,000,000 which we expect to fund out of our existing
working capital, which was $48,874,000 as of December 31,
2010 and included $51,789,000 of cash and cash equivalents.
Non-discretionary capital expenditures budgeted for 2011
include: $500,000 to $1,000,000 for enhancement of our core
tracking and recovery technology; and $500,000 to $1,000,000 for
enhancements to our internal systems and technology
infrastructure. Discretionary expenditures for 2011, which could
be delayed to a future period, include $1,000,000 to $2,000,000
for additional hardware infrastructure and system upgrades.
However, we currently have no plans to delay these projects or
reduce these spending levels. For the year ended
December 31, 2010, we had capital expenditures of
$3,251,000.
If we decide to pursue significant opportunities in domestic and
international markets, we may be required to find sources of
capital in addition to existing working capital. We believe the
sources currently available to us will be adequate for the next
12 months and on a long-term basis. We plan to fund our
existing operations, including capital expenditures, using
existing cash and cash equivalents, cash flows from operations
and, if needed, the existing Credit Agreement discussed above.
Our cash flows from operating, investing and financing
activities, as reflected in the consolidated statements of cash
flows, are summarized in the following table (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash provided by (used for):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
22,263
|
|
|
$
|
(6,494
|
)
|
|
$
|
7,437
|
|
Investing activities
|
|
|
(1,791
|
)
|
|
|
(2,016
|
)
|
|
|
3,535
|
|
Financing activities
|
|
|
(5,564
|
)
|
|
|
(13,114
|
)
|
|
|
(10,164
|
)
|
Effect of exchange rate changes on cash
|
|
|
391
|
|
|
|
226
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in cash and cash equivalents
|
|
$
|
15,299
|
|
|
$
|
(21,398
|
)
|
|
$
|
1,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities provided $22,263,000 of cash during the
year ended December 31, 2010, as compared to using
$6,494,000 of cash during the same period in 2009. This
$28,757,000 change was due to an increase of $17,299,000 in net
income after non-cash reconciling items and an $11,458,000
increase in cash flows from working capital, including
$8,455,000 of net tax refunds received during 2010.
Investing activities used cash of $1,791,000 during the year
ended December 31, 2010, as compared to using $2,016,000 of
cash during the same period in 2009. This $225,000 decrease was
primarily due to a decrease in the
44
net proceeds from our marketable securities activity of
$2,835,000 and a change in restricted cash activity of
$1,031,000, from $428,000 in cash provided during 2010, as
compared to $603,000 in cash used during 2009; offset by a
decrease in capital expenditures of $2,027,000.
Cash used for financing activities decreased by $7,550,000
during the year ended December 31, 2010, as compared to the
same period in 2009. The decrease in cash used for financing
activities was due primarily to an $8,690,000 decrease in net
cash provided by borrowing activities.
We do not enter into financial instrument transactions for
trading or speculative purposes. We do not intend to establish
any special purpose entities for financing purposes.
We will continue to monitor our foreign currency exposure and
will implement a hedging strategy if we feel that we are
materially at risk and that the hedge is cost effective.
To date, inflation has not had a material impact on our
financial results.
CONTRACTUAL
OBLIGATIONS
We have fixed contractual obligations under various operating
lease agreements relating to our office locations, computer and
office equipment, vehicles and tower infrastructure locations.
Other contractual obligations include long-term debt and
non-cancelable inventory purchase commitments. Contractual
obligations and commercial commitments existing at
December 31, 2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
Short term debt obligations
|
|
$
|
146
|
|
|
$
|
146
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long term debt obligations(1)
|
|
|
8,798
|
|
|
|
|
|
|
|
8,798
|
|
|
|
|
|
|
|
|
|
Interest on long term debt obligations(2)
|
|
|
1,474
|
|
|
|
366
|
|
|
|
732
|
|
|
|
376
|
|
|
|
|
|
Operating lease obligations
|
|
|
17,474
|
|
|
|
4,744
|
|
|
|
4,816
|
|
|
|
2,941
|
|
|
|
4,973
|
|
Purchase obligations
|
|
|
422
|
|
|
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uncertain tax positions(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
28,314
|
|
|
$
|
5,678
|
|
|
$
|
14,346
|
|
|
$
|
3,317
|
|
|
$
|
4,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
This debt is denominated in Canadian dollars and the maturities
have been presented at the exchange rate for U.S. dollars
prevailing at December 31, 2010. |
|
(2) |
|
Borrowings under the term loan bear interest at a variable rate,
adjustable quarterly, at our option, at either the Canadian base
rate or a Euro-currency denominated rate, or Canadian LIBOR.
Interest has been calculated assuming the interest rate
prevailing as of December 31, 2010, which was 4.10%. |
|
(3) |
|
As of December 31, 2010 we had $3,480,000 of non-current
liabilities for uncertain tax positions. We are not able to
provide a reasonable estimate of the timing of future payments
relating to these obligations. |
OFF
BALANCE SHEET ARRANGEMENTS
We have no material off balance sheet arrangements as defined in
Regulation S-K,
Item 303(a)(4)(ii).
WARNING
REGARDING FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 and other
federal securities laws contain certain safe harbors regarding
forward-looking statements. From time to time, information we
provide or statements made by our employees may contain
forward-looking information, which involves risk and
uncertainty. Any statements in this report that are not
statements of historical fact are forward-looking statements
(including, but not limited to, statements concerning the
characteristics and growth of our markets and customers, our
objectives and plans for future operations and products, our
expected capital expenditures and our expected liquidity and
capital resources). Forward looking statements can often be
identified by words such as anticipate,
expects, intends, plans,
believes, seeks, estimates,
may, will, should,
would, could, potential,
continue, ongoing, or similar
expressions and variations or negatives of these words. Such
forward-looking statements are based on a
45
number of assumptions and involve a number of risks and
uncertainties, and accordingly, actual results could differ
materially. Risk factors that may cause such differences are
described in Item 1A Risk Factors.
|
|
ITEM 7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We have limited exposure to market risk due to the nature of the
financial instruments carried on our consolidated balance sheet.
Our financial instruments as of December 31, 2010 consisted
of cash and cash equivalents, restricted cash, marketable
securities, other assets, accounts receivable, accounts payable,
accrued liabilities, long-term debt and credit facilities. Our
financial position is subject to market risk, including, but not
limited to, changes in the value of financial instruments
including those resulting from changes in interest rates,
foreign currency exchange rates and market valuation. As of
December 31, 2010, the fair value of these financial
instruments approximated their carrying values.
We are exposed to changes in interest rates primarily through
amounts outstanding under our Credit Agreement. As of
December 31, 2010, we analyzed the effect of interest rates
on our variable-rate Credit Agreement, for which there was
CAD$8,800,000 (equivalent to USD $8,798,000) of borrowing as of
December 31, 2010. Based on the outstanding borrowings
under the agreement at December 31, 2010, a 1% increase in
the interest rate would result in an additional $88,000 of
annual interest expense.
We are subject to foreign currency risk through our
international operations. As of December 31, 2010, we carry
cash denominated in foreign currencies, primarily in Euro,
Canadian Dollar, and Brazilian Real. These assets accounted for
approximately 17% of the total cash and cash equivalents at
December 31, 2010. We translate accounts for subsidiaries
whose functional currency is not the U.S. dollar using
exchange rates in effect at period-end for assets and
liabilities and exchange rates averaged over the period for
results of operations. The related translation adjustments are
reported in accumulated other comprehensive income in equity.
Transaction gains and losses are reported in the consolidated
statement of operations. As a result, both positive and negative
currency fluctuations against the U.S. dollar may affect
our results of operations and accumulated other comprehensive
income. Our exposure to foreign currency exchange risk is
minimized in relation to our results of operations since a
significant portion of our International segment revenue is
denominated in U.S. dollars. This situation may change in
the future if revenue earned and expenses incurred denominated
in foreign currencies increases.
We manage future foreign exchange risk exposures that cause both
earnings and cash volatility by utilizing a hedging strategy if
the exposure is material and the hedge is cost effective. As of
December 31, 2010, we had no derivative contracts
outstanding. We do not enter into financial instrument
transactions for trading or speculative purposes. We have not
established any special purpose entities and do not have any
material off balance sheet financing transactions. We will
continue to monitor our foreign currency exposure and will
implement a hedging strategy if we feel that we are materially
at risk and that the hedge is cost effective.
We are exposed to market valuation risks related to securities
we hold that are carried at fair value. Our marketable
securities consist of Absolute common stock carried at fair
value in the financial statements. Significant changes in the
market price of Absolutes common stock could result in
significant changes in other income (expense). Based on the
366,500 shares held as of December 31, 2010, a $1.00
change in the market price of Absolutes common stock would
result in a $367,000 increase/decrease in the fair value of the
shares. Our other assets include our investment in our French
licensee, in the form of a publicly traded common stock,
accounted for as an
available-for-sale
security and valued at the quoted closing price on its market
exchange as of the reporting date. Unrealized gains or losses on
available-for-sale
securities are included, net of tax, in accumulated other
comprehensive income in equity until the disposition of the
security. During the year ended December 31, 2010, we
recorded $461,000 in unrealized losses in accumulated other
comprehensive income. Realized gains and losses on
available-for-sale
securities are included in other income (expense). No realized
gains or losses were recorded for the year ended
December 31, 2010.
As of December 31, 2010 we held $51,789,000 of cash and
cash equivalents. Of this balance, $8,809,000, or 17%, is
denominated in foreign currencies, including the Canadian
Dollar, Euro and Brazilian Real. The remaining $42,980,000, or
83%, is denominated in U.S. Dollars. At December 31,
2010, $29,728,000, or 57%, of our total cash and cash
equivalents balance was held in money market accounts, with the
remaining $22,061,000 held in traditional deposit accounts.
46
|
|
ITEM 8
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
47
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
LoJack Corporation:
We have audited the accompanying consolidated balance sheet of
LoJack Corporation and subsidiaries as of December 31,
2010, and the related consolidated statements of operations,
changes in equity, and cash flows for the year then ended. We
also have audited LoJack Corporations internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO)). LoJack
Corporations management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on the
Companys internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audit of the consolidated financial statements
included examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of LoJack Corporation and subsidiaries as of
December 31, 2010, and the results of their operations and
their cash flows for the year then ended, in conformity with
U.S. generally accepted accounting principles. Also in our
opinion, LoJack Corporation maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
Boston, Massachusetts
March 14, 2011
48
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
LoJack Corporation
Westwood, Massachusetts
We have audited the accompanying consolidated balance sheet of
LoJack Corporation and subsidiaries (the Company) as
of December 31, 2009, and the related consolidated
statements of operations, changes in equity and cash flows for
the years ended December 31, 2009 and 2008. These financial
statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 the
Company as of December 31, 2009, and the results of its
operations and its cash flows for the years ended
December 31, 2009 and 2008, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte &
Touche LLP
Boston, Massachusetts
March 16, 2010
49
LOJACK
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,789
|
|
|
$
|
36,490
|
|
Restricted cash
|
|
|
175
|
|
|
|
603
|
|
Marketable securities at fair value
|
|
|
1,365
|
|
|
|
1,834
|
|
Accounts receivable Net
|
|
|
26,897
|
|
|
|
34,216
|
|
Inventories
|
|
|
8,506
|
|
|
|
10,665
|
|
Prepaid expenses and other
|
|
|
4,036
|
|
|
|
3,136
|
|
Prepaid and receivable income taxes
|
|
|
657
|
|
|
|
9,076
|
|
Deferred income taxes
|
|
|
308
|
|
|
|
6,653
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
93,733
|
|
|
|
102,673
|
|
PROPERTY AND EQUIPMENT NET
|
|
|
15,114
|
|
|
|
18,985
|
|
DEFERRED INCOME TAXES
|
|
|
101
|
|
|
|
8,824
|
|
INTANGIBLE ASSETS NET
|
|
|
294
|
|
|
|
674
|
|
GOODWILL
|
|
|
1,717
|
|
|
|
1,717
|
|
OTHER ASSETS NET
|
|
|
11,352
|
|
|
|
14,617
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
122,311
|
|
|
$
|
147,490
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Short term debt
|
|
$
|
146
|
|
|
$
|
|
|
Accounts payable
|
|
|
7,097
|
|
|
|
7,236
|
|
Accrued and other liabilities
|
|
|
11,111
|
|
|
|
9,253
|
|
Current portion of deferred revenue
|
|
|
21,824
|
|
|
|
24,416
|
|
Accrued compensation
|
|
|
4,681
|
|
|
|
3,002
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
44,859
|
|
|
|
43,907
|
|
LONG TERM DEBT
|
|
|
8,798
|
|
|
|
13,375
|
|
DEFERRED REVENUE
|
|
|
28,834
|
|
|
|
33,467
|
|
DEFERRED INCOME TAXES
|
|
|
308
|
|
|
|
|
|
OTHER ACCRUED LIABILITIES
|
|
|
3,503
|
|
|
|
2,314
|
|
ACCRUED COMPENSATION
|
|
|
1,633
|
|
|
|
2,493
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
87,935
|
|
|
|
95,556
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 10)
|
|
|
|
|
|
|
|
|
EQUITY:
|
|
|
|
|
|
|
|
|
Preferred stock $.01 par value; authorized,
10,000,000 shares
|
|
|
|
|
|
|
|
|
Common stock $.01 par value; authorized,
35,000,000 shares; issued and outstanding, 18,296,959 at
December 31, 2010 and 18,359,738 at December 31, 2009
|
|
|
183
|
|
|
|
183
|
|
Additional paid-in capital
|
|
|
19,968
|
|
|
|
18,072
|
|
Accumulated other comprehensive income
|
|
|
6,713
|
|
|
|
7,531
|
|
Retained earnings
|
|
|
7,691
|
|
|
|
25,997
|
|
|
|
|
|
|
|
|
|
|
Total LoJack Corporation equity
|
|
|
34,555
|
|
|
|
51,783
|
|
Noncontrolling interest in subsidiary
|
|
|
(179
|
)
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
34,376
|
|
|
|
51,934
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
122,311
|
|
|
$
|
147,490
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
50
LOJACK
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
Revenue
|
|
$
|
146,635
|
|
|
$
|
135,013
|
|
|
$
|
198,679
|
|
Cost of goods sold
|
|
|
72,961
|
|
|
|
64,096
|
|
|
|
94,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
73,674
|
|
|
|
70,917
|
|
|
|
104,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
6,162
|
|
|
|
6,994
|
|
|
|
7,290
|
|
Sales and marketing
|
|
|
29,308
|
|
|
|
31,529
|
|
|
|
44,880
|
|
General and administrative
|
|
|
31,479
|
|
|
|
36,435
|
|
|
|
33,592
|
|
Legal settlement
|
|
|
|
|
|
|
18,250
|
|
|
|
|
|
Depreciation and amortization
|
|
|
7,110
|
|
|
|
7,857
|
|
|
|
7,213
|
|
Impairment of intangible assets and goodwill
|
|
|
|
|
|
|
14,038
|
|
|
|
38,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
74,059
|
|
|
|
115,103
|
|
|
|
131,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(385
|
)
|
|
|
(44,186
|
)
|
|
|
(26,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
31
|
|
|
|
1,038
|
|
|
|
2,084
|
|
Interest expense
|
|
|
(665
|
)
|
|
|
(524
|
)
|
|
|
(1,243
|
)
|
Equity loss in affiliate
|
|
|
|
|
|
|
|
|
|
|
(1,205
|
)
|
Other, net
|
|
|
(189
|
)
|
|
|
619
|
|
|
|
(4,619
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(823
|
)
|
|
|
1,133
|
|
|
|
(4,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before provision (benefit) for income taxes and net loss of
noncontrolling interest
|
|
|
(1,208
|
)
|
|
|
(43,053
|
)
|
|
|
(31,886
|
)
|
Provision (benefit) for income taxes
|
|
|
17,428
|
|
|
|
(7,771
|
)
|
|
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(18,636
|
)
|
|
|
(35,282
|
)
|
|
|
(32,689
|
)
|
Less: Net loss attributable to the noncontrolling interest
|
|
|
(330
|
)
|
|
|
(621
|
)
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to LoJack Corporation
|
|
$
|
(18,306
|
)
|
|
$
|
(34,661
|
)
|
|
$
|
(32,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share attributable to LoJack Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
$
|
(1.06
|
)
|
|
$
|
(2.02
|
)
|
|
$
|
(1.88
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted
|
|
|
17,348,433
|
|
|
|
17,170,492
|
|
|
|
17,301,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
51
LOJACK
CORPORATION AND SUBSIDIARIES
YEARS
ENDED DECEMBER 31, 2010, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LoJack Corporation Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
|
|
|
Interest in
|
|
|
Total
|
|
|
Comprehensive
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Total
|
|
|
Subsidiary
|
|
|
Equity
|
|
|
Income (Loss)
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance, January 1, 2008
|
|
|
18,316,895
|
|
|
$
|
183
|
|
|
$
|
25,782
|
|
|
$
|
9,179
|
|
|
$
|
93,188
|
|
|
$
|
128,332
|
|
|
|
|
|
|
$
|
128,332
|
|
|
|
|
|
Noncontrolling interest related to acquisition of SCI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
639
|
|
|
|
639
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,530
|
)
|
|
|
(32,530
|
)
|
|
|
(159
|
)
|
|
|
(32,689
|
)
|
|
$
|
(32,689
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,010
|
)
|
|
|
|
|
|
|
(1,010
|
)
|
|
|
|
|
|
|
(1,010
|
)
|
|
|
(1,010
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to LoJack Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(33,540
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
10,511
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
|
|
118
|
|
|
|
|
|
Issuance of shares under employee stock purchase plan
|
|
|
240,049
|
|
|
|
2
|
|
|
|
1,234
|
|
|
|
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
|
|
1,236
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(1,318,222
|
)
|
|
|
(13
|
)
|
|
|
(14,265
|
)
|
|
|
|
|
|
|
|
|
|
|
(14,278
|
)
|
|
|
|
|
|
|
(14,278
|
)
|
|
|
|
|
Restricted stock grants, net of forfeitures
|
|
|
198,216
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
Compensation expense associated with stock based compensation
|
|
|
|
|
|
|
|
|
|
|
2,322
|
|
|
|
|
|
|
|
|
|
|
|
2,322
|
|
|
|
|
|
|
|
2,322
|
|
|
|
|
|
Tax deficiency of employee stock option exercises
|
|
|
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
(358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
17,447,449
|
|
|
$
|
174
|
|
|
$
|
14,833
|
|
|
$
|
8,169
|
|
|
$
|
60,658
|
|
|
$
|
83,834
|
|
|
$
|
480
|
|
|
$
|
84,314
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34,661
|
)
|
|
|
(34,661
|
)
|
|
|
(621
|
)
|
|
|
(35,282
|
)
|
|
$
|
(35,282
|
)
|
Unrealized gain on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
|
|
|
|
|
|
360
|
|
|
|
360
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(998
|
)
|
|
|
|
|
|
|
(998
|
)
|
|
|
|
|
|
|
(998
|
)
|
|
|
(998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(35,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to LoJack Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(35,299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares under employee stock purchase plan
|
|
|
123,617
|
|
|
|
1
|
|
|
|
355
|
|
|
|
|
|
|
|
|
|
|
|
356
|
|
|
|
|
|
|
|
356
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(8,816
|
)
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
(35
|
)
|
|
|
|
|
Restricted stock grants, net of forfeitures
|
|
|
797,108
|
|
|
|
8
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense associated with stock based compensation
|
|
|
|
|
|
|
|
|
|
|
3,086
|
|
|
|
|
|
|
|
|
|
|
|
3,086
|
|
|
|
|
|
|
|
3,086
|
|
|
|
|
|
Tax deficiency of employee stock lapses
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
|
|
(159
|
)
|
|
|
|
|
Equity investment of noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
18,359,738
|
|
|
$
|
183
|
|
|
$
|
18,072
|
|
|
$
|
7,531
|
|
|
$
|
25,997
|
|
|
$
|
51,783
|
|
|
$
|
151
|
|
|
$
|
51,934
|
|
|
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,306
|
)
|
|
|
(18,306
|
)
|
|
|
(330
|
)
|
|
|
(18,636
|
)
|
|
$
|
(18,636
|
)
|
Unrealized loss on marketable securities, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
(231
|
)
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(587
|
)
|
|
|
|
|
|
|
(587
|
)
|
|
|
|
|
|
|
(587
|
)
|
|
|
(587
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,454
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Comprehensive loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(330
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss attributable to LoJack Corporation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(19,124
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
(98,942
|
)
|
|
|
|
|
|
|
(527
|
)
|
|
|
|
|
|
|
|
|
|
|
(527
|
)
|
|
|
|
|
|
|
(527
|
)
|
|
|
|
|
Restricted stock grants, net of forfeitures
|
|
|
35,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense associated with stock based compensation
|
|
|
|
|
|
|
|
|
|
|
3,041
|
|
|
|
|
|
|
|
|
|
|
|
3,041
|
|
|
|
|
|
|
|
3,041
|
|
|
|
|
|
Tax deficiency of employee stock lapses
|
|
|
|
|
|
|
|
|
|
|
(618
|
)
|
|
|
|
|
|
|
|
|
|
|
(618
|
)
|
|
|
|
|
|
|
(618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
18,296,959
|
|
|
$
|
183
|
|
|
$
|
19,968
|
|
|
$
|
6,713
|
|
|
$
|
7,691
|
|
|
$
|
34,555
|
|
|
$
|
(179
|
)
|
|
$
|
34,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
52
LOJACK
CORPORATION AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(18,636
|
)
|
|
$
|
(35,282
|
)
|
|
$
|
(32,689
|
)
|
Adjustments to reconcile net loss to net cash (used) provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non cash revenue from warrants
|
|
|
(485
|
)
|
|
|
(879
|
)
|
|
|
997
|
|
Stock-based compensation
|
|
|
3,041
|
|
|
|
3,086
|
|
|
|
2,322
|
|
Depreciation and amortization
|
|
|
7,581
|
|
|
|
8,797
|
|
|
|
8,625
|
|
Impairment of intangible assets and goodwill
|
|
|
|
|
|
|
14,038
|
|
|
|
38,090
|
|
Allowance for doubtful accounts
|
|
|
1,618
|
|
|
|
1,322
|
|
|
|
964
|
|
Deferred income taxes
|
|
|
15,168
|
|
|
|
(85
|
)
|
|
|
(1,956
|
)
|
Loss/(Gain) on disposal of property and equipment
|
|
|
(98
|
)
|
|
|
10
|
|
|
|
(3
|
)
|
Loss/(Gain) on marketable securities
|
|
|
47
|
|
|
|
(70
|
)
|
|
|
3,197
|
|
Equity loss in affiliate
|
|
|
|
|
|
|
|
|
|
|
1,205
|
|
Increase (decrease) in cash from changes in assets and
liabilities, net of acquired assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,609
|
|
|
|
9,657
|
|
|
|
(4,765
|
)
|
Inventories
|
|
|
2,208
|
|
|
|
4,475
|
|
|
|
(507
|
)
|
Prepaid expenses and other
|
|
|
(841
|
)
|
|
|
1,622
|
|
|
|
(1,247
|
)
|
Prepaid income taxes
|
|
|
7,806
|
|
|
|
(5,609
|
)
|
|
|
(3,556
|
)
|
Other assets
|
|
|
672
|
|
|
|
(763
|
)
|
|
|
(684
|
)
|
Accounts payable
|
|
|
(115
|
)
|
|
|
496
|
|
|
|
(1,060
|
)
|
Accrued and other liabilities
|
|
|
4,696
|
|
|
|
(1,572
|
)
|
|
|
(2,189
|
)
|
Deferred revenue, net of deferred costs
|
|
|
(6,008
|
)
|
|
|
(5,737
|
)
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by operating activities
|
|
|
22,263
|
|
|
|
(6,494
|
)
|
|
|
7,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property and equipment
|
|
|
(3,251
|
)
|
|
|
(5,278
|
)
|
|
|
(6,696
|
)
|
Purchase of marketable securities
|
|
|
(193
|
)
|
|
|
(186
|
)
|
|
|
(2,111
|
)
|
Proceeds from sale of marketable securities
|
|
|
1,223
|
|
|
|
4,051
|
|
|
|
12,908
|
|
Purchase of businesses, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(618
|
)
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
52
|
|
Decrease (increase) in restricted cash
|
|
|
428
|
|
|
|
(603
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) provided by investing activities
|
|
|
(1,791
|
)
|
|
|
(2,016
|
)
|
|
|
3,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock options
|
|
|
|
|
|
|
|
|
|
|
118
|
|
Issuance of shares under employee stock purchase plan
|
|
|
|
|
|
|
356
|
|
|
|
1,236
|
|
Repayment of debt and short-term borrowings
|
|
|
(6,322
|
)
|
|
|
(29,157
|
)
|
|
|
(1,591
|
)
|
Repurchase of common stock
|
|
|
(527
|
)
|
|
|
(35
|
)
|
|
|
(14,278
|
)
|
Proceeds from debt and short-term borrowings
|
|
|
1,360
|
|
|
|
15,702
|
|
|
|
4,351
|
|
Investment of noncontrolling interest into SCI
|
|
|
|
|
|
|
292
|
|
|
|
|
|
Payment of debt issuance costs
|
|
|
(75
|
)
|
|
|
(272
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(5,564
|
)
|
|
|
(13,114
|
)
|
|
|
(10,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
391
|
|
|
|
226
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
15,299
|
|
|
|
(21,398
|
)
|
|
|
1,332
|
|
BEGINNING CASH AND CASH EQUIVALENTS
|
|
|
36,490
|
|
|
|
57,888
|
|
|
|
56,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ENDING CASH AND CASH EQUIVALENTS
|
|
$
|
51,789
|
|
|
$
|
36,490
|
|
|
$
|
57,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes (refunded) paid
|
|
$
|
(8,450
|
)
|
|
$
|
1,117
|
|
|
$
|
7,106
|
|
Interest paid
|
|
$
|
665
|
|
|
$
|
524
|
|
|
$
|
1,243
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
53
LOJACK
CORPORATION AND SUBSIDIARIES
YEARS ENDED DECEMBER 31, 2010, 2009 AND 2008
|
|
1.
|
THE
COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The Company LoJack Corporation and
subsidiaries, or LoJack, we,
our, or the Company, is a global
provider of technology products and services for the tracking
and recovery or rescue of valuable mobile assets and people at
risk of wandering. Our proprietary technology, wireless network
and integration with law enforcement agencies provide a means
for the tracking and recovery of stolen vehicles, motorcycles,
construction equipment, cargo, laptops and people at risk. Our
headquarters are located in Westwood, Massachusetts and as of
December 31, 2010 we have operations in 28 states and
the District of Columbia in the United States and 33 countries
and territories.
The LoJack Stolen Vehicle Recovery
System The LoJack System is based on radio
frequency, or RF, technology. If a vehicle equipped with a
LoJack Unit is stolen, its owner reports the theft to the local
police department. If the theft is reported in a jurisdiction
where the LoJack System is operational, a unique radio signal is
automatically transmitted to the LoJack Unit in the stolen
vehicle, activating its tracking signal. The Vehicle Tracking
Unit, installed in police patrol cars and aircraft in the
coverage areas, is used by law enforcement officers to lead them
to the stolen vehicle using RF direction-finding technology to
locate the source of the tracking signal emitted from the LoJack
Unit in the stolen vehicle.
The Boomerang System The Boomerang
System is based on RF and cellular technology and uses tracking
devices internally developed by LoJack and the wireless network
of a major Canadian telecommunications company for locating and
tracking stolen assets. If a vehicle equipped with a Boomerang
Unit is stolen, the vehicle owner reports the theft to the local
police department and the Boomerang Security Center. The
Boomerang Security Center then obtains the approximate location
of the Boomerang Unit via a secure connection with the cellular
carrier and then transmits a unique code causing the Boomerang
Unit to transmit a tracking signal. A tracking vehicle, equipped
with a Boomerang Vehicle Tracking Unit, is then dispatched to
the approximate location of the Boomerang Unit and local police
are notified when the vehicle has been located. In the provinces
of Ontario and British Columbia, we use third parties to perform
tracking.
Summary
of Significant Accounting Policies
Principles of Consolidation The
consolidated financial statements include the accounts of
LoJack, our wholly-owned subsidiaries and our majority interest
in SC-Integrity Inc., or SCI. We consolidate entities which we
own or control. All intercompany transactions and balances have
been eliminated in consolidation.
Use of Estimates Preparing financial
statements in conformity with U.S. generally accepted
accounting principles, or GAAP, requires management to make
estimates and judgments that affect the reported amounts of
assets, liabilities, revenue and expenses, and related
disclosures of contingent liabilities. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual amounts may differ from these
estimates under different assumptions or conditions.
Revenue Recognition and Deferred
Revenue We recognize revenue principally on
four types of transactions sales of products,
subscriber fees for service contracts, extended warranty sales,
licensing and royalty fees. In accordance with the guidance
provided by the Securities and Exchange Commissions Staff
Accounting Bulletin, SAB No. 104, Revenue
Recognition, or SAB No. 104, revenue is recognized
when all of the following are met: (a) persuasive evidence
of an arrangement exists, (b) title and risk of loss have
passed, (c) delivery has occurred or the services have been
rendered, (d) the sales price is fixed or determinable and
(e) collection is reasonably assured.
We generally recognize revenue on product sales with no
continuing obligations upon installation. Revenue relating to
sales made to our third party installation partners, who
purchase our products and perform installations
54
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
themselves, is recognized upon shipment, which is prior to the
installation of the related products in the consumers
vehicle. Revenue from the sales of products and components of
the LoJack System to international licensees is recognized upon
shipment to the licensee or when payment becomes reasonably
assured, whichever is later.
Revenue relating to the sale of the LoJack Early
Warning®
Recovery System product, or LoJack Early Warning, is recognized
over a period of the estimated life of new vehicle ownership,
which we estimate to be a service period of approximately five
years.
Revenue relating to the sale of service contracts is recognized
over the life of the contract. The purchase of an initial
service contract is a requirement at the time the consumer
purchases a Boomerang Unit. In instances where we sell these
service contracts with a Boomerang Unit, we recognize revenue
related to the combined sale under the residual method. Under
this method revenue equal to the fair value of the services is
deferred and recognized over the contract period with any
remaining revenue being allocated to the Boomerang Unit and
recognized upon installation. We separately sell the services to
our customers. The term of service contracts offered ranges from
12 to 60 months and are payable in full upon activation of
the related unit or renewal of a previous service contract.
We offer several types of contractual extended warranties. For
those warranties for which an independent third party insurer,
and not LoJack, is the primary obligor, we recognize payments
for these contracts in revenue at the time of sale. For those
warranty products to which we are the primary obligor, revenue
is deferred and is recognized over the term of the warranties,
determined to be equivalent to the estimated life of vehicle
ownership, which we estimate to be five years. Subsequent to
January 1, 2007 we are no longer the primary obligor for
our vehicle warranty products with the exception of the extended
recovery warranty. Incremental costs directly related to the
provision of such warranties are deferred and charged to expense
ratably as the revenue is recognized.
We recognize license fees to our international licensees in
revenue over the term of the license (typically ten years) and
we recognize royalty revenue when earned or when payment is
reasonably assured, whichever is later. (Also see Note 5
for a discussion of the license income related to Absolute
Software.)
Revenue relating to SCI and LoJack SafetyNet consist of the sale
of tracking devices and subscription fees. Sales of units are
recognized upon shipment and subscription fees are recognized
over the life of the contractual agreement which can range from
12 to 24 months.
Any revenue that has been deferred and is expected to be
recognized beyond one year is classified as long-term deferred
revenue.
Stock-Based Compensation Stock-based
compensation cost is measured at the grant date based on the
fair value of the award and is recognized as expense over the
applicable vesting period of the stock award using the
straight-line method.
Advertising Expenses Advertising
costs, which include the placement of advertisements, third
party media consulting firm fees, trade shows and promotional
literature, are expensed as incurred and are classified under
sales and marketing expense. Advertising expenses for the years
ended December 31, 2010, 2009 and 2008 were $2,130,000,
$4,481,000 and $11,187,000, respectively.
Warranty Costs We provide for the
estimated costs associated with fulfilling our warranty related
obligations based primarily on our historical experience of the
cost of fulfilling our warranty obligations. The estimated
provision for accrued warranty costs is included in the
consolidated balance sheet within accrued and other liabilities.
Warranty coverage is provided on both our LoJack Units and
Boomerang Units. We warrant to consumers that LoJack Units and
Boomerang Units will be free from defects in material or
workmanship for a period of two years from the date of
installation. We also warrant to purchasers of the LoJack Unit
that if a LoJack Unit equipped vehicle is stolen in a covered
jurisdiction within two years of installation and not recovered
within 24 hours from the time that the theft is reported to
the police, we will pay the consumer an amount equal to the full
purchase price of the LoJack Unit up to a maximum of $695 (up to
$995 if the consumer has purchased LoJack Early Warning). We
warrant to purchasers of the Boomerang Units that if the
Boomerang equipped vehicle is stolen and
55
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
not recovered within 60 days of the reported theft, we will
pay the consumer an amount equal to the full purchase price of
the unit and the service fees, up to a maximum of CAD$1,000 for
the Boomerang Unit and CAD$2,000 for the Boomerang Unit with
automatic theft notification. For the BoomerangXpress Units, we
will offer the consumer a new unit, including installation, free
of charge.
SCI warrants its hardware devices to be free of defects in
materials or workmanship for a period of one year after date of
purchase. All external batteries, cases or wiring provided by
SCI as part of an assembled device is warranted for a period of
30 days from date of purchase. Any hardware item covered by
SCIs warranty and found to be defective during the
warranty period will be repaired or replaced at our discretion.
We warrant to consumers that the SafetyNet PLU transmitter will
be free from defects in material, workmanship or design for a
period of one year from the date of purchase. If the product
proves to be defective in material, workmanship or design within
that period, we will replace the transmitter. Under the
SafetyNet warranty, our maximum liability may not exceed $500.
A rollforward of the activity of the warranty reserve is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
994
|
|
|
$
|
769
|
|
|
$
|
718
|
|
Additions charged to cost and expense
|
|
|
2,432
|
|
|
|
1,107
|
|
|
|
760
|
|
Warranty claims
|
|
|
(1,607
|
)
|
|
|
(882
|
)
|
|
|
(709
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
1,819
|
|
|
$
|
994
|
|
|
$
|
769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our business in Canada has experienced increased recall rates
related to the Boomerang products since the conversion from an
analog to digital infrastructure and as a result, we incurred
additional warranty expense during the year ended
December 31, 2010.
Commitments and Contingent Liabilities
We are subject to various claims and contingencies related to
lawsuits as well as commitments under contractual and other
commercial obligations. We recognize liabilities for
contingencies and commitments, including any legal costs
associated with a loss contingency, when it is probable that a
liability has been incurred and the amount can be reasonably
estimated. Legal proceedings are subject to uncertainties, and
the outcomes are difficult to predict. Because of such
uncertainties, accruals are based only on the best information
available at the time. As additional information becomes
available, we reassess the potential liability related to
pending claims and litigation and may revise estimates. Given
the nature of most litigation, the company is typically unable
to estimate probable legal costs associated with pending
litigation matters and therefore, such costs are most often
expensed as incurred. (Also see Note 10.)
Cash and Cash Equivalents We consider
all highly liquid instruments with an original maturity of three
months or less to be cash equivalents. We periodically maintain
bank balances which exceed the federally insured limit. We
routinely assess the financial strength of our depository banks
and believe we had no significant exposure to credit risks as of
December 31, 2010.
Marketable Securities All marketable
securities must be classified as one of the following:
held-to-maturity,
available-for-sale,
or trading. We determine the classification at the time of
purchase.
Our investment in our French licensee, in the form of a publicly
traded common stock, is accounted for as an
available-for-sale
security and is valued at the quoted closing price on its market
exchange as of the reporting date. Included in other income
(expense) for the years ended December 31, 2009 and 2008
are
other-than-temporary
impairment charges of $308,000 and $1,958,000, respectively.
These impairment charges were recorded because the fair value of
our investment in the licensee fell below our recorded cost for
an extended period of time. No realized gains or losses were
recorded for the year ended December 31, 2010. Our
investment in our French licensee is reported as a long-term
asset on our consolidated balance sheet. Unrealized gains or
losses on
available-for-sale
56
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
securities are included, net of tax, in accumulated other
comprehensive income in equity until the disposition of the
security. We follow the specific identification method in
determining the cost basis in computing realized gains and
losses on the sale of
available-for-sale
securities. Realized gains and losses on
available-for-sale
securities are included in other income (expense).
The investments of the deferred compensation plan are included
in other assets at fair value. See Note 11 for further
discussion.
At both December 31, 2010 and 2009 we held
366,500 shares of Absolute common stock. We acquired these
shares upon the exercise of the Absolute warrants in July 2010
and September 2009. The fair market value of these shares at
December 31, 2010 and 2009 was $1,365,000 and $1,834,000,
respectively, and is accounted for as a trading security
classified within marketable securities in the consolidated
balance sheet.
Accounts Receivable We maintain an
allowance for doubtful accounts based on an assessment of
collectability of all outstanding receivables. We make this
assessment by evaluating the creditworthiness of our customers,
historical trends and economic circumstances. A rollforward of
the activity of the allowance for doubtful accounts is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
2,384
|
|
|
$
|
1,950
|
|
|
$
|
1,388
|
|
Additions charged to cost and expense
|
|
|
1,618
|
|
|
|
1,322
|
|
|
|
964
|
|
Accounts written off, net of recoveries
|
|
|
(468
|
)
|
|
|
(888
|
)
|
|
|
(402
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
3,534
|
|
|
$
|
2,384
|
|
|
$
|
1,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer Concentration Accounts
receivable in the United States are due principally from
automobile dealers that are geographically dispersed. Accounts
receivable in Canada consist of payments due from our dealer
channel and corporate accounts. International accounts
receivable are principally due from international licensees. As
of December 31, 2010, two international licensees accounted
for 20% and 14% of accounts receivable. As of December 31,
2009, two international licensees accounted for 27% and 22% of
accounts receivable. For the year ended December 31, 2010,
one international licensee accounted for 10% of revenue. For the
years ended December 31, 2009 and 2008, one international
licensee accounted for 11% of revenue. When possible, payment
for our products from international licensees is supported by
the purchase of private trade-credit insurance paid for by the
licensee.
Inventories Inventories are stated at
the lower of cost or market value using the
first-in,
first-out method.
Property and Equipment Property and
equipment is stated at cost and depreciated using the
straight-line method over the estimated useful lives of the
related assets as detailed below:
|
|
|
|
|
Useful Life (years)
|
|
System components and vehicle tracking units
|
|
7
|
Office equipment, computer equipment and software
|
|
3-5
|
Software developed for internal use
|
|
3-5
|
Furniture and fixtures
|
|
5
|
Leasehold improvements
|
|
shorter of 5 years or lease term
|
Vehicles
|
|
3
|
Upon retirement or other disposition, the cost and the related
accumulated depreciation of the assets are eliminated from the
consolidated balance sheet and the related gains or losses are
reflected in the consolidated statement of operations.
Expenditures for maintenance and repairs are charged to expense
while the costs of significant improvements that extend the life
of the property and equipment are capitalized.
57
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Internal Software Development Costs We
capitalize internal software development costs associated with
software developed for internal use. In accordance with
ASC 350-40,
Internal-Use Software, expenses related to the design of
software, coding and installation of hardware, and certain costs
incurred to allow access to or conversion of old data by new
systems are capitalized. Costs related to training and data
conversion activities are expensed as incurred. Capitalized
internal software development costs are amortized over the
period of economic benefit, generally between three and five
years. For the years ended December 31, 2010 and 2009,
capitalized software included in property and equipment totaled
$3,853,000 and $4,077,000, net of accumulated amortization of
$10,089,000 and $9,230,000, respectively. For the years ended
December 31, 2010, 2009 and 2008, we capitalized internal
software development costs of $518,000, $2,277,000 and
$2,911,000, respectively. For the years ended December 31,
2010, 2009, and 2008, $778,000, $2,206,000 and $2,707,000,
respectively, of amortization expense was recorded for these
capitalized internal software costs. Additions to internal
software development costs are included in investments for
property and equipment in the consolidated statements of cash
flows.
Cost-Basis Investments We have made
investments in some of our international licensees. These
investments to date have resulted in ownership of less than 20%
of any one licensee. Unless the shares are marketable
securities, these investments are accounted for using the cost
method of accounting. Under the cost method of accounting,
investments are carried at cost and are adjusted only for
other-than-temporary
declines in fair value, distributions of earnings, additional
investments made and other ownership changes. We have not
recorded any gains or losses on these investments in the years
ended December 31, 2010, 2009 and 2008. (Also see
Note 5.)
Equity Investments We have a 64%
interest in SCI, a Texas based company which provides
comprehensive solutions for cargo theft monitoring prevention,
investigation, tracking and recovery. Prior to August 2008, we
had accounted for our interest in SCI utilizing the equity
method of accounting. During the third quarter of 2008 we
increased our equity investment in SCI from 40% to 60% and as a
result began consolidating the results of their operations in
our consolidated financial statements as well as accounting for
the corresponding impact of SCIs noncontrolling interest
in a separate component of our consolidated balance sheet and
statement of operations. In October 2009, we along with the
noncontrolling interest in SCI, invested an additional $800,000
into SCI in exchange for 1,188,707 shares of SCI common
stock. Our portion of this investment was $508,000. Our
ownership percentage did not change as a result of this
transaction. In August 2010, we along with the noncontrolling
interest in SCI, invested an additional $400,000 in the form of
convertible debt. Our portion of this investment was $254,000.
(Also see Note 4.)
Goodwill and Other Intangible Assets
Goodwill is not amortized but instead is assessed for impairment
at least annually and as triggering events occur. We have
adopted an annual measurement date of November 30 for SCI and
LoJack SafetyNet. On each annual measurement date the carrying
value of the reporting unit is compared to its estimated fair
value, and an impairment charge is measured based upon the
excess of the carrying value of goodwill over the implied fair
value if impairment is indicated. This analysis is performed at
a reporting unit level. There was no goodwill impairment
recognized for the year ended December 31, 2010. For the
years ended December 31, 2009 and 2008, we recognized
impairment charges relating to goodwill of $13,627,000 and
$36,830,000, respectively, related to our Boomerang reporting
unit. (Also see Note 4.)
Other intangible assets consist of amortizing intangibles,
including customer relationships, patents, trademarks, trade
names and radio frequencies. Whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable, an assessment is completed to determine whether the
fair value of the asset exceeds the carrying value. When a
potential impairment has been identified, forecasted
undiscounted net cash flows of the operations to which the asset
relates are compared to the current carrying value. If such cash
flows are less than the carrying amounts, the intangible assets
are written down to their respective fair values.
In making this assessment, we rely on a number of factors
including operating results, business plans, economic
projections, anticipated future cash flows, and transactions and
marketplace data. There was no impairment charge recognized
relating to other intangible assets for the year ended
December 31, 2010. For
58
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the years ended December 31, 2009 and 2008, we recognized
impairment charges relating to other intangible assets of
$411,000 and $1,260,000, respectively, at our Boomerang
reporting unit. (Also see Note 4.)
Impairment of Other Long-lived Assets
Other long-lived assets including property and equipment and
internal software development costs are also periodically
assessed for impairments. No such impairments were recorded in
the periods presented.
Income Taxes We recognize deferred tax
liabilities and assets for the expected future tax consequences
of events that have been included in our 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 anticipated to be in effect
in the year(s) in which the differences are expected to reverse.
Valuation allowances are provided against deferred tax assets
that are not deemed to be recoverable.
Our annual tax rate is based on our income (loss), statutory tax
rates and tax planning opportunities available to us in the
various jurisdictions in which we operate. Significant judgment
is required in determining our annual tax expense and in
evaluating our tax positions. We provide reserves for potential
payments of tax to various tax authorities related to uncertain
tax positions and other issues. In accordance with ASC subtopic
740, Income Taxes, or ASC 740, tax benefits are
based on a determination of whether and how much of a tax
benefit taken by us in our tax filings or positions is more
likely than not to be realized following resolution of any
potential contingencies present related to the tax benefit,
assuming that the matter in question will be raised by the tax
authorities. Potential interest and penalties associated with
such uncertain tax positions is recorded as a component of
income tax expense. (Also see Note 9.)
Product Development Costs for product
development are expensed as incurred and include salaries, fees
to consultants, and other related costs associated with the
development of new products. A portion of our product
development effort has been outsourced to unrelated third
parties.
Loss Per Share Basic loss per common
share is computed using the weighted average number of common
shares and common share equivalents outstanding during each
year. Diluted loss per common share is computed using the
weighted average number of common shares outstanding during the
year, including the effect of our outstanding stock options and
restricted stock (using the treasury stock method), except where
such stock options or restricted stock would be antidilutive. A
reconciliation of weighted average shares used for the basic and
diluted computations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Weighted average shares for basic
|
|
|
17,348,433
|
|
|
|
17,170,492
|
|
|
|
17,301,390
|
|
Dilutive effect of stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares for diluted
|
|
|
17,348,433
|
|
|
|
17,170,492
|
|
|
|
17,301,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because of the net losses reported for the years ended
December 31, 2010, 2009 and 2008, respectively, all shares
of stock issuable pursuant to stock options and unvested stock
have not been considered for dilution as their effect would be
antidilutive. For the year ended December 31, 2010,
2,261,565 options and 784,063 shares of restricted stock
were excluded from the computation of diluted net loss per
share. For the year ended December 31, 2009, 2,265,080
options and 799,524 shares of restricted stock were
excluded from the computation of diluted net loss per share. For
the year ended December 31, 2008, 1,764,557 options and
402,713 shares of restricted stock were excluded from the
computation of diluted net loss per share.
59
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive Income Other
comprehensive income, as defined, includes all changes in equity
during a period from non-owner sources, such as unrealized gains
and losses on
available-for-sale
securities and foreign currency translation. Accumulated other
comprehensive income and its components were as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Currency translation adjustments
|
|
$
|
6,584
|
|
|
$
|
7,171
|
|
Unrealized gain on available for sale investments, net of tax
|
|
|
129
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income
|
|
$
|
6,713
|
|
|
$
|
7,531
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency The functional
currency for each of our subsidiaries is the currency of the
primary economic environment in which the subsidiary operates,
generally defined as the currency in which the entity generates
and expends cash. For all entities, with the exception of LoJack
Ireland the functional currency is the local currency. LoJack
Irelands functional currency is the U.S. dollar. All
assets and liabilities are translated into U.S. dollar
equivalents at the exchange rate in effect on the balance sheet
date. Revenues and expenses are translated at the average
exchange rates for the year. Translation gains or losses are
recorded in equity as an element of accumulated other
comprehensive income. We also incur transactional gains and
losses resulting from transactions denominated in foreign
currencies and the translation of intercompany balances which
are not permanently invested. Such items are recorded as other
income (expense) in the consolidated statement of operations.
For the years ended December 31, 2010, 2009 and 2008 we
recorded foreign currency (losses) gains of ($363,000), $280,000
and ($1,126,000), respectively.
Derivative Instruments and Hedging We
account for derivative instruments at fair value. We will
occasionally use derivative financial instruments to manage
exposures to foreign currency or interest rate risks. Our
primary objective for holding derivatives is to minimize
interest rate and foreign currency risk using the most effective
methods to eliminate or reduce the impact of these risks. If the
derivative is designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative are
recorded in accumulated other comprehensive income and are
recognized in earnings when the hedged item affects earnings;
ineffective portions of changes in fair value are recognized in
earnings.
During the first quarter of 2009, we entered into two forward
contracts to purchase Euros as part of our strategy to hedge
certain foreign currency commitments at our Irish subsidiary,
which were denominated in Euros. These contracts expired on
June 8, 2009 and we recognized a currency transaction gain
of $49,000 which is included in other income on our consolidated
statement of operations for the year ended December 31,
2009. As of December 31, 2010 and 2009 we had no derivative
contracts outstanding.
Recently
Adopted Accounting Guidance
In June 2009, the FASB issued SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), or
SFAS 167, as codified in ASC 810. ASC 810 amends
FIN 46(R), Consolidation of Variable Interest Entities
(revised December 2003) an interpretation
previously known as ARB No. 51, by replacing the
quantitative-based risks and rewards calculation for determining
which enterprise, if any, has a controlling financial interest
in a variable interest entity with a primarily qualitative
approach. ASC 810 requires an additional reconsideration
event when determining whether an entity is a variable interest
entity when any changes in facts and circumstances occur,
ongoing assessments of whether an enterprise is the primary
beneficiary of a variable interest entity and additional
disclosures about an enterprises involvement in variable
interest entities. Our adoption of ASC 810 as of
January 1, 2010 did not have an impact on our consolidated
results of operations, financial position, or cash flows.
In January 2010, the FASB revised accounting standards related
to fair value measurements to expand disclosure requirements to
include significant transfers of assets and liabilities in and
out of Level 1 and Level 2 fair value measurements and
the reasons for those transfers, as well as a gross presentation
of purchases, sales, issuances
60
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and settlements within the rollforward of changes in
Level 3 assets and liabilities. The revised standards also
provide clarification to existing fair value disclosure
requirements related to the level of disaggregation and
disclosure about inputs and valuation techniques. The majority
of the requirements of these revised accounting standards was
effective and adopted by us in the first quarter of 2010 and had
no impact on the consolidated balance sheet, statement of
operations, or statement of cash flows. Certain requirements
related to the gross presentation of activity in the rollfoward
of changes in Level 3 assets and liabilities will become
effective for fiscal years beginning after December 15,
2010 and for interim reporting periods within those fiscal years.
Accounting
Guidance Issued But Not Yet Adopted
In September 2009, the FASB issued ASU
No. 2009-13,
as codified in ASC 605, Revenue Recognition, or
ASC 605. ASC 605 provides greater ability to separate
and allocate arrangement consideration in a multiple element
revenue arrangement. In addition, ASC 605 requires the use
of estimated selling price to allocate arrangement
considerations, therefore eliminating the use of the residual
method of accounting. ASC 605 will be effective for fiscal
years beginning after June 15, 2010 and may be applied
retrospectively or prospectively for new or materially modified
arrangements. Earlier application is permitted. We have
evaluated the impact of ASC 605 and determined that the
2011 adoption will not have a material impact on our
consolidated results of operations, financial position or
statement of cash flows.
Inventories are classified as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Raw materials
|
|
$
|
333
|
|
|
$
|
633
|
|
Work in progress
|
|
|
314
|
|
|
|
894
|
|
Finished goods
|
|
|
7,859
|
|
|
|
9,138
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
$
|
8,506
|
|
|
$
|
10,665
|
|
|
|
|
|
|
|
|
|
|
|
|
3.
|
PROPERTY
AND EQUIPMENT
|
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
System components, including vehicle tracking units
|
|
$
|
22,515
|
|
|
$
|
21,900
|
|
Equipment, software, furniture and fixtures and leasehold
improvements
|
|
|
36,529
|
|
|
|
34,372
|
|
Vehicles
|
|
|
313
|
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
59,357
|
|
|
|
56,615
|
|
Less: accumulated depreciation and amortization
|
|
|
(46,206
|
)
|
|
|
(40,140
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13,151
|
|
|
|
16,475
|
|
System components and fixed assets not yet in service
|
|
|
1,963
|
|
|
|
2,510
|
|
|
|
|
|
|
|
|
|
|
Property and equipment net
|
|
$
|
15,114
|
|
|
$
|
18,985
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense relating to property and equipment totaled
$7,194,000, $8,343,000 and $7,853,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
61
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
System components and fixed assets not yet in service consist
primarily of certain infrastructure, tooling, and other
equipment that has not been placed into service.
|
|
4.
|
GOODWILL
AND OTHER INTANGIBLE ASSETS
|
Upon the acquisitions of Boomerang, SCI and Locator Systems (now
known as LoJack SafetyNet), we recorded goodwill and acquired
certain intangible assets with finite lives. The intangible
assets acquired include customer relationships and trade names
and trademarks.
We have adopted an annual measurement date of November 30 for
SCI and LoJack SafetyNet. These tests for impairment are
performed on an interim basis if there are triggering events
identified. Triggering events are events or changes in
circumstance that would more-likely-than-not reduce the fair
value of a reporting unit below its carrying amount. Examples of
such events or circumstances include: (a) a significant
adverse change in legal factors or in the business climate;
(b) an adverse action or assessment by a regulator;
(c) unanticipated competition; (d) a loss of key
personnel; (e) a more-likely-than-not expectation that a
reporting unit or a significant portion of a reporting unit will
be sold or otherwise disposed of; (f) the testing for
recoverability of a significant asset group within a reporting
unit; or (g) recognition of a goodwill impairment loss in
the financial statements of a subsidiary that is a component of
a reporting unit.
The first step in goodwill impairment testing is to compare the
estimated fair value of the reporting unit to its carrying
value. We utilize the discounted cash flow, or DCF, method under
the income approach to estimate a reporting units fair
value. Use of a DCF valuation model is common practice in
impairment testing in the absence of available transactional
market evidence to determine the fair value. The key assumptions
used in the DCF valuation model include discount rates, growth
rates, cash flow projections and terminal value rates. Discount
rates, growth rates and cash flow projections are the most
sensitive and susceptible to change as they require significant
management judgment. Discount rates are determined by using a
weighted average cost of capital, or WACC. The WACC considers
market and industry data as well as Company-specific risk
factors for each reporting unit in determining the appropriate
discount rates to be used. Using historical and projected data,
growth rates and cash flow projections are generated for each
reporting unit. Terminal value rate determination follows common
methodology of capturing the present value of perpetual cash
flow estimates beyond the last projected period assuming a
constant WACC and low long-term growth rates.
We corroborate the results of the DCF model by using the
guideline company method and the comparable transaction method,
both of which are market-based approaches. In the event that the
estimated fair value of the reporting unit is less than its
carrying amount, we would then proceed to the second step to
determine if an impairment charge is necessary. The second step
in the goodwill impairment testing involves comparing the
implied fair value of goodwill with its carrying value. The
implied fair value of goodwill is equivalent to the excess of
the fair value of a reporting unit over the amounts assigned to
its assets and liabilities, as if the reporting unit had been
acquired in a business combination. Should the carrying value of
the reporting units goodwill exceed the implied fair
value, an impairment loss would be recognized in the amount of
the excess.
Boomerang
The impairment expense taken in June 2009 eliminated the
goodwill balance for the Boomerang reporting unit; therefore no
impairment analysis was performed during the year ended
December 31, 2010.
In 2009, based upon a review of external economic factors and
internal business performance we identified a triggering event
in the Boomerang reporting Unit. As such, Boomerangs
goodwill was tested for impairment. Utilizing a DCF model we
determined the fair value of the Boomerang reporting unit to be
less than its carrying value. We then allocated the fair value
to the reporting units assets and liabilities and
determined that there was no implied fair value of reporting
units goodwill. As a result of this impairment analysis,
we recognized a goodwill impairment charge of $13,627,000 at
June 30, 2009, thus eliminating the goodwill balance
attributable to the
62
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Boomerang reporting unit. The impairment is included in
Impairment of goodwill and intangible assets on the consolidated
statement of operations for the year ended December 31,
2009.
As of June 30, 2009, we also tested the other intangible
assets of our Boomerang reporting unit for recoverability and
determined that the monitoring contractual relationships and
trade name and trademark intangible assets were not fully
recoverable since the expected future undiscounted cash flows
attributable to each asset were below their respective carrying
values. We then determined the fair value of these intangible
assets using a DCF model. As a result of this impairment
analysis, we recognized an impairment charge of $411,000 at
June 30, 2009. The impairment is included in Impairment of
goodwill and intangible assets on the consolidated statement of
operations for the year ended December 31, 2009.
In 2008, based upon a review of external economic factors and
internal business performance we identified a triggering event
and accordingly, we tested the long-lived assets of our
Boomerang reporting unit for recoverability and determined that
the contractual relationships, completed technology and
tradename and trademark intangible assets were not fully
recoverable since the expected future undiscounted cash flows
attributable to each asset were below their respective carrying
values. We then determined the fair value of these intangible
assets using a DCF model. As a result of this impairment
analysis, we recognized an impairment charge of $1,260,000. The
impairment charge by each intangible asset class was as follows:
(a) $1,193,000 for contractual relationships;
(b) $16,000 for completed technology; and (c) $51,000
for tradename and trademark assets. The impairment is included
in Impairment of intangible assets and goodwill on the
consolidated statement of operations for the year ended
December 31, 2008.
During 2008, Boomerangs goodwill was also tested for
impairment. Utilizing a DCF model we determined the fair value
of the Boomerang reporting unit to be less than its carrying
value. We then allocated the fair value to the reporting
units assets and liabilities and determined that the
implied fair value of the reporting units goodwill was
$15,173,000, resulting in an impairment charge of $36,830,000.
The impairment is included in Impairment of intangible assets
and goodwill on the consolidated statement of operations for the
year ended December 31, 2008.
LoJack
SafetyNet
We perform the annual assessment of the goodwill for LoJack
SafetyNet at its annual testing date of November 30. At
November 30, 2010, we estimated that the fair value of the
LoJack SafetyNet reporting unit to be in excess of its carrying
value of $1,303,000 by a significant margin. As a result of the
foregoing, we determined that the second step of the goodwill
impairment process was not required.
SCI
We performed the annual assessment of the goodwill for SCI at
its annual testing date of November 30th. At November 30,
2010, we estimated that the fair value of the SCI reporting unit
to be in excess of its carrying value of $1,291,000 by a
significant margin. As a result of the foregoing, we determined
that the second step of the goodwill impairment process was not
required.
63
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes the changes in goodwill (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
America
|
|
|
All
|
|
|
|
|
|
|
Segment
|
|
|
Other
|
|
|
Consolidated
|
|
|
Balance at January 1, 2008(1)
|
|
$
|
54,979
|
|
|
$
|
|
|
|
$
|
54,979
|
|
Acquisition of Locator Systems
|
|
|
|
|
|
|
472
|
|
|
|
472
|
|
Acquisition of SCI
|
|
|
|
|
|
|
1,245
|
|
|
|
1,245
|
|
Impairment loss on Boomerang
|
|
|
(36,830
|
)
|
|
|
|
|
|
|
(36,830
|
)
|
Foreign exchange impact
|
|
|
(5,267
|
)
|
|
|
|
|
|
|
(5,267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
12,882
|
|
|
|
1,717
|
|
|
|
14,599
|
|
Impairment loss on Boomerang
|
|
|
(13,627
|
)
|
|
|
|
|
|
|
(13,627
|
)
|
Foreign exchange impact
|
|
|
745
|
|
|
|
|
|
|
|
745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
|
|
|
|
1,717
|
|
|
|
1,717
|
|
Foreign exchange impact
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
|
|
|
$
|
1,717
|
|
|
$
|
1,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The goodwill balance at January 1, 2008 relates entirely to
goodwill recorded in connection with our acquisition of
Boomerang on October 29, 2004. The gross value of goodwill
recorded upon the acquisition was $44,002,000. The increase in
goodwill from the acquisition date to January 1, 2008 is
attributable to currency translation adjustments. |
The following table summarizes the changes in intangible assets
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
America
|
|
|
International
|
|
|
All
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
Other
|
|
|
Consolidated
|
|
|
Balance at January 1, 2008
|
|
$
|
3,122
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,122
|
|
Acquisition of Locator Systems
|
|
|
|
|
|
|
|
|
|
|
433
|
|
|
|
433
|
|
Acquisition of SCI
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
260
|
|
Amortization
|
|
|
(640
|
)
|
|
|
|
|
|
|
(132
|
)
|
|
|
(772
|
)
|
Impairment loss on Boomerang
|
|
|
(1,260
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,260
|
)
|
Foreign exchange impact
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
(309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
913
|
|
|
$
|
|
|
|
$
|
561
|
|
|
$
|
1,474
|
|
Amortization
|
|
|
(223
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
(454
|
)
|
Impairment loss on Boomerang
|
|
|
(411
|
)
|
|
|
|
|
|
|
|
|
|
|
(411
|
)
|
Foreign exchange impact
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
344
|
|
|
$
|
|
|
|
$
|
330
|
|
|
$
|
674
|
|
Amortization
|
|
|
(156
|
)
|
|
|
|
|
|
|
(231
|
)
|
|
|
(387
|
)
|
Transfer of Uruguay intangible
|
|
|
(120
|
)
|
|
|
120
|
|
|
|
|
|
|
|
|
|
Foreign exchange impact
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
75
|
|
|
$
|
120
|
|
|
$
|
99
|
|
|
$
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our intangible assets are detailed as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Gross
|
|
|
|
|
|
Average
|
|
|
Gross
|
|
|
|
|
|
Average
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Amortization
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Amortization
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Period
|
|
|
Amount
|
|
|
Amortization
|
|
|
Period
|
|
|
Contractual relationships(1)(2)
|
|
$
|
918
|
|
|
$
|
763
|
|
|
|
2.8 years
|
|
|
$
|
907
|
|
|
$
|
417
|
|
|
|
2.8 years
|
|
Trade name and trademark(1)
|
|
|
75
|
|
|
|
56
|
|
|
|
2.0 years
|
|
|
|
72
|
|
|
|
18
|
|
|
|
2.0 years
|
|
Patents and other intangibles(1)
|
|
|
150
|
|
|
|
30
|
|
|
|
15.0 years
|
|
|
|
150
|
|
|
|
20
|
|
|
|
15.0 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,143
|
|
|
$
|
849
|
|
|
|
4.3 years
|
|
|
$
|
1,129
|
|
|
$
|
455
|
|
|
|
4.3 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Intangible asset balances as of December 31, 2009 reflect
the impairment charges recorded as of June 30, 2009 of
$411,000 and accumulated amortization reflects amortization
expense since the date of impairment. |
|
(2) |
|
Included in the carrying value of contractual relationships at
December 31, 2009 are the values acquired in the 2004
acquisition of Boomerang and values acquired with our
acquisitions of Locator Systems and SCI in 2008. |
Estimated amortization expense for the next five years and
thereafter for our intangible assets as of December 31,
2010 is as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
184
|
|
2012
|
|
|
10
|
|
2013
|
|
|
10
|
|
2014
|
|
|
10
|
|
2015
|
|
|
10
|
|
Thereafter
|
|
|
70
|
|
Other assets consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred costs related to deferred revenue arrangements
|
|
$
|
7,514
|
|
|
$
|
9,051
|
|
Investment in international licensees
|
|
|
2,351
|
|
|
|
2,813
|
|
Absolute warrants
|
|
|
|
|
|
|
336
|
|
Deferred compensation plan assets
|
|
|
1,251
|
|
|
|
1,924
|
|
Security deposits and other
|
|
|
236
|
|
|
|
493
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
$
|
11,352
|
|
|
$
|
14,617
|
|
|
|
|
|
|
|
|
|
|
Deferred
Costs Related to Deferred Revenue Arrangements
As discussed in our revenue recognition policy in Note 1,
revenue relating to the sales of LoJack Early Warning and
certain warranty products are deferred and recognized over five
years. The direct and incremental costs of these revenues,
comprised of the cost of the Early Warning device and paid up
insurance premiums for which the Company is the primary obligor,
are also deferred and recognized over this period. The deferred
cost is presented as a long-term asset.
65
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Investment
in International Licensees
As of December 31, 2010, investments in international
licensees of $2,351,000 included a 12.5% equity interest in our
Mexican licensee, totaling $1,541,000, a 5.5% interest in our
French licensee, totaling $314,000 and a 17.5% equity interest
in our Benelux licensee, totaling $496,000.
The investment in our Mexican licensee, over which we do not
exercise significant influence, is accounted for using the cost
method of accounting and is carried at cost and adjusted only
for
other-than-temporary
declines in fair value, distributions of capital and additional
investments made. Management periodically reviews the carrying
value of this investment, based upon projections of anticipated
cash flows, market conditions, legal factors, operational
performance, and valuations, when appropriate. We have concluded
that there are no impairments to the fair value of this
investment for all years presented. During 2010, 2009 and 2008,
our Mexican licensee declared and paid dividends of $110,000,
$229,000 and $183,000, respectively, which we recorded in other
income.
The investment in our Benelux licensee, over which we do not
exercise significant influence, is accounted for using the cost
method of accounting and is carried at cost and adjusted only
for
other-than-temporary
declines in fair value, distributions of capital and additional
investments made. In 2009, we obtained this investment in
exchange for the licensing rights related to the Benelux region.
We valued the investment based on the fair value of the
licensing rights. The revenue related to the license is
reflected in deferred revenue on the balance sheet at
December 31, 2010 and will begin to be recognized as
license revenue once the licensee has completed the build-out of
the RF network. Management periodically reviews the carrying
value of this investment, based upon projections of anticipated
cash flows, market conditions, legal factors, operational
performance, and valuations, when appropriate.
We may be required to record an impairment charge in a future
period if (1) the licensee would require additional capital
and is unable to raise sufficient capital to continue
operations, (2) the licensee raises sufficient capital, but
at a lower stock price than currently valued
and/or
(3) the operations and future cash flows of the licensee
vary significantly from current projections, adversely affecting
the viability of the business, or other negative events were to
occur.
Our investment in our French licensee, in the form of a
marketable equity security, is accounted for as an
available-for-sale
security and is valued at the quoted closing price of its market
exchange as of the reporting date. If the quoted price of the
investment in our French licensee were to drop below our
recorded cost for an extended period of time we would evaluate
the investment for impairment. No realized gains or losses were
recorded for the year ended December 31, 2010. For the
years ended December 31, 2009 and 2008, we recorded
other-than-temporary
impairment charges of $308,000 and $1,958,000, respectively, for
our investment in our French licensee.
We also hold less than a 10% equity interest in our licensees in
Argentina and Hong Kong, for which we have no carrying value.
Below are the revenue associated with, and the receivables
outstanding from, our international licensees in which we
maintain some ownership (in thousands):
|
|
|
|
|
Revenue for the year ended:
|
|
|
|
|
December 31, 2010
|
|
$
|
18,496
|
|
December 31, 2009
|
|
$
|
19,775
|
|
December 31, 2008
|
|
$
|
27,672
|
|
Accounts receivable outstanding at:
|
|
|
|
|
December 31, 2010
|
|
$
|
8,130
|
|
December 31, 2009
|
|
$
|
9,794
|
|
66
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Absolute
Warrants
In June 2005, we entered into a ten year trademark license
agreement with Absolute Software, Inc., or Absolute, a
Vancouver, British Columbia, Canada based computer theft
recovery company to brand its consumer offering LoJack for
Laptops®.
In addition to an annual per unit royalty, we were granted
1,000,000 (on a post split basis) warrants to purchase
Absolutes common stock with vesting on a pro rata basis
over a five year period commencing on July 1, 2006. We
concluded that a measurement date is not achieved until the
warrants become vested and exercisable. Prior to reaching a
measurement date, the fair value of unvested warrants is
calculated utilizing a Black-Scholes option pricing model and
the earned and unearned revenue is adjusted to fair value. Once
a measurement date has been reached, the fair value of vested
warrants is measured and the revenue related to the vested
warrants becomes fixed with revenue recognized over the
remaining term of the licensing agreement. Subsequent to
reaching a measurement date, the vested warrants are accounted
for as a derivative, which requires the warrants to be recorded
at fair value at each reporting date with any changes in fair
value being recorded in the consolidated statement of
operations. We classify the gains (losses) on investments in
other income (expense). During the years ended December 31,
2010, 2009 and 2008, we recognized $507,000, $879,000 and
($997,000) in revenue (contra revenue) and $47,000, $377,000 and
($1,290,000) in other income (expense), respectively, related to
the Absolute warrants, and the common shares received upon
exercise of the warrants that vested in May 2010, June 2009 and
June 2008.
At December 31, 2010, there are no unvested Absolute
warrants outstanding, as the five year vesting period was
completed in May 2010. Short and long-term deferred revenue,
reflecting the value of the vested warrants at the vesting
dates, totaling $547,000 and $1,915,000, respectively, will be
recognized ratably over the remaining life of the license
agreement. At December 31, 2010, we held
366,500 shares of Absolute common stock acquired through
the exercise of the Absolute warrants in June 2010 and September
2009, for warrants that vested in 2010 and 2009, respectively.
The fair market value of these shares at December 31, 2010
is $1,365,000 and is accounted for as marketable securities that
we have designated as trading securities in the balance sheet as
of December 31, 2010.
Deferred
Compensation Plan
The investments of the deferred compensation plan are included
in other assets at fair value. See Note 11 for further
discussion.
|
|
6.
|
FAIR
VALUE MEASUREMENTS
|
The FASB authoritative guidance on fair value measurements
defines fair value, establishes a framework for measuring fair
value and expands disclosure requirements about fair value
measurements. Fair value is defined as the price that would be
received to sell an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date.
Financial assets and liabilities recorded on the accompanying
consolidated balance sheets are categorized based on the inputs
to the valuation techniques as follows:
Level 1 Financial assets and liabilities
whose values are based on unadjusted quoted prices for identical
assets or liabilities in an active market that the company has
the ability to access at the measurement date (examples include
active exchange-traded equity securities, listed derivatives and
most United States Government and agency securities).
Level 2 Financial assets and liabilities
whose values are based on quoted prices in markets where trading
occurs infrequently or whose values are based on quoted prices
of instruments with similar attributes in active markets.
Level 2 inputs include the following:
|
|
|
|
|
Quoted prices for identical or similar assets or liabilities in
non-active markets (examples include corporate and municipal
bonds which trade infrequently);
|
67
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Inputs other than quoted prices that are observable for
substantially the full term of the asset or liability (examples
include interest rate and currency swaps); and
|
|
|
|
Inputs that are derived principally from or corroborated by
observable market data for substantially the full term of the
asset or liability (examples include certain securities and
derivatives).
|
Level 3 Financial assets and liabilities
whose values are based on prices or valuation techniques that
require inputs that are both unobservable and significant to the
overall fair value measurement. These inputs reflect
managements own assumptions about the assumptions a market
participant would use in pricing the asset or liability.
We do not have any Level 3 or Level 2 financial assets
or liabilities as of December 31, 2010.
Assets
and Liabilities Measured at Fair Value on a Recurring Basis
The fair value hierarchy requires the use of observable market
data when available. In instances where the inputs used to
measure fair value fall into different levels of the fair value
hierarchy, the fair value measurement has been determined based
on the lowest level input significant to the fair value
measurement in its entirety. Our assessment of the significance
of a particular item to the fair value measurement in its
entirety requires judgment, including the consideration of
inputs specific to the asset or liability. The following table
sets forth by level within the fair value hierarchy, our
financial assets that are accounted for at fair value on a
recurring basis at December 31, 2010 and 2009, according to
the valuation techniques we used to determine their fair values
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Nonqualified deferred compensation plan investments
|
|
$
|
1,251
|
|
|
$
|
1,251
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
1,365
|
|
|
|
1,365
|
|
|
|
|
|
|
|
|
|
Equity investment in French licensee
|
|
|
314
|
|
|
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,930
|
|
|
$
|
2,930
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using:
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
December 31,
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
Description
|
|
2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Nonqualified deferred compensation plan investments
|
|
$
|
1,924
|
|
|
$
|
1,924
|
|
|
$
|
|
|
|
$
|
|
|
Marketable securities
|
|
|
1,834
|
|
|
|
1,834
|
|
|
|
|
|
|
|
|
|
Absolute Software warrants
|
|
|
336
|
|
|
|
|
|
|
|
336
|
|
|
|
|
|
Equity investment in French licensee
|
|
|
776
|
|
|
|
776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,870
|
|
|
$
|
4,534
|
|
|
$
|
336
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
and Liabilities Measured at Fair Value on a Nonrecurring Basis
Certain assets are measured at fair value on a non-recurring
basis. These assets are not measured at fair value on an ongoing
basis but are subject to fair value adjustments only under
certain circumstances. These include cost and equity method
investments that are written down to fair value when their
declines are determined to be
68
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
other-than-temporary,
and long-lived assets or goodwill that are written down to fair
value when they are held for sale or determined to be impaired.
We use Level 3 inputs to measure the fair value of goodwill
and intangible assets on their annual measurement dates or if a
triggering event occurs on an interim basis. We recorded an
impairment to the goodwill and intangible assets of our
Boomerang reporting unit during the year ended December 31,
2009 which is discussed in Note 4. No impairment was
recognized for the year ended December 31, 2010.
As of December 31, 2010, investments in international
licensees included a 12.5% equity interest in our Mexican
licensee, totaling $2,351,000, a 17.5% equity interest in our
Benelux licensee, totaling $496,000 and a 5.5% equity interest
in our French licensee, totaling $314,000. In addition, we hold
less than a 10% equity interest in our licensees in Argentina
and Hong Kong, for which we have no carrying value in our
financial statements.
Our investments in the aforementioned licensees are carried at
cost and adjusted only for
other-than-temporary
declines in fair value, distributions of capital and additional
investments made. We periodically review the carrying value of
these investments using Level 3 inputs such as projections
of anticipated cash flows, market conditions, legal factors,
operational performance, and valuations, when appropriate. We
have concluded that there are no impairments to the fair value
of these investments for all periods presented.
Financial
Instruments not Measured at Fair Value
Some of our financial instruments, including cash and cash
equivalents, restricted cash, accounts receivable and accounts
payable are not measured at fair value on a recurring basis but
are recorded at amounts that approximate fair value due to their
liquid or short-term nature.
At December 31, 2010, the carrying value of $8,798,000 of
our long-term debt approximated the fair value, because our two
year multicurrency revolving credit agreement, which was
established on December 29, 2009 and amended on
June 30, 2010 and December 29, 2010, carries a
variable rate of interest which is adjusted periodically and
reflects current market conditions. Also see Note 7 below.
Our debt consisted of the following as of December 31, 2010
and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Short-term debt
|
|
|
|
|
|
|
|
|
SCI convertible promissory note
|
|
$
|
146
|
|
|
$
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Canadian dollar denominated term loan
|
|
|
8,798
|
|
|
|
13,375
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
8,944
|
|
|
$
|
13,375
|
|
|
|
|
|
|
|
|
|
|
On August 10, 2010, SCI issued a one year, 11% interest
Convertible Promissory Note totaling $400,000 to its
shareholders. As a 64% holder of SCI, a $254,000 note was issued
to LoJack Corporation and is considered an intercompany loan,
eliminated in consolidation. The remaining $146,000 due to the
noncontrolling holders of SCI is classified as short-term debt
on our consolidated balance sheet. At December 31, 2010, we
had accrued $6,000 of interest payable under the note, included
in the Accrued and other liabilities total on the consolidated
balance sheet.
On December 29, 2009, we entered into a two year
multicurrency revolving credit agreement, or the Credit
Agreement, with RBS Citizens, N.A., as a Lender, Administrative
Agent and Lead Arranger, and TD Bank, N.A., as a Lender and
Issuing Bank. The Credit Agreement provides for a multicurrency
revolving credit facility in the maximum amount of USD
$30,000,000, subject to a borrowing base calculation (or its
equivalent in alternate
69
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
currencies). We have the right to increase the aggregate amount
available to be borrowed under the Credit Agreement to US
$50,000,000, subject to certain conditions, including consent of
the lenders.
We entered into two amendments to the Credit Agreement during
2010. The first amendment, entered into on June 30, 2010,
allowed for certain one-time severance costs that would
otherwise be deducted in calculating Consolidated Net Income to
be added back in determining Consolidated EBITDA for the purpose
of determining the Debt Service Coverage Ratio covenant for the
quarters ending June 30, 2010 and September 30, 2010.
The second amendment, entered into on December 29, 2010,
extended the maturity date of the revolving credit loans to
January 10, 2014, increased the Companys
authorization for stock repurchase to $10,000,000 and amended
the definitions of Applicable Margin, Consolidated EBITDA and
Interest Payment Date.
The outstanding borrowings under the Credit Agreement totaled
CAD $8,800,000 (equivalent to USD $8,798,000) as of
December 31, 2010. The interest rate on borrowings under
the Credit Agreement varies depending on our choice of interest
rate and currency options, plus an applicable margin. The
interest rate in effect as of December 31, 2010 was 4.1%.
As of December 31, 2010, we also had three outstanding
irrevocable letters of credit in the aggregate amount of
$1,296,000. These letters of credit reduce our outstanding
borrowing availability under the Credit Agreement.
The Credit Agreement contains limitations on capital
expenditures, repurchases of common stock, certain investments,
acquisitions
and/or
mergers and prohibits disposition of assets other than in the
normal course of business. Additionally, we are required to
maintain certain financial performance measures including
maximum leverage ratio, minimum cash flow coverage ratio,
minimum quick ratio and maximum capital expenditures. The
payment of dividends is permitted but is limited only to the
extent such payments do not affect our ability to meet certain
financial performance measures. Failure to maintain compliance
with covenants could impair the availability of the loans under
the facility. At December 31, 2010, based upon the
borrowing base calculation, we had borrowing availability of
$13,180,000. At December 31, 2010, we were in compliance
with all financial covenants in the Credit Agreement.
The Credit Agreement terminates on January 10, 2014, at
which point all amounts outstanding under the revolving credit
facility are due. The Credit Agreement is guaranteed by our
United States domestic subsidiaries and certain Canadian
subsidiaries and is secured by all domestic assets, including
our intellectual property and a pledge of 100% of the stock of
Boomerang Tracking Inc. and 65% of the capital stock of LoJack
Ireland.
|
|
8.
|
EQUITY
AND STOCK COMPENSATION
|
Preferred Stock As of
December 31, 2010, we had 10,000,000
authorized shares of $.01 par value preferred stock.
Common Stock As of December 31,
2010, we had 35,000,000 authorized shares of $.01 par value
common stock and had reserved 4,140,364 shares for the
future issuance and exercise of stock options.
Incentive Plan In May 2008, our
shareholders approved the 2008 Stock Incentive Plan, or the
Incentive Plan, which provides for the issuance of stock options
and the granting of restricted stock to our executive officers,
officers and other key employees. A total of
2,090,000 shares of common stock were authorized for
issuance under the Incentive Plan, consisting of 2,000,000 new
shares and 90,000 shares allocated from our 2003 Stock
Incentive Plan, which we terminated in May 2008. On May 20,
2009, our shareholders approved an additional
2,000,000 shares of common stock for issuance under the
Incentive Plan. We grant stock options at exercise prices equal
to the fair market value of our common stock on the date of
grant. Options issued under the Incentive Plan generally become
exercisable over periods of two to five years and expire seven
years from the date of the grant. At December 31, 2010,
there were 1,878,799 shares available for future grant
under the Incentive Plan.
70
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents activity of all stock options for
the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Contractual Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
(in years)
|
|
|
(In thousands)
|
|
|
Outstanding at January 1, 2010
|
|
|
2,265,080
|
|
|
$
|
7.94
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
842,823
|
|
|
|
4.21
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,150
|
)
|
|
|
5.07
|
|
|
|
|
|
|
|
|
|
Cancelled or forfeited
|
|
|
(845,188
|
)
|
|
|
6.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
2,261,565
|
|
|
$
|
7.28
|
|
|
|
4.39
|
|
|
$
|
3,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2010
|
|
|
2,242,917
|
|
|
$
|
7.30
|
|
|
|
4.38
|
|
|
$
|
3,075
|
|
Exercisable at December 31, 2010
|
|
|
1,169,285
|
|
|
$
|
8.99
|
|
|
|
3.34
|
|
|
$
|
983
|
|
The aggregate intrinsic values in the preceding table represent
the total intrinsic values based on our closing stock price of
$6.46 per share as of December 31, 2010.
The total intrinsic values of options exercised for the years
ended December 31, 2010, 2009 and 2008 were $1,000, $0 and
$23,000, respectively. Proceeds from the exercise of stock
options were $6,000, $0 and $118,000 for the years ended
December 31, 2010, 2009 and 2008, respectively. The cash
related to the 2010 stock option exercise had not been received
as of December 31, 2010 because the settlement date of the
cashless exercise transaction was subsequent to
December 31, 2010. Income tax deficiencies realized from
the exercise of stock options and the vesting of restricted
stock for the years ended December 31, 2010, 2009 and 2008
were $618,000, $159,000 and $358,000, respectively. The income
tax benefit in excess of, or less than, previously recognized
stock compensation expense is recognized in additional
paid-in-capital
to the extent of previously recognized excess tax benefits as
calculated.
As of December 31, 2010, there was $2,005,000 of
unrecognized compensation cost related to our stock option
plans. The cost is expected to be recognized over a weighted
average period of two years.
Unvested Stock Unvested stock
represents shares of common stock that are subject to the risk
of forfeiture until the fulfillment of specified conditions. Our
restricted stock awards generally cliff vest either on the
first, second or third anniversary date of the grant.
For grants that vest based on certain specified performance
criteria, the grant date fair value of the shares is recognized
as compensation expense over the requisite period of performance
once achievement of criteria is deemed probable. For grants that
vest through only the passage of time, the grant date fair value
of the award is recognized as compensation expense on a straight
line basis over the vesting period. The fair value of unvested
stock awards is determined based on the number of shares granted
and the market value of our shares on the grant date. For the
years ended December 31, 2010, 2009 and 2008, $1,775,000,
$1,445,000 and $876,000 of compensation expense, respectively,
has been recorded in operating expenses for unvested stock
awards. As of December 31, 2010, there was $1,664,000, of
unrecognized compensation cost related to unvested stock-based
compensation arrangements granted under our stock plans that is
expected to be recognized as compensation expense in the amounts
of $997,000, $574,000, and $93,000 for the years ended
December 31, 2011, 2012, and 2013, respectively.
71
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents activity of all unvested stock for
the year ended December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at January 1, 2010
|
|
|
799,524
|
|
|
$
|
6.01
|
|
Granted
|
|
|
689,745
|
|
|
|
4.50
|
|
Vested
|
|
|
(359,710
|
)
|
|
|
7.27
|
|
Forfeited/cancelled
|
|
|
(345,496
|
)
|
|
|
4.50
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2010
|
|
|
784,063
|
|
|
$
|
4.77
|
|
|
|
|
|
|
|
|
|
|
The following table presents the total amount of stock-based
compensation expense included in our consolidated statement of
operations for the years ended December 31, 2010, 2009 and
2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of goods sold
|
|
$
|
346
|
|
|
$
|
137
|
|
|
$
|
94
|
|
Product development
|
|
|
5
|
|
|
|
122
|
|
|
|
122
|
|
Sales and marketing
|
|
|
435
|
|
|
|
471
|
|
|
|
601
|
|
General and administrative
|
|
|
2,255
|
|
|
|
2,356
|
|
|
|
1,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
|
3,041
|
|
|
|
3,086
|
|
|
|
2,322
|
|
Income tax benefits
|
|
|
(1,107
|
)
|
|
|
(1,009
|
)
|
|
|
(626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense, net
|
|
$
|
1,934
|
|
|
$
|
2,077
|
|
|
$
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of options at date of grant is estimated using
the Black-Scholes option pricing model. The fair value is then
amortized on a straight-line basis over the requisite service
periods of the awards, which is generally the vesting period.
Use of an option pricing model requires management to make
certain assumptions with respect to selected model inputs.
Expected stock price volatility was calculated based on the
historical volatility of our common stock over the expected life
of the option. The average expected life was based on the
contractual term of the option and expected employee exercise
behavior. The risk-free interest rate is based on United States
Treasury zero-coupon issues with a remaining term equal to the
expected life assumed at the date of grant.
The weighted-average assumptions used in the Black-Scholes
option pricing model for the years ended December 31, 2010,
2009 and 2008, were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Range of risk-free interest rates
|
|
1.97%-3.25%
|
|
1.84%-2.31%
|
|
2.29%-4.49%
|
Expected life (in years)
|
|
7
|
|
5
|
|
4
|
Expected volatility
|
|
56.73%
|
|
52%
|
|
45%
|
Dividend yield
|
|
0%
|
|
0%
|
|
0%
|
Weighted average grant date fair value
|
|
$4.21
|
|
$4.16
|
|
$3.13
|
Employee Stock Purchase Plan In May
2002, our stockholders authorized 250,000 shares of common
stock to be available for our Employee Stock Purchase Plan, or
ESPP. In May 2004, our stockholders voted to increase the shares
available under the ESPP to 1,000,000 shares. The ESPP was
available to all employees in the United States who had at least
six months of service and allowed eligible employees to purchase
our stock at the lower of 85% of the fair market value of the
shares on the offering date or the purchase date, which was six
months after commencement of the offering date. After the
purchases made on May 31, 2009, there were no longer any
72
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
shares available for purchase under the ESPP and the plan was
terminated. For the years ended December 31, 2009 and 2008,
123,617 and 240,049 shares, respectively, were issued under
the ESPP.
For the years ended December 31, 2009 and 2008, we recorded
stock compensation expense of $182,000 and $385,000,
respectively, with respect to the ESPP. The weighted-average
ESPP assumptions used in the Black-Scholes option pricing model
for the years ended December 31, 2009 and 2008, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Risk-free interest rates
|
|
|
0.44
|
%
|
|
|
2
|
%
|
Expected life (in months)
|
|
|
6
|
|
|
|
6
|
|
Expected volatility
|
|
|
80.54
|
%
|
|
|
39.38
|
%
|
Dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted average grant date fair value
|
|
$
|
1.48
|
|
|
$
|
3.35
|
|
Stock Repurchase Plans On
February 28, 2006, our Board of Directors authorized a
stock repurchase plan, or the 2006 Repurchase Plan. The 2006
Repurchase Plan authorized us to purchase up to
2,000,000 shares of our outstanding common stock on or
before February 25, 2008. From the date of the adoption of
the 2006 Repurchase Plan through December 18, 2006 we
repurchased 1,244,566 shares. On December 19, 2006,
the Board of Directors increased the remaining authorization to
2,000,000 shares. On February 15, 2008, our Board of
Directors approved an increase of 1,000,000 shares to be
repurchased under the 2006 Repurchase Plan, pursuant to a plan
intended to comply with
Rule 10b5-1
under the Exchange Act, and additionally renewed the remaining
management discretionary authority to repurchase
2,000,000 shares, for a total repurchase authorization of
3,000,000 shares. For the years ended December 31,
2010, 2009 and 2008 we repurchased 98,942, 8,816 and
1,318,222 shares of common stock at an average price per
share of $5.33, $4.02 and $10.83, respectively. At
December 31, 2010 there are 1,681,778 shares available
for repurchase under the 2006 Repurchase Plan.
All repurchases in 2010 and 2009 were shares acquired from our
employees or directors in accordance with our 2008 Stock
Incentive Plan as a result of share withholdings to pay income
tax related to the lapse of restrictions on restricted stock and
thus did not impact the shares available for repurchase under
the 2006 Repurchase Plan.
The components of loss before taxes and net loss of
noncontrolling interest are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
(5,525
|
)
|
|
$
|
(19,703
|
)
|
|
$
|
(8,789
|
)
|
Foreign
|
|
|
4,317
|
|
|
|
(23,350
|
)
|
|
|
(23,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(1,208
|
)
|
|
$
|
(43,053
|
)
|
|
$
|
(31,886
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision (benefit) for income taxes consists of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(582
|
)
|
|
$
|
(7,706
|
)
|
|
$
|
(197
|
)
|
State
|
|
|
781
|
|
|
|
|
|
|
|
341
|
|
Foreign
|
|
|
2,061
|
|
|
|
20
|
|
|
|
2,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,260
|
|
|
|
(7,686
|
)
|
|
|
2,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
11,802
|
|
|
|
1,054
|
|
|
|
(1,114
|
)
|
State
|
|
|
3,117
|
|
|
|
(644
|
)
|
|
|
(92
|
)
|
Foreign
|
|
|
249
|
|
|
|
(495
|
)
|
|
|
(750
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,168
|
|
|
|
(85
|
)
|
|
|
(1,956
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
$
|
17,428
|
|
|
$
|
(7,771
|
)
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of statutory federal income tax benefit at a
35% tax rate to recorded income tax expense (benefit) is as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Statutory federal income tax benefit
|
|
$
|
(423
|
)
|
|
$
|
(14,851
|
)
|
|
$
|
(11,105
|
)
|
State taxes, net of federal benefit
|
|
|
13
|
|
|
|
(418
|
)
|
|
|
141
|
|
Valuation Allowances established
|
|
|
15,195
|
|
|
|
|
|
|
|
|
|
Valuation Allowances-current year losses
|
|
|
4,786
|
|
|
|
2,495
|
|
|
|
3,450
|
|
Boomerang impairment of goodwill and intangible assets
|
|
|
|
|
|
|
4,193
|
|
|
|
13,342
|
|
Prior year adjustments
|
|
|
460
|
|
|
|
|
|
|
|
|
|
Foreign rate differential
|
|
|
(2,659
|
)
|
|
|
1,514
|
|
|
|
(5,900
|
)
|
Other, net
|
|
|
56
|
|
|
|
(704
|
)
|
|
|
875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded income tax expense (benefit)
|
|
$
|
17,428
|
|
|
$
|
(7,771
|
)
|
|
$
|
803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of the items comprising our deferred tax assets
and liabilities as of December 31, 2010 and 2009 are as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Accruals not currently deductible
|
|
$
|
4,635
|
|
|
$
|
6,515
|
|
Revenue recognized for tax purposes
|
|
|
8,619
|
|
|
|
11,380
|
|
Investments in
available-for-sale
and trading securities
|
|
|
2,253
|
|
|
|
|
|
Net operating losses and other carryforwards
|
|
|
14,901
|
|
|
|
7,933
|
|
Other
|
|
|
415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
30,823
|
|
|
|
25,828
|
|
Valuation allowances
|
|
|
(29,125
|
)
|
|
|
(8,137
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
1,698
|
|
|
|
17,691
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciable assets
|
|
|
(453
|
)
|
|
|
(567
|
)
|
Intangible assets
|
|
|
|
|
|
|
(63
|
)
|
Software development costs
|
|
|
(937
|
)
|
|
|
(1,184
|
)
|
Investments in
available-for-sale
and trading securities
|
|
|
|
|
|
|
(230
|
)
|
Other
|
|
|
(207
|
)
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(1,597
|
)
|
|
|
(2,214
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
101
|
|
|
$
|
15,477
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, we had state net operating loss
carryforwards which will result in state tax benefits of
approximately $1,086,000, which will expire at various dates
through 2029. We also had domestic R&D tax credit
carryforwards of $512,000, which will expire beginning in 2029,
and United States foreign tax credit carryforwards of $311,000,
which will expire beginning in 2019.
At December 31, 2010, we had foreign net operating loss
carryforwards of approximately $27,017,000 primarily related to
our operations in Italy and Canada. Our net operating loss
carryforwards in the Netherlands, Belgium, and Cyprus have
indefinite lives and the remaining carryforwards begin to expire
in 2014. We also had domestic federal net operating loss carry
forwards of $4,528,000 for the LoJack Corporation tax group and
$9,112,000 related to our investment in SCI. The realization of
these deferred tax assets is not considered to be more likely
than not and a full valuation allowance has been provided on our
worldwide net operating loss carryforwards. The valuation
allowance increased by approximately $20,988,000, $2,393,000 and
$3,000,000 during the years ended December 31, 2010, 2009
and 2008, respectively. The 2010 increase in valuation allowance
is primarily due to the establishment of a complete valuation
allowance against our net U.S. deferred tax assets as a
result of declines in our U.S. profitability and the
uncertainty as to the extent and timing of
U.S. profitability in future periods. The 2008 and 2009
increases in valuation allowance are primarily due to changes in
fully reserved deferred tax assets. If sufficient evidence of
our ability to generate future taxable income in those
jurisdictions becomes more likely than not, we may reduce our
valuation allowance, which would result in an income tax benefit
being recorded in our consolidated statement of operations.
We recorded a $17,428,000 provision for income taxes for the
year ended December 31, 2010, which includes the
establishment of a valuation allowance for our net
U.S. deferred tax assets of $14,919,000 and the
establishment of a valuation allowance for deferred tax assets
in a Canadian subsidiary of $276,000. The provision for income
taxes of $17,428,000 for the year ended December 31, 2010
is significantly higher than the federal statutory rate
75
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
benefit of $423,000 due primarily to the establishment of a
valuation allowance on our net U.S. deferred tax assets in
the second quarter of 2010.
In applying ASC 718, Accounting for Stock Based
Compensation in 2010, we recorded a $618,000 reduction to
additional paid in capital to reduce deferred tax assets related
to stock based compensation awards that resulted in tax
deductions that were less than compensation expense recorded for
financial reporting purposes.
During the year ended December 31, 2009, we recorded an
expense associated with a legal settlement with our former China
licensee in the amount of $18,250,000, which generated a tax
benefit of $4,582,000. We have analyzed the tax consequences
associated with the settlement payments and believe we have
taken the appropriate tax deduction. In the event this position
is challenged by the tax authorities, we are prepared to do what
is necessary to sustain our position, including defending our
position through the court of last resort. As such, we have not
recorded an uncertain tax position related to the position
taken. Although we believe the measurement of the tax position
is proper, there can be no assurance we will ultimately prevail
if disputed by the tax authorities.
We do not provide for income taxes on undistributed earnings of
our foreign operations that are intended to be invested
indefinitely outside the United States. Our undistributed
earnings of our foreign operations are approximately
$85,000,000. We do not believe it is practical to estimate the
income taxes payable on the earnings that are indefinitely
reinvested in our foreign operations.
Uncertain
Tax Positions
During 2010, 2009 and 2008, the total amount of unrecognized tax
benefits was as follows (in thousands):
|
|
|
|
|
Balance at January 1, 2008
|
|
$
|
1,966
|
|
Settlement with tax authorities
|
|
|
(789
|
)
|
Lapse of statute of limitations
|
|
|
(90
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1,087
|
|
Additions based on tax positions taken in current year
|
|
|
18,345
|
|
Lapse of statute of limitations
|
|
|
(334
|
)
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
19,098
|
|
Additions based on tax positions taken in prior years
|
|
|
1,191
|
|
Adjustment due to change in estimate from prior years
|
|
|
(1,698
|
)
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
18,591
|
|
|
|
|
|
|
The 2010 additions relate to U.S. expenses deducted in
previous years of which the realization of the tax benefit is
uncertain. Of the above total $18,591,000 balance as of
December 31, 2010, approximately $15,302,000, if not
realized, will result in the expiration of a capital loss
carryforward in 2015. The liability amounts related to the
unrecognized tax benefits recorded at December 31, 2010 and
2009 were $3,220,000 and $2,098,000, respectively. We do not
anticipate a material change in our liabilities for uncertain
tax positions during the next 12 months.
The 2009 addition represented a capital loss deduction with
respect to our investment in Boomerang, of which the realization
of the tax benefit is uncertain. To the extent the remaining
unrecognized benefits at December 31, 2010 are ultimately
recognized, we estimate that we will recognize a benefit of
approximately $3,220,000 which will impact our effective tax
rate.
We recognize interest and penalties related to income tax
matters within income tax expense. At December 31, 2010 and
2009 we had accrued interest related to our uncertain tax
positions of $260,000 and $192,000 respectively. Included in our
consolidated statement of operations for 2010 is $68,000 of tax
expense related to interest on uncertain tax positions. During
2009, we released penalties and interest, net of accruals, of
$151,000 and $233,000, respectively, related to these
unrecognized tax benefits with a net credit to tax expense of
$384,000 included in our statement of
76
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operations. Our accrued penalties and interest were released in
2009 due to a lapse in the statute of limitations as it related
to certain state items. As of December 31, 2008, we had a
liability for potential penalties and interest of $151,000 and
$425,000, respectively. During 2008, we reduced our potential
penalties due to settlement of an IRS audit for tax years 2005
and 2006 by $248,000 and accrued $100,000 of interest, with a
net credit to tax expense of $148,000 included in our statement
of operations.
We are subject to United States federal income tax as well as
income tax in multiple state and foreign jurisdictions. We have
concluded all United States federal income tax matters for tax
years through 2007. In addition, substantially all material
state, local, and foreign income tax matters have been concluded
for tax years through 2004. Foreign income tax matters generally
remain open for examination for years after 2006.
|
|
10.
|
COMMITMENTS
AND CONTINGENT LIABILITIES
|
Lease Commitments We lease various
facilities, equipment and vehicles under operating leases whose
terms expire from 2011 to 2019. Certain facility and equipment
leases contain renewal options ranging from one to five years.
Certain of our facility and equipment leases contain escalation
clauses. For facility leases, we record the total expense of the
lease on a straight-line basis over the estimated term of lease.
Minimum annual lease payments under operating leases as of
December 31, 2010 are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
4,744
|
|
2012
|
|
|
2,760
|
|
2013
|
|
|
2,056
|
|
2014
|
|
|
1,611
|
|
2015
|
|
|
1,330
|
|
Thereafter
|
|
|
4,973
|
|
|
|
|
|
|
Total
|
|
$
|
17,474
|
|
|
|
|
|
|
Rental expense under operating leases aggregated approximately
$5,928,000, $6,302,000 and $5,845,000 for the years ended
December 31, 2010, 2009 and 2008, respectively.
Purchase Commitments and Milestone
Payments As of December 31, 2010, we
had outstanding commitments to our suppliers for certain system
components and tooling equipment totaling approximately
$414,000. The total of these purchase commitments as of
December 31, 2010 is significantly lower than those
outstanding as of December 31, 2009 due to timing of
purchase orders placed with vendors. Subsequent to
December 31, 2010, we entered into product purchase
commitments of approximately $6,700,000 with a major supplier.
Loan Guarantees We guarantee the
amortized value of LoJack Units purchased by customers via auto
loans underwritten by a certain financing company. Under this
agreement, we will reimburse participating dealers the
unamortized cost of a financed LoJack Unit upon a
borrowers default within the initial eighteen months of
the auto loan. This agreement terminated effective
December 31, 2010 but is automatically renewed for
subsequent one year terms until either of the parties provides a
notification of intent to terminate the agreement.
Payment to the participating dealers is remitted by us under
this agreement on a
claim-by-claim
basis. Based on the unamortized cost of units sold, our maximum
potential amount of future payments under this agreement is
$5,244,000 as of December 31, 2010. Our expected obligation
is accrued for based on sales to the participating dealers and
industry default statistics. As of December 31, 2010 we had
accrued $479,000 under this guarantee. Accruals for loan
guarantees are charged as a reduction of revenue in the
consolidated statement of operations.
Contingencies From time to time, we
are engaged in certain legal matters arising in the ordinary
course of business and in certain matters more fully described
below. The results of legal proceedings cannot be predicted
77
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
with certainty. Should we fail to prevail in any of these legal
matters, our financial condition and results of operations could
be materially adversely affected.
California
Class Action Litigation
Employee
Claims
In April 2006, a suit was filed against LoJack Corporation in
the United States District Court for the Central District of
California by an employee alleging violations of the Fair Labor
Standards Act, the California Labor Code and the California
Business & Professions Code, and seeking class action
status. In September 2007, our motion for summary judgment was
granted and the district court dismissed all of the
plaintiffs federal law claims. The plaintiff appealed the
dismissal to the Ninth Circuit Court of Appeals and in August
2009, the Ninth Circuit affirmed the district courts grant
of summary judgment on all claims except as to the claim for
compensation for the required postliminary data transmission, or
the data transmission claim, for which the dismissal was
vacated. The plaintiff filed a petition for rehearing to the
Ninth Circuit and on March 2, 2010, the Ninth Circuit
affirmed the district courts grant of summary judgment on
all claims except as to (a) the claim for compensation for
commuting under state law and (b) the data transmission
claim, which are the two remaining claims. The plaintiff intends
to pursue the claim for compensation for commuting time in the
State Court case referenced below. The plaintiff moved for
conditional class certification for the data transmission claim
and on January 14, 2011, the District Court for the Central
District of California granted plaintiffs motion for
conditional certification. Trial for this claim in federal court
currently scheduled for November 2011.
Due to the dismissal of the plaintiffs claims in federal
court in September 2007 as discussed above, in November 2007,
the plaintiff also filed state law claims in California State
Court. In June 2009, the California State Court granted class
certification with respect to nine claims and denied class
certification with respect to five claims. The Company appealed
this decision and on March 26, 2010, the California State
Appellate Court granted our appeal in part, denying
certification with respect to certain claims and affirming
certification with respect to other claims, including claims
related to meal and rest breaks, postliminary data transmission,
and time traveling to UPS stores. There are currently six claims
class certified in this State Court case. The plaintiff seeks to
pursue the claim for compensation for commuting time in
California State Court.
In both the Federal and State Court cases, the plaintiff, on
behalf of the class, seeks unpaid wages, penalties, interest and
attorneys fees. In November 2010, the parties had a
mediation hearing to address all remaining Federal and State
claims. However, the parties did not reach any resolution as a
result of the mediation.
On February 14, 2011, the Company filed a Notice of Removal
to remove the State Court Case to Federal Court, thereby
requesting to consolidate both the Federal and State Court cases
to be heard in Federal Court. The Company believes that it has
substantial legal and factual defenses to these claims and
intends to defend its interests vigorously.
We have made accruals in the amount of $750,000 in the year
ended December 31, 2010, with respect to certain of the
above claims based on our best estimates, where a potential loss
is considered probable. For other claims, due to a variety of
uncertain factors, including whether the claims will be heard in
state or federal court, whether the claims will be certified or
remain certified, the actual number of individuals who will
choose to opt into the class or opt out of the class and the
merits of the claims, we cannot at this time predict the outcome
of the case related to such claims nor estimate the possible
loss or range of loss, if any, we could incur if there was an
unfavorable outcome with respect to this litigation.
Consumer
Claims
On June 15, 2010, a suit was filed by a consumer against
LoJack Corporation in the Los Angeles County Superior Court of
the State of California (Central District) alleging, amongst
other claims, violations of the California Consumers Legal
Remedies Act, the California Business and Professions Code
§ 17200 (unfair
78
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
competition) and § 17500 (false advertising), and
breach of implied warranty with respect to LoJack Early Warning
for motorcycles, and seeking class action status. On
July 29, 2010, the Company removed the case to the United
States District Court for the Central District Court of
California. On August 23, 2010, the Company filed a motion
to dismiss all claims, which was granted by the Court on
September 27, 2010, without prejudice. The dismissal
without prejudice provided plaintiff with the opportunity to
amend its complaint, and on October 25, 2010, the plaintiff
filed an amended complaint, for alleged fraud, violations of the
California Consumers Legal Remedies Act, the California Business
and Professions Code § 17200 (unfair competition) and
§ 17500 (false advertising), and breach of implied
warranty and again seeks class certification. On
November 12, 2010, the Company filed it a motion to dismiss
all claims and a motion to strike certain claims. On
December 28, 2010, the Court denied the Companys
motion to dismiss. The plaintiff, on behalf of the class, seeks
injunctive relief, restitution, disgorgement, punitive damages,
and attorneys fees in unspecified amounts. The parties are
currently engaged in discovery. On March 3, 2011, the
plaintiff filed a motion for class certification. The Company is
currently preparing its opposition to class certification. The
parties have scheduled a mediation hearing for March 29,
2011 to address all claims. There can be no guarantee of the
possible outcome of the mediation between the parties, and there
may or may not be a resolution of the above matters as a result
of the mediation. The Company believes that it has substantial
legal and factual defenses to these claims and intends to defend
its interests vigorously.
We cannot at this time predict the outcome of this case nor
estimate the possible loss or range of loss, if any, we could
incur if there was an unfavorable outcome with respect to this
litigation.
New York
Litigation
On October 13, 2010, a suit was filed by G.L.M.
Security & Sound, Inc. against LoJack Corporation in
United States District Court for the Eastern District of New
York alleging breach of contract, misrepresentation, violation
of the NY franchise law, and price discrimination. Plaintiff
seeks damages of $10,000,000, punitive damages, interest and
attorneys fees, and treble damages. On December 14, 2010,
the Company filed a motion to dismiss all claims. On
February 1, 2011, the plaintiff filed a motion to amend the
complaint and sought to add a claim for breach of fiduciary
duty. On February 15, 2011, the Company filed its
opposition to the motion to amend and sought dismiss of all
claims. The Company believes that it has substantial legal and
factual defenses to these claims and intends to defend its
interests vigorously.
Given the early stages of this matter, we cannot predict the
outcome of the case nor estimate the possible loss or range of
loss, if any, we could incur if there was an unfavorable outcome
with respect to this litigation.
|
|
11.
|
EMPLOYEE
BENEFIT PLANS
|
We have a profit sharing plan with a Section 401(k) feature
to provide retirement benefits covering substantially all of our
full-time domestic employees. Under the provisions of the plan,
employees are eligible to contribute a portion of their
compensation within certain limitations as established by the
plan and the Internal Revenue Code. On March 26, 2009, our
Board of Directors amended the Companys 401(k) Plan to
make the Companys match of employee contributions
discretionary on the part of the Company. Pursuant to that
authority, as of such date, we suspended all matching
contributions for the year ended December 31, 2009. Our
Board of Directors elected to match 50% of employee
contributions (100% of employee contributions for those
individuals with more than five years of service) up to a
maximum of 6% of the participants compensation, for the
years ended December 31, 2010 and 2008, subject to certain
limitations. Company contributions become fully vested after
five years of continuous service. Company contributions related
to the plan were approximately $1,022,000 and $1,365,000 for the
years ended December 31, 2010 and 2008, respectively.
We also maintain a nonqualified deferred compensation plan for
the benefit of our key employees. The plan allows for eligible
employees to defer a percentage of their total cash
compensation. We typically match 50% of employee contributions
(100% of employee contributions for those individuals with more
than five years of service) up to a maximum of 6% of their total
cash compensation. Company contributions become 100% vested
three years
79
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
after contribution. We may also make discretionary contributions
to the deferred compensation plan. On March 26, 2009, we
suspended all matching contributions to the nonqualified
deferred compensation plan for the remainder of the year ended
December 31, 2009. Matching contributions to the
nonqualified deferred compensation plan were not resumed during
the year ended December 31, 2010. Prior to suspension of
all matching contributions, Company contributions related to the
plan were approximately $34,000 and $176,000 for the years ended
December 31, 2009 and 2008, respectively.
Our investments associated with our nonqualified deferred
compensation plan consist of mutual funds that are publicly
traded and for which market prices are readily available. The
investments of the deferred compensation plan are included in
other assets at fair value. Investments related to the deferred
compensation plan are classified as trading securities and
reported at fair value with unrealized gains and losses included
in other income (expense) in the consolidated statement of
operations. The other income (expense) is offset in equal
amounts by adjustments to compensation expense recognized and
included in general and administrative expenses. Our investments
in the deferred compensation plan are reported as long-term
assets on our consolidated balance sheets. Our liabilities to
the participants in the deferred compensation plan, which are
equal to the fair value of the assets in the plan are reported
as long-term accrued compensation on our consolidated balance
sheet.
|
|
12.
|
BUSINESS
SEGMENT AND GEOGRAPHIC INFORMATION
|
We have three separately managed and reported business segments:
North America, International and All Other. The accounting
policies of our segments are consistent with those policies
described in Note 1.
Our North America segment includes our domestic operation which
sells products that operate in all or a portion of
28 states and the District of Columbia, in the United
States as well as Boomerang, a provider of stolen vehicle
recovery products and services in Canada.
Our International segment sells products, licenses or owns and
operates LoJack proprietary vehicle recovery technology in 32
countries and territories throughout Europe, Asia, Africa and
Latin and South America and LoJack Italia.
In 2008 we acquired the assets of Locator Systems (now known as
LoJack SafetyNet) and SCI, providers of technology for the
tracking and rescue or recovery of people at risk of wandering
and valuable cargo and business information, respectively. The
financial statement impact of these businesses is included in
the All Other segment below.
80
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents information about our operating
segments for the years ended December 31, 2010, 2009 and
2008 (in thousands). Certain general overhead costs have been
allocated to the North America and International segments based
on methods considered to be reasonable by our management.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
International
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Segment
|
|
|
All Other
|
|
|
Consolidated
|
|
|
Year ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
96,228
|
|
|
$
|
46,900
|
|
|
$
|
3,507
|
|
|
$
|
146,635
|
|
Depreciation and amortization
|
|
|
6,729
|
|
|
|
422
|
|
|
|
430
|
|
|
|
7,581
|
|
Operating (loss) income
|
|
|
(17,894
|
)
|
|
|
19,763
|
|
|
|
(2,254
|
)
|
|
|
(385
|
)
|
Capital expenditures
|
|
|
3,054
|
|
|
|
147
|
|
|
|
50
|
|
|
|
3,251
|
|
Segment assets
|
|
|
71,504
|
|
|
|
47,150
|
|
|
|
3,657
|
|
|
|
122,311
|
|
Deferred revenue
|
|
|
47,698
|
|
|
|
2,668
|
|
|
|
292
|
|
|
|
50,658
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
95,775
|
|
|
$
|
36,063
|
|
|
$
|
3,175
|
|
|
$
|
135,013
|
|
Depreciation and amortization
|
|
|
7,885
|
|
|
|
447
|
|
|
|
465
|
|
|
|
8,797
|
|
Impairment of intangible assets and goodwill
|
|
|
14,038
|
|
|
|
|
|
|
|
|
|
|
|
14,038
|
|
Operating loss(1)
|
|
|
(32,937
|
)
|
|
|
(8,582
|
)
|
|
|
(2,667
|
)
|
|
|
(44,186
|
)
|
Capital expenditures
|
|
|
4,596
|
|
|
|
180
|
|
|
|
502
|
|
|
|
5,278
|
|
Segment assets
|
|
|
99,020
|
|
|
|
43,822
|
|
|
|
4,648
|
|
|
|
147,490
|
|
Deferred revenue
|
|
|
56,017
|
|
|
|
1,682
|
|
|
|
184
|
|
|
|
57,883
|
|
Year ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
132,542
|
|
|
$
|
63,735
|
|
|
$
|
2,402
|
|
|
$
|
198,679
|
|
Depreciation and amortization
|
|
|
8,039
|
|
|
|
440
|
|
|
|
146
|
|
|
|
8,625
|
|
Impairment of intangible assets and goodwill
|
|
|
38,090
|
|
|
|
|
|
|
|
|
|
|
|
38,090
|
|
Operating (loss) income
|
|
|
(46,953
|
)
|
|
|
20,609
|
|
|
|
(559
|
)
|
|
|
(26,903
|
)
|
Capital expenditures
|
|
|
6,026
|
|
|
|
563
|
|
|
|
107
|
|
|
|
6,696
|
|
Segment assets
|
|
|
139,850
|
|
|
|
50,622
|
|
|
|
5,404
|
|
|
|
195,876
|
|
Deferred revenue
|
|
|
62,080
|
|
|
|
1,006
|
|
|
|
122
|
|
|
|
63,208
|
|
|
|
|
(1) |
|
In the year ended December 31, 2009, we recognized a charge
of $18,250,000 related to a legal settlement entered into with
our former licensee in China. Based on managements
analysis, we allocated the settlement charge equally between
LoJack Corporation, and LoJack Ireland, which are in our North
America and International segments, respectively. |
The following table presents information about our geographic
revenue, based on the location of our customers, for the years
ended December 31, 2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
United States
|
|
$
|
87,018
|
|
|
$
|
86,392
|
|
|
$
|
116,244
|
|
Africa
|
|
|
12,443
|
|
|
|
2,853
|
|
|
|
15,189
|
|
Latin American and Caribbean countries
|
|
|
28,684
|
|
|
|
28,103
|
|
|
|
44,106
|
|
Canada
|
|
|
12,717
|
|
|
|
12,558
|
|
|
|
18,700
|
|
Europe and Asia
|
|
|
5,773
|
|
|
|
5,107
|
|
|
|
4,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
146,635
|
|
|
$
|
135,013
|
|
|
$
|
198,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents information about our revenue, by
product and service lines, for the years ended December 31,
2010, 2009 and 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Products
|
|
$
|
94,600
|
|
|
$
|
83,843
|
|
|
$
|
130,632
|
|
Early Warning Products
|
|
|
27,284
|
|
|
|
26,447
|
|
|
|
38,268
|
|
Warranties
|
|
|
11,541
|
|
|
|
12,264
|
|
|
|
14,065
|
|
Services
|
|
|
13,210
|
|
|
|
12,459
|
|
|
|
15,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
146,635
|
|
|
$
|
135,013
|
|
|
$
|
198,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents information about our long-lived
assets as of December 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
United States
|
|
$
|
12,417
|
|
|
$
|
15,246
|
|
Canada
|
|
|
1,461
|
|
|
|
2,135
|
|
Europe and other
|
|
|
1,236
|
|
|
|
1,604
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,114
|
|
|
$
|
18,985
|
|
|
|
|
|
|
|
|
|
|
|
|
13.
|
UNAUDITED
QUARTERLY RESULTS
|
Our unaudited quarterly results are summarized below (in
thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30,788
|
|
|
$
|
37,351
|
|
|
$
|
38,485
|
|
|
$
|
40,011
|
|
Gross profit
|
|
|
14,456
|
|
|
|
19,498
|
|
|
|
19,359
|
|
|
|
20,361
|
|
Net (loss) income
|
|
|
(5,659
|
)
|
|
|
(18,403
|
)(1)
|
|
|
2,674
|
|
|
|
2,752
|
|
Net (loss) income attributable to LoJack Corporation
|
|
|
(5,578
|
)
|
|
|
(18,199
|
)(1)
|
|
|
2,723
|
|
|
|
2,748
|
|
Basic (loss) earnings per share attributable to LoJack
Corporation
|
|
$
|
(0.32
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
0.16
|
|
|
$
|
0.16
|
|
Diluted (loss) earnings per share attributable to LoJack
Corporation
|
|
$
|
(0.32
|
)
|
|
$
|
(1.05
|
)
|
|
$
|
0.15
|
|
|
$
|
0.15
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
27,841
|
|
|
$
|
35,404
|
|
|
$
|
36,121
|
|
|
$
|
35,647
|
|
Gross profit
|
|
|
13,609
|
|
|
|
18,569
|
|
|
|
20,567
|
|
|
|
18,172
|
|
Net loss
|
|
|
(6,580
|
)
|
|
|
(12,694
|
)(2)
|
|
|
(13,618
|
)(3)
|
|
|
(2,390
|
)(4)
|
Net loss attributable to LoJack Corporation
|
|
|
(6,428
|
)
|
|
|
(12,515
|
)(2)
|
|
|
(13,439
|
)(3)
|
|
|
(2,279
|
)(4)
|
Basic and diluted loss per share attributable to LoJack
Corporation
|
|
$
|
(0.38
|
)
|
|
$
|
(0.73
|
)
|
|
$
|
(0.78
|
)
|
|
$
|
(0.13
|
)
|
82
LOJACK
CORPORATION AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
In the second quarter of 2010, we recorded a non-cash tax charge
of $15,127,000 to establish a valuation allowance for our net
U.S. deferred tax assets. |
|
(2) |
|
In the second quarter of 2009, we recognized a pre-tax
impairment charge of $14,038,000, which did not receive a tax
benefit. |
|
(3) |
|
In the third quarter of 2009, we recognized a pre-tax charge of
$18,250,000, or $13,551,000 net of tax, in connection with
the settlement of the litigation and arbitration between the
parties, LoJack Corp, LoJack Ireland, and certain of their
affiliates, and Kington Holdings Limited and certain of its
affiliates. |
|
(4) |
|
In the fourth quarter of 2009, we recognized additional
depreciation of $1,000,000 related to software and other
equipment placed into service in prior periods. |
83
|
|
ITEM 9
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer (our
principal executive officer and principal financial officer,
respectively) have evaluated the effectiveness of our disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the
end of the period covered by this Annual Report on
Form 10-K.
Based on this evaluation, our principal executive officer and
principal financial officer have concluded that, as of the end
of the period covered by this report, our disclosure controls
and procedures were effective to ensure that the information
required to be disclosed by us in this Annual Report on
Form 10-K
was recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms.
Changes
in Internal Control Over Financial Reporting
There were no significant changes in the our internal control
over financial reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) that occurred during the quarter ended
December 31, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
under the Exchange Act. Our internal control system was designed
to provide reasonable assurance to our management and board of
directors regarding the preparation and fair presentation of
financial reporting. All internal control systems, no matter how
well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting
based on the framework in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our
evaluation under the framework in Internal
Control Integrated Framework, our management
concluded that our internal control over financial reporting was
effective as of December 31, 2010.
Our internal control over financial reporting was audited by
KPMG LLP, an independent registered public accounting firm, as
stated in their report appearing on page 48.
|
|
ITEM 9B
|
OTHER
INFORMATION
|
The Company and LoJack Ireland entered into an Agreement for
Manufacture with Celestica Corporation, or Celestica, effective
November 25, 2010, which provides for the terms under which
Celestica will manufacture and LoJack will purchase LoJack
units. The Agreement for Manufacture is attached hereto as
Exhibit 10CC, with portions of the exhibit omitted pursuant
to a request for confidential treatment.
84
PART III
|
|
ITEM 10
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Code of
Ethics
Our Amended and Restated Code of Business Conduct and Ethics, or
the Code of Business Conduct and Ethics, applies to our
directors, officers and employees. The Code of Business Conduct
and Ethics is posted on our website, www.lojack.com, under the
heading ABOUT US, then under the heading
Investor Relations. Any waiver for directors or
executive officers from a provision of the Code of Business
Conduct and Ethics must be approved by our Board of Directors
and shall be disclosed on a
Form 8-K
within four business days. Additionally, we intend to satisfy
our disclosure requirement regarding any amendment to the Code
of Business Conduct and Ethics by posting such information on
our website within four business days.
Our website address is included in this Annual Report on
Form 10-K
as a textual reference only and the information in our website
is not incorporated by reference into this Annual Report on
Form 10-K.
See Item 1, Business Executive Officers of the
Registrant.
The remainder of the information required by this Item 10
is incorporated herein by reference to our definitive Proxy
Statement for our Annual Meeting of Stockholders to be held
May 20, 2011, or our definitive Proxy Statement, under the
headings Proposal No. 1 Election of
Directors, Corporate Governance and
Security Ownership of Certain Beneficial Owners and
Management Shareholders.
|
|
ITEM 11
|
EXECUTIVE
COMPENSATION
|
The information required by this Item 11 is incorporated
herein by reference to the information appearing in our
definitive Proxy Statement under the headings Executive
Compensation and Compensation of Directors and
Proposal No. 1 Election of
Directors.
|
|
ITEM 12
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item 12 is incorporated
herein by reference to the information appearing in our
definitive Proxy Statement under the headings Security
Ownership of Certain Beneficial Owners and Management
Shareholders and Securities Authorized For Issuance
Under Equity Compensation Plans.
|
|
ITEM 13
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The information required by this Item 13 is incorporated
herein by reference to our definitive Proxy Statement under the
headings Policy Governing Related Person
Transactions and Corporate Governance.
|
|
ITEM 14
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The information required by this Item 14 is incorporated
herein by reference to our definitive Proxy Statement under the
heading Auditors.
85
PART IV
|
|
ITEM 15
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a) Financial Statements
The following documents are filed as part of this annual report:
The financial statements and report of the independent
registered public accounting firm required by this Item are
included in Part II, Item 8.
(b) Exhibits
|
|
|
|
|
|
3A
|
.
|
|
Amended and Restated By-Laws (incorporated by reference to the
Companys Current Report on
Form 8-K,
filed on February 17, 2011, File
No. 001-08439).
|
|
3B
|
.
|
|
Restated Articles of Organization, as amended (incorporated by
reference to the Companys Current Report on
Form 8-K,
filed on October 13, 2004, File
No. 001-08439).
|
|
4A
|
.
|
|
Amended Specimen Share Certificate (incorporated by reference to
Exhibit 4A to File
No. 2-98609).
|
|
10A
|
.++
|
|
Restated and Amended Stock Incentive Plan, as restated
February 28, 2001, and as amended on October 11, 2001
and December 23, 2002 (incorporated by reference to the
Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2002 filed on
February 17, 2011, File
No. 001-08439
(2002
Form 10-K)).
|
|
10B
|
.++
|
|
Form of Senior Management Option Agreement (incorporated by
reference to the 2002
Form 10-K).
|
|
10C
|
.++
|
|
Form of Non-Employee Director Option Agreement (incorporated by
reference to the 2002
Form 10-K).
|
|
10D
|
.++
|
|
LoJack Corporation 2003 Stock Incentive Plan (incorporated by
reference to the Companys Annual Report on
Form 10-K
for the fiscal year ended December 31, 2003, File
No. 001-08439
(the 2003
Form 10-K)).
|
|
10E
|
.++
|
|
Form of LoJack Corporation 2003 Stock Incentive Plan Stock
Option Agreement (incorporated by reference to the 2003
Form 10-K).
|
|
10F
|
.
|
|
Boomerang Tracking Inc. Amendment to the Bell Mobility Contract
(incorporated by reference to the Companys Annual Report
on
Form 10-K
for the year ended December 31, 2004, File
No. 001-08439).
|
|
10G
|
.++
|
|
Forms of Single and Double Trigger Change of Control Agreements.
(incorporated by reference to the Companys Current Report
on
Form 8-K,
filed on January 27, 2006, File
No. 001-08439).
|
|
10H
|
.
|
|
Preferred Stock Purchase Agreement by and between SCIN, Inc. and
LoJack Corporation dated October 12, 2006. (incorporated by
reference to the Companys Quarterly Report on
Form 10-Q,
filed with Commission on November 9, 2006, File
No. 001-08439).
|
|
10I
|
.++
|
|
Retirement and Noncompetition Agreement by and between Joseph F.
Abely and LoJack Corporation, dated November 17, 2006
(incorporated by reference to the Companys Current Report
on
Form 8-K,
filed with Commission on November 21, 2006, File
No. 001-08439).
|
|
10J
|
.++
|
|
Amendment No. 5 to the LoJack Corporation 2003 Stock
Incentive Plan (incorporated by reference to the Companys
Current Report on
Form 8-K,
filed with the Commission on November 5, 2007, File
No. 001-08439).
|
|
10K
|
.++
|
|
LoJack Corporation Amended and Restated Non-Qualified Deferred
Compensation Plan (incorporated by reference to the
Companys Current Report on
Form 8-K,
filed with the Commission on February 20, 2008, File
No. 001-08439).
|
|
10L
|
.++
|
|
2009 Amendment to the LoJack Corporation Amended and Restated
Non-Qualified Deferred Compensation Plan as of January 1,
2009 (incorporated by reference to the Companys Current
Report on
Form 8-K,
filed with the Commission on March 31, 2009, File
No. 001-08439).
|
|
10M
|
.++
|
|
2010 Amendment to the LoJack Corporation Amended and Restated
Non-Qualified Deferred Compensation Plan (incorporated by
reference to the Companys Current Report on
Form 8-K,
filed with the Commission on February 17, 2010, File
No. 001-08439).
|
|
10N
|
.
|
|
Agreement for the Manufacturing & Supply of VLU 5
Products, by and between Plextek Limited, LoJack Equipment
Ireland Limited, and LoJack Operating Company LP, effective
January 1, 2008 (incorporated by reference to the
Companys Quarterly Report on
Form 10-Q,
filed with the Commission on May 12, 2008, File
No. 001-08439(portions
of this exhibit have been omitted pursuant to a grant of
confidential treatment)).
|
86
|
|
|
|
|
|
10O
|
.++
|
|
LoJack Corporation 2008 Stock Incentive Plan (incorporated by
reference to Exhibit A of the Companys Proxy
Statement dated April 9, 2008, filed with the Commission on
April 9, 2009, File
No. 001-08439).
|
|
10P
|
.++
|
|
Amendment to the LoJack Corporation 2008 Stock Incentive Plan
(incorporated by reference to the Companys Current Report
on
Form 8-K,
filed with the Commission on May 27, 2009, File
No. 001-08439).
|
|
10Q
|
.++
|
|
Form of LoJack Corporation 2008 Stock Incentive Plan Stock
Option Agreement (incorporated by reference to the
Companys Current Report on
Form 8-K,
filed with the Commission on May 22, 2008, File
No. 001-08439).
|
|
10R
|
.++
|
|
Form of LoJack Corporation 2008 Stock Incentive Plan Restricted
Stock Agreement (incorporated by reference to the Companys
Current Report on
Form 8-K,
filed with the Commission on May 22, 2008, File
No. 001-08439).
|
|
10S
|
.++
|
|
Form of LoJack Corporation 2008 Stock Incentive Plan Restricted
Stock Agreement (Incentive Stock) (incorporated by reference to
the Companys Current Report on
Form 8-K,
filed with the Commission on May 22, 2008, File
No. 001-08439).
|
|
10T
|
.++
|
|
Second Amendment to 2008 Restatement of the LoJack Corporation
401(k) Retirement Plan effective as of January 1, 2009
(incorporated by reference to the Companys Current Report
on
Form 8-K,
filed with the Commission on March 31, 2009, File
No. 001-08439).
|
|
10U
|
.++
|
|
Summary of LoJack Corporation Director Compensation
(incorporated by reference to the Companys Current Report
on
Form 8-K,
filed with the Commission on May 27, 2009, File
No. 001-08439).
|
|
10V
|
.++
|
|
LoJack Corporation Annual Incentive Plan (incorporated by
reference to the Companys Current Report on
Form 8-K,
filed with the Commission on February 17, 2010, File
No. 001-08439).
|
|
10W
|
.++
|
|
Retirement Agreement dated August 19, 2009 between LoJack
Corporation and Mr. William R. Duvall (incorporated by
reference to the Companys Quarterly Report on
Form 10-Q,
filed with the Commission on November 13, 2009, File
No. 001-08439).
|
|
10X
|
.
|
|
Multicurrency Revolving Credit Agreement dated as of
December 29, 2009 by and among LoJack Corporation, RBS
Citizens, N.A. and TD Bank, N.A. (incorporated by reference to
the Companys Current Report on
Form 8-K,
filed with the Commission on January 5, 2010, File
No. 001-08439).
|
|
10Y
|
.
|
|
First Amendment to Credit Agreement dated as of June 30,
2010 by and among LoJack Corporation, RBS Citizens, N.A. and TD
Bank, N.A. (incorporated by reference to the Companys
Current Report on
Form 8-K,
filed with the Commission on July 1, 2010, File
No. 001-08439).
|
|
10Z
|
.
|
|
Second Amendment to Credit Agreement dated as of
December 29, 2010 by and among LoJack Corporation, RBS
Citizens, N.A. and TD Bank, N.A. (incorporated by reference to
the Companys Current Report on
Form 8-K,
filed with the Commission on January 4, 2011, File
No. 001-08439).
|
|
10AA
|
.
|
|
Pledge Agreement dated September 22, 2009 between LoJack
Corporation and certain affiliates and RBS Citizens, National
Association (incorporated by reference to the Companys
Current Report on
Form 8-K,
filed with the Commission on September 23, 2009, File
No. 001-08439).
|
|
10BB
|
.++
|
|
Retirement Agreement dated February 17, 2010 by and between
Mr. Thomas A. Wooters and LoJack Corporation (incorporated
by reference to the Companys Quarterly Report on
Form 10-Q,
filed with Commission on May 10, 2010, File
No. 001-08439).
|
|
10CC
|
.*
|
|
Agreement for Manufacture, between LoJackCorporation and LoJack
Equipment Ireland Limited and Celestica Corporation, effective
November 25, 2010 (portions of this exhibit have been
omitted pursuant to a request for confidential treatment).
|
|
21
|
.*
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1*
|
|
Consent of KPMG LLP.
|
|
23
|
.2*
|
|
Consent of Deloitte & Touche LLP.
|
|
31
|
.1.*
|
|
Rule 13a-14(a)/15(d)
14(a) Certification.
|
|
31
|
.2.*
|
|
Rule 13a-14(a)/15(d)
14(a) Certification.
|
|
32
|
.*
|
|
Certification Pursuant to 18 U.S.C Section 1350.
(furnished).
|
|
|
|
* |
|
Indicates an exhibit which is filed herewith. |
|
|
|
++ |
|
Indicates an exhibit which constitutes a management contract or
compensatory plan or arrangement. |
87
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.
LOJACK CORPORATION
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ RICHARD
T. RILEY
Richard
T. Riley
Chairman, President and Chief Executive Officer
|
|
Date:
|
|
March 14, 2011
|
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 the capacity and on the dates
indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ Richard
T. Riley
Richard
T. Riley
|
|
Chairman, President and Chief Executive Officer (principal
executive officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Timothy
P. OConnor
Timothy
P. OConnor
|
|
Executive Vice President and Chief Financial Officer (principal
financial officer, principal accounting officer)
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Rory
J. Cowan
Rory
J. Cowan
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Gary
E. Dilts
Gary
E. Dilts
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Marcia
J. Hooper
Marcia
J. Hooper
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ John
H. MacKinnon
John
H. MacKinnon
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Robert
J. Murray
Robert
J. Murray
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Robert
L. Rewey
Robert
L. Rewey
|
|
Director
|
|
March 14, 2011
|
|
|
|
|
|
/s/ Harvey
Rosenthal
Harvey
Rosenthal
|
|
Director
|
|
March 14, 2011
|
88