Lojack Corporation Business Information, Profile, and History

Company Perspectives:

LoJack's mission is to be the leading, premium-branded aftermarket provider of vehicle tracking and related products. The company's strategy is to strengthen its position in current markets and expand into new markets while extending the LoJack brand into other related products, such as Telematics. The company expects to continue its strategy of licensing the LoJack brand in international markets.

--Chairman/CEO C. Michael Daley

History of Lo Jack Corporation

LoJack Corporation is the recognized world leader in vehicle-tracking technology. In the United States, the company's radio-frequency recovery system--known as the LoJack System--has maintained a higher than 90 percent successful recovery rate since it was offered to consumers some 15 years ago. The LoJack System helps law enforcement personnel to locate, track, and recover stolen vehicles. In 20 states and the District of Columbia, LoJack Corporation operates in areas having the greatest population density and the highest number of new car sales and motor vehicle thefts. In more than 20 countries in Europe, Africa, Asia and the Western Hemisphere, where it is not feasible to implement the full LoJack System, the corporation operates CarSearch, a patented LoJack product that functions independently of law enforcement networks. With more than two million LoJack Units installed worldwide and more than 40,000 retrieved vehicles, LoJack has recovered assets approaching nearly $1 billion in value. Boston Magazine picked LoJack as one of the best places to work in the Boston area; Consumer Digest awarded LoJack a "Best Buy Award"; and Forbes magazine, for the third time, in 2001 named LoJack one of the 200 Best Small Companies in America, ranking LoJack as 96th.

1963-80: Nurturing an Early Morning Idea

After completing five and a half years of active duty as a naval aviator with the rank of lieutenant and then holding various executive positions at AVCO Corporation, William R. Reagan (Bill) founded W.R. Reagan Associates, Inc., an investment banking firm. From 1976--81, he also served as part-time Police Commissioner of Medfield, a town in the greater Boston area. According to John Swanson, who became a consultant for the LoJack Corporation in 1987, Bill was preoccupied with the growth of car thefts throughout the nation in general and the greater Boston area in particular. His concern was well grounded in facts: a shrinking economy had fueled a nationwide increase of crime. The recession that gained ground in the early 1970s increased unemployment; the competition drove down wages; and interest rates and mortgage payments shot up.

Car thefts were "big business," ranking second only to the sale of drugs. "Organized crime entered the auto theft business: from 1974-83, the percentage of arrests of persons 18 years and over rose from 44.8 percent to 65.5 percent," wrote John Swanson in an unpublished essay titled LoJack: A Study for the Financial Community. In previous years "most vehicle thefts were classified as 'joyriding' and stolen cars were recovered 95 percent of the time, little the worse for wear," noted Swanson.

Inflation was another reason for the increase of car thefts. "The average value of stolen vehicles rose 400 percent from $1,246 in 1974 to $4,888 in 1986," Swanson wrote. Stealing cars was a "lucrative business." Car thieves worked very quickly, as illustrated by what was known in the "business" as the "40/40 equation: 40 seconds to steal a car and 40 minutes for a chop shop to cut it down into a pile of parts." The parts were more valuable than the whole car; for example, a 1984 compact costing $8,885 yielded $32,548 worth of parts. Furthermore, over and above being costly for the consumer and insurance companies and dangerous work for police officers, car thefts were often part of other crimes, such as armed robbery, rape, and murder. On a nationwide basis, theft was the largest single factor impacting the cost of insurance coverage.

Bill Reagan wanted to find a way of recovering stolen cars and doing away with chop shops. At 3:00 o'clock one morning, as he was snacking on milk and cookies, "he hit on the idea of a small homing device that could be hidden in cars and tracked if the vehicle was stolen," reported Leslie M. Schultz in the February 1984 issue of Inc. magazine. Bill then gathered a group of engineers and technicians to work with him and the police to bring his 3:00 a.m. inspiration into reality.

By studying the Federal Bureau of Investigation's profiles of professional motor vehicle thieves, the research group identified the characteristics of car thieves and their way of operating: 1. Car thieves often were drug addicts; they could bypass any theft-preventive device and start a car in a matter of seconds. 2. To avoid being followed by the police, a thief drove the car a short distance for a few minutes and then parked it; if the car was still there after about eight hours, the thief drove the car to a chop shop. The chop shop then used or introduced the dismantled parts into the used-part stream. The best way to combat the thieves, the research group concluded, was to work with the police--the official law enforcement agents whose mission it was to recover stolen property.

For nine years Bill Reagan and his associates developed designs and performed tests to create a prototype system for rapid recovery of stolen vehicles. The product that emerged was called the LoJack System; Bill had a patent for it in 1978. The patent became the property of W.R. Reagan Associates, which, in turn, licensed it to the LoJack Corporation, a company Bill had formerly established. In 1981 a new LoJack Corporation was formed by the merger of W.R. Reagan Associates and the LoJack Corporation, which then became the surviving company.

1983-93: Fighting Crime, Developing and Testing a Prototype, Creating a Market

What was the meaning of the name LoJack? According to John R. White's story in the 1984 issue of the Boston Globe, Reagan said that LoJack was the antithesis of hijack. The LoJack System was not an alarm to prevent theft; rather, it was meant to assist in the recovery of stolen vehicles. The only responsibility resting on the owner of a stolen car equipped with a LoJack Unit was to report the theft to the local police. There were no switches, buttons, or codes for the car operator to activate. The basic goal of the company was to make optimum use of professional law enforcement officers to recover stolen cars with as little damage as possible and to eliminate false alarms.

The LoJack System consisted of four components: 1. The LoJack Unit, (a high-frequency transmitter and receiver package about the size of a pack of cigarettes) randomly hidden in a car; 2. The Police Tracking Computer for police patrol cars and other tracking locations; 3. The Sector Activation System (SAS) used by law enforcement agencies to maintain vehicle codes; and 4. The Registration System, a proprietary method of assigning digital codes for transmission and reception by LoJack Units in a way that allowed unique activation codes to be permanently correlated with the unique vehicle identification number the manufacturer had assigned to the car in which the LoJack Unit was located.

When the owner of a stolen car equipped with a LoJack Unit reported the theft to the police, the law enforcement computer and communications network linked to LoJack's SAS broadcasted a radio-frequency signal to activate the LoJack Unit in the stolen car. Then, this unit broadcasted a silent, coded tracking signal to the LoJack Police Tracking Computer, which received the signal, homed in, and displayed the stolen vehicle's make, year, distance from the police cruiser, and other pertinent data, while flashing directional signals leading to the stolen car.

To raise funds for the further development of the LoJack System, LoJack Corporation completed an initial public offering in 1983 and was traded on NASDAQ under the symbol LOJN. Reagan, who billed himself to his friends as "Kojak from LoJack" and sported a Telly Savalas hairdo, requested his home state of Massachusetts to test a prototype of the LoJack System. At the time, this commonwealth had the highest rate of car thefts in the country: 864.8 motor vehicle thefts per 100,000 population, according to John Swanson's quotation from Uniform Crime Reports for 1985.

Massachusetts pledged substantial resources of police vehicles, helicopters, transmission facilities, and technical personnel for the four-month experiment. At the conclusion of the demonstration, all LoJack equipment was to be donated to the state and become the property of Massachusetts, thus constituting the basis for the first operational LoJack system in the country. For the demonstration, 20 vehicles outfitted with the LoJack Unit were reported as stolen, and then traced. After four months of demonstrations and more than 550 simulations, Massachusetts Governor Michael Dukakis said the state police had located each "stolen" car within 11 minutes of the report of its theft.

In October 1985 Motorola, Inc. was contracted as principal vendor for volume production of the LoJack System. Beginning in December 1985, the LoJack System was distributed to the Massachusetts police; next, this system was introduced statewide to automobile dealerships and to the public for installation by LoJack's two Massachusetts distribution centers opened in Danvers and in West Roxbury. The LoJack System cost $495, a price that included entering registration of the vehicle and information about the owner in both the LoJack computers and those of the police, as well as installation, warranty, and all hardware. In 1986, Massachusetts became the first state to adopt the LoJack System. Now that his invention was on the market, Bill Reagan resigned from presidency of the LoJack Corporation and was succeeded by C. Michael Daley, who had been a director of the company since 1981.

In December 1988, LoJack Corporation received federal clearance to sell its system outside Massachusetts. Fresh from the success of its pilot venture, the company expanded into Florida, the number four state in the nation for stolen cars. In September 1989, in answer to a petition filed by the LoJack Corporation, the Federal Communications Commission allocated a police radio band of 173.075 MHz for the Stolen Vehicle Recovery Network. LoJack President Daley commented that the FCC action paved the way for LoJack's nationwide expansion. By year-end 1989, LoJack had "installed 35,000 systems in Massachusetts and south Florida ... and recovered over 900 cars for clients, a 95 percent recovery rate," Jacalyn Carfagno reported in the July 9, 1990 issue of Money magazine. About 38 percent of the cars were recovered within an hour, and 75 percent within 12 hours. If the car was not recovered within 24 hours after the theft was reported, the company refunded the cost of the LoJack Unit. In March 1989 Los Angeles signed a contract to establish a Stolen Vehicle Recovery Network in Los Angeles; the states of Michigan, Illinois, and New Jersey soon followed suit. The company's strategy was to expand into areas where the combination of population density, new-car sales, and vehicle theft was high.

In spite of a 27 percent increase in revenues for 1991, LoJack Corporation's stock shrank from $100 million to less than $33 million. In a 1992 commentary printed in Forbes, analyst Norm Alster commented, "The company had not yet built a large enough installed base to cover its heavy capital and marketing expenses." For example, LoJack gained the cooperation of a police department by donating the $1,750 Tracking Units for the police cruisers. In Los Angeles alone, the bill for outfitting "450 cruisers was close to $1 million." LoJack also installed and serviced the police units. Moreover, the company invested heavily in advertising for new customers. Faced with a 1991 net income loss of $6.26 million, President Daley and Chief Financial Officer Joseph Abely "persuaded holders of convertible debentures to swap their bonds for a convertible preferred that would not pay a dividend until the company could afford it. ... The swap succeeded because Michael Hobert, president of Benefit Capital Management Corp., an investment company with $10 million of the bonds, went along," Alster wrote.

1994-99: A Rapid Turnaround, Revenue Growth, International Expansion

Charles McEwen hailed the coming of the LoJack system to New York State in his November 6, 1994 article in the New York Times. Over and above New York and the other states named above, the company had installed LoJack Systems in Georgia, Rhode Island, and Virginia; installation was scheduled for Washington, D.C. and Connecticut.

To expand beyond the United States, the company licensed the use of its LoJack technology to selected international markets and developed the CarSearch Stolen Vehicle Recovery System. Unlike the LoJack System operational in the United States, CarSearch had the flexibility of operating independently of existing law enforcement communication networks. By the end of 1996, the company had licensees using LoJack's technology in six European countries, four countries in South America, as well as in Hong Kong, Trinidad, and Tobago.

In 1994, revenues increased to $30.23 million, compared with $14.1 million in 1991; net income peaked at $1.23 million, the first positive income result posted since 1989. Each common share of stock earned $0.01. In January 1996, Joseph F. Abely was promoted to president and chief operating officer; Chairman Daley remained chief executive officer. "Profits surged 154 percent a year during 1995 and 1996," wrote Alex Pham in his Boston Globe story of May 20, 1997. "That impressive performance made LoJack the 13th fastest-growing company in Massachusetts." The company said that by late May 1997 LoJack was installed in more than 14 percent of all new cars in Massachusetts; more than 10 percent of new car owners in New York, California, and Florida also bought LoJack Units. The company estimated that stolen cars with installed LoJack Units were recovered more quickly and suffered less damage--about $500 per vehicle, compared with an average loss of several thousand dollars for cars with no LoJack Units. Furthermore, some insurance companies offered discounts of up to 35 percent to policyholders who had a LoJack Unit in their car.

By 1997 annual vehicle theft had escalated to an estimated cost of $8 billion. In a joint effort to stem the illegal export of stolen cars, an activity that contributed significantly to this escalated car theft, LoJack Corporation and Liberty Mutual Insurance Co. partnered to donate a LoJack Stolen Vehicle Recovery System to the U.S. Customs Service at the Port of Miami. According to Kevin Hall's story in the July 21, 1997 issue of Journal of Commerce, many of the cars stolen in Miami and Dade County were exported illegally through the Port of Miami to Haiti, as well as to Central and South America.

In 1998, the company offered a more rugged version of the LoJack Retrieval System specifically designed to meet the needs of the construction and heavy equipment industry. In June 1999, according to Heavy Equipment News, LoJack reported recoveries of a $300,000 Caterpillar front-end loader, a Cat combination front-end loader/backhoe and, for one company a 580L backhoe, trailer, and a flatbed truck. On the lighter side, the one millionth Unit of the LoJack System was installed in the "Batmobile," the television vehicle owned by George Barris, the legendary "Kustom Kar King," who designed the Batmobile for the 1980s' series of "Batman."

2000 and Beyond

LoJack Corporation continued work on the redesign of its LoJack System and increased its nationwide and international presence. The company formed a Commercial Business Unit to tap opportunities in the construction equipment and tractor trailer business. United Rentals, Inc., the largest construction equipment rental company in North America, told LoJack Corporation that the LoJack System was making a positive difference to the rental company's bottom line and insurance premiums. United had begun to install LoJack units on its equipment in 1999 and had since installed the units in more than 4,000 pieces of equipment ranging from light towers to heavy-duty dump trucks. Recovery in fewer than 24 hours--with less damage--also meant that its equipments could be put back to work more quickly.

LoJack sales through new car dealers continued to be the major revenue producer for the company, although dealerships of used cars also sold LoJack Systems. In January 2001, Motorola shipped its two millionth LoJack unit to LoJack Corporation, according to the Illinois Daily Herald of January 2001. The first million LoJack units were shipped over a ten-year period; the second million were shipped over a three-year period. The corporation reorganized its sales and customer service organization to provide targeted coverage of large dealer groups, without putting individually owned dealerships aside. International sales, in large part fueled by collaboration with the insurance industry in foreign countries, increased by 93 percent, a growth due mostly to South African and South American licensees. At the end of fiscal 2001, the LoJack Corporation was doing business in 20 states and the District of Columbia in the United States and had licensees in 20 foreign countries.

At the end of 2001, Chairman/CEO Daley retired from the company. That year, LoJack Corporation reported revenues of $95.85 million, down from revenues of $500 million plus when he first assumed the presidency. Daley was succeeded by Ronald J. Rossi, who had held senior executive positions at Gillette for 35 years before retiring as president of Oral-B Worldwide; Rossi was held in high esteem for his success in marketing, sales, and corporate leadership.

At the beginning of fiscal 2002 (in 2001 LoJack changed the end of its fiscal year to December 31), Entercom, the nation's fifth largest radio operator and owner of four Boston radio stations, equipped its company vehicles with the LoJack Units. In answer to the U.S. Department of Transportation's call for increased security on trucks carrying hazardous materials on the nation's roadways, the company licensed the use of its LoJack technology to selected international markets and developed the CarSearch Stolen Vehicle Recovery System. Unlike the LoJack System operational in the United States, CarSearch had the flexibility of operating independently of existing law enforcement communication networks. LoJack units designed specifically for trailers (which were not connected to the truck's electrical supply) were concealed on the trailer itself, operated with a 12V or 24V battery source, and were equipped with a back-up battery.

The company began to develop an optional enhancement for cars equipped with the LoJack unit: a LoJack Early Warning System that could notify car owners that their car had been moved so that they could immediately report the theft. By reducing the time between theft and notification, this improvement also reduced the amount of time for recovery. The company planned to introduce this option in selected markets in 2002.

Furthermore, the company signed an agreement with CSI Wireless, Inc., AirIQ, Inc., and Aeris.net, Inc. to develop and manufacture a state-of-the-art LoJack-branded product for the consumer and commercial markets. LoJack Corporation's strategy, wrote Chairman/CEO Daley in his last Annual Report, was to strengthen "its position in current markets and expand into new markets ... [by] extending the LoJack brand into other related products, such as Telematics." Telematics was an emerging technology that developed from the convergence of information and communications technologies. A new product addressing the safety and security needs of consumers and businesses was to complement the existing LoJack Unit by using Global Positioning System (GPS) technology to determine the location of a vehicle and to give a car Internet access as well as providing many services, such as automatic collision notification, roadside assistance, medical alert, door unlock, and starter disable.

As it continued to evolve toward an advantageous future, LoJack Corporation was a powerful deterrent to crime related to stolen vehicles; these thefts, estimated at $7.5 billion annually, were the costliest property crime in the United States. Undaunted, the company expanded into the construction and corporate fleet markets and searched for improvements that would reduce the size of LoJack products and create new opportunities, such as LoJack Units installed in containerized shipping, motorcycles, and rental cars. In short, the company was continually finding new ways to recover a theft.

Principal Subsidiaries: LoJack Arizona, LLC; LoJack FSC, Ltd. (Barbados); LoJack International Corporation; LoJack of New Jersey Corporation; LoJack of Pennsylvania, Inc.; LoJack Recovery Systems Business Trust; Recovery Systems, Inc.

Principal Competitors: Audiovox Corporation; Directed Electronics, Inc.; The Eastern Company; Strattec Security Corporation.

Chronology

• Key Dates:
• 1978: William R. Reagan obtains a patent for the LoJack System.
• 1983: LoJack Corporation is traded on NASDAQ.
• 1985: A prototype of the LoJack System is tested by Massachusetts State Police.
• 1986: The LoJack System becomes available statewide in Massachusetts.
• 1988: LoJack receives federal clearance to sell outside of Massachusetts; the company expands into Florida.
• 1995: LoJack licenses its technology to selected international markets and develops the CarSearch Stolen Vehicle Recovery System, which operates independently of law enforcement networks.
• 1998: LoJack penetrates the construction and the heavy-equipment industries.
• 1999: LoJack installs its one millionth LoJack Unit.
• 2001: Motorola ships its two millionth LoJack Unit to LoJack Corporation.