UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: May 30, 2009
_________________
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
__________ ____________
Commission File Number: 0-12182
Exact Name of Registrant as
Specified in Its Charter: CalAmp Corp.
_______________________
DELAWARE 95-3647070
_______________________________ _______________
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
Address of Principal Executive Offices: 1401 N. Rice Avenue
Oxnard, CA 93030
Registrant's Telephone Number: (805) 987-9000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
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
(S232.405 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 [ ] No [ ]
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.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check
if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The registrant had 25,218,995 shares of Common Stock outstanding as of
June 30, 2009.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except par value amounts)
May 31, February 28,
2009 2009
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 4,382 $ 6,913
Accounts receivable, less allowance for
doubtful accounts of $639 and $552 at May
31, 2009 and February 28, 2009, respectively 13,921 13,682
Inventories 14,161 15,139
Deferred income tax assets 3,301 3,479
Prepaid expenses and other current assets 4,711 4,962
-------- --------
Total current assets 40,476 44,175
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 2,131 2,139
Deferred income tax assets, less current portion 13,272 13,111
Other intangible assets, net 6,165 6,473
Other assets 3,717 3,749
-------- --------
$ 65,761 $ 69,647
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank loan payable $ 15,735 $ 17,550
Subordinated note payable 2,218 3,528
Accounts payable 8,780 5,422
Accrued payroll and employee benefits 3,105 3,380
Accrued warranty costs 3,006 3,286
Other current liabilities 7,956 8,683
Deferred revenue 3,909 3,609
-------- --------
Total current liabilities 44,709 45,458
-------- --------
Non-current liabilities 1,156 990
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 3,000 shares
authorized; no shares issued or outstanding - -
Common Stock, $.01 par value; 40,000 shares
authorized; 25,219 and 25,217 shares issued
and outstanding at May 31, 2009 and February
28, 2009, respectively 252 252
Additional paid-in capital 145,275 144,881
Accumulated deficit (124,771) (120,814)
Accumulated other comprehensive loss (860) (1,120)
-------- --------
Total stockholders' equity 19,896 23,199
-------- --------
$ 65,761 $ 69,647
======== ========
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except per share amounts)
Three Months Ended
May 31,
-------------------
2009 2008
-------- --------
Revenues $ 23,000 $ 27,901
Cost of revenues 18,293 18,472
-------- --------
Gross profit 4,707 9,429
-------- --------
Operating expenses:
Research and development 2,898 3,200
Selling 2,201 2,272
General and administrative 2,757 3,096
Intangible asset amortization 341 1,332
-------- --------
Total operating expenses 8,197 9,900
-------- --------
Operating loss (3,490) (471)
Non-operating expense:
Interest expense, net (205) (524)
Other income (expense), net (262) 108
-------- --------
Total non-operating expense (467) (416)
-------- --------
Loss before income taxes (3,957) (887)
Income tax benefit - 390
-------- --------
Net loss $ (3,957) $ (497)
======== ========
Basic and diluted loss per share $ (0.16) $ (0.02)
======== ========
Shares used in computing basic and
diluted loss per share 24,860 24,703
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
May 31,
---------------------
2009 2008
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,957) $ (497)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 629 1,972
Stock-based compensation expense 412 9
Deferred tax assets, net - (390)
Changes in operating assets and liabilities:
Accounts receivable (203) 4,043
Inventories 1,011 (251)
Prepaid expenses and other assets 291 (868)
Accounts payable 3,358 (748)
Other accrued liabilities (1,280) (662)
Deferred revenue 300 (793)
Other 9 -
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 570 1,815
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (273) (216)
Earnout payments on Technocom acquisition - (575)
Collections on note receivable 75 140
Other (33) -
------- -------
NET CASH USED IN INVESTING ACTIVITIES (231) (651)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt repayments (3,125) (470)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (3,125) (470)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 255 (70)
------- -------
Net change in cash and cash equivalents (2,531) 624
Cash and cash equivalents at beginning of period 6,913 6,588
------- -------
Cash and cash equivalents at end of period $ 4,382 $ 7,212
======= =======
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MAY 31, 2009 and 2008
Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
CalAmp Corp. ("CalAmp" or the "Company") is a provider of wireless
communications solutions that enable anytime/anywhere access to critical data
and content. CalAmp's Wireless DataCom business services the public safety,
utility, industrial monitoring and controls, and mobile resource management
("MRM") markets. CalAmp's Satellite business supplies outdoor customer
premise equipment to the U.S. Direct Broadcast Satellite ("DBS") market.
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal 2009 fell on February 28, 2009. The actual
interim periods ended on May 30, 2009 and May 31, 2008. In the accompanying
unaudited consolidated financial statements, the 2009 fiscal year end is
shown as February 28 and the interim period end for both years is shown as
May 31 for clarity of presentation.
Certain notes and other information are condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 2009 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on May 12, 2009.
In the opinion of the Company's management, the accompanying unaudited
consolidated financial statements reflect all adjustments (consisting of
normal recurring adjustments) considered necessary to present fairly the
Company's financial position at May 31, 2009 and its results of operations
for the three months ended May 31, 2009 and 2008. The results of operations
for such periods are not necessarily indicative of results to be expected for
the full fiscal year.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
The accompanying consolidated balance sheet as of February 28, 2009
contains certain reclassifications to conform with the presentation used in
the unaudited balance sheet as of May 31, 2009.
Note 2 - INVENTORIES
Inventories include costs of materials, labor and manufacturing
overhead. Inventories are stated at the lower of cost (determined on the
first-in, first-out method) or net realizable value, and consist of the
following (in thousands):
May 31, February 28,
2009 2009
------ -------
Raw materials $10,489 $12,036
Work in process 324 164
Finished goods 3,348 2,939
------- -------
$14,161 $15,139
======= =======
Note 3 - OTHER INTANGIBLE ASSETS
Other intangible assets are comprised as follows (in thousands):
May 31, 2009 February 28, 2009
----------------------------------- -----------------------------------
Amorti- Gross Accum. Gross Accum.
zation Carrying Amorti- Carrying Amorti-
Period Amount Impairment zation Net Amount Impairment zation Net
----- ------ ---------- ------ ------ ------ ---------- ------ ------
Developed/core
technology 5-7 yrs. $18,583 $ 7,974 $7,888 $ 2,721 $18,583 $ 7,974 $7,663 $ 2,946
Customer lists 5-7 yrs. 8,313 3,444 3,701 1,168 8,313 3,444 3,600 1,269
Covenants not
to compete 4-5 yrs. 1,001 354 533 114 1,001 354 519 128
Tradename Indefinite 3,880 1,750 - 2,130 3,880 1,750 - 2,130
Patents 5 yrs. 33 - 1 32 - - - -
------ ------ ------ ------ ------ ------ ------ ------
$31,810 $13,522 $12,123 $ 6,165 $31,777 $13,522 $11,782 $ 6,473
====== ====== ====== ====== ====== ====== ====== ======
Amortization expense of intangible assets was $0.3 million and $1.3
million for the three months ended May 31, 2009 and 2008, respectively. All
intangible asset amortization expense was attributable to the Wireless
DataCom business.
Estimated amortization expense for the fiscal years ending February 28
is as follows (in thousands):
2010 (remainder) $1,025
2011 $1,132
2012 $ 989
2013 $ 731
2014 $ 158
Thereafter $ -
Note 4 - FINANCING ARRANGEMENTS
Bank Credit Facility
In May 2006, the Company entered into a Credit Agreement (the "Credit
Agreement") with Bank of Montreal (BMO), as administrative agent, and the
other financial institutions that from time to time may become parties to the
Credit Agreement (collectively, the "Banks"). Borrowings are secured by
substantially all of the assets of CalAmp Corp. and its domestic
subsidiaries. At the Company's option, borrowings under the Credit Agreement
bear interest at BMO's prime rate ("Prime Based Loans") plus a margin ranging
from 2.50% to 2.75% (the "Prime Rate Margin") or LIBOR ("LIBOR Based Loans")
plus a margin ranging from 3.25% to 3.75% (the "LIBOR Margin"). The Prime
Rate Margin and the LIBOR Margin vary depending on the Company's ratio of
debt to earnings before interest, taxes, depreciation, amortization and other
noncash charges. Interest is payable on the last day of the calendar quarter
for Prime Based Loans and at the end of the fixed-rate LIBOR period (ranging
from 1 to 12 months) in the case of LIBOR Based Loans. At May 31, 2009, the
effective interest rate on the bank term loan was 4.07%, comprised of a one-
month LIBOR rate of 0.32% plus the LIBOR Margin of 3.75%.
The Credit Agreement also provides for a working capital line of credit
("revolver") of $3,375,000. At May 31, 2009, $1,725,000 of the working
capital line of credit was reserved for outstanding irrevocable stand-by
letters of credit and $1,650,000 was available for working capital
borrowings. Outstanding amounts under the revolver would bear interest at
BMO's prime rate plus 4% or LIBOR plus 5%. There were no outstanding
borrowings on the revolver at May 31, 2009.
On February 13, 2009, the Company entered into the Seventh Amendment and
Consent to the Credit Agreement (the "Seventh Amendment"), pursuant to which
the Banks consented to an amendment of a subordinated note payable as
described below, and the Company agreed to make additional principal payments
on the bank term loan of $7.50 per unit for the first 120,000 units of a
certain product sold to a key DBS customer beginning in January 2009.
On May 1, 2009, the Company entered into the Eighth Amendment and
Consent to the Credit Agreement, pursuant to which, the Banks waived certain
financial covenant violations and agreed to change the minimum levels of
consolidated earnings before interest, taxes, depreciation and amortization
(EBITDA) and Wireless DataCom revenues required by the financial covenants
for the remaining term of the Credit Agreement. The Company was in
compliance with these financial covenants at May 31, 2009.
At May 31, 2009, the Company had an outstanding principal balance of
$15,735,000 under the term loan. Subsequently, on June 30, 2009 the Company
made a principal payment of $1,673,500, consisting of a $1,600,000 scheduled
principal payment and $73,500 additional principal payment under the Seventh
Amendment as described above. A principal payment of $1,600,000 is due on
September 30, 2009. The Company is also required to make mandatory
prepayments under the credit facility in certain circumstances, including
following the Company's incurrence of certain indebtedness, disposition of
its property or extraordinary income. The Credit Agreement has a maturity
date of December 31, 2009, at which time all outstanding borrowings are due
and payable. In addition, a fee of $150,000 will be due and payable to the
Banks on December 31, 2009.
The Credit Agreement also includes customary affirmative and negative
covenants including, without limitation, negative covenants regarding
additional indebtedness, investments, maintenance of the business, liens,
guaranties, transfers and sales of assets, and the payment of dividends and
other restricted payments.
Subordinated Note Payable
On December 14, 2007, the Company entered into a settlement agreement
with a key DBS customer. Under the terms of the settlement agreement, the
Company issued to the customer a $5 million non-interest bearing promissory
note that is payable at a rate of $5.00 per unit on the first one million DBS
units purchased by this customer after the date of the settlement agreement.
The promissory note, which is subordinated to the outstanding indebtedness
under CalAmp's bank credit facility, will be accelerated if the Company
becomes insolvent, files for bankruptcy, or undergoes a change of control.
On February 13, 2009, the Company entered into an amendment of the
subordinated promissory note (the "Note Amendment"). Pursuant to the Note
Amendment, the Company agreed to increase the principal payments on the
subordinated note from $5.00 to $20.00 per unit for sales to this customer of
a certain product during the period from January through May 2009. Effective
June 1, 2009, the per unit note principal payment applicable to sales of this
product reverted to $5.00. From January 2009 through May 31, 2009, the
Company shipped 110,200 units of this product. During the quarter ended May
31, 2009, the Company made principal payments of $1,310,000. At May 31,
2009, the note had a balance of $2,218,000. Subsequently, in June 2009 the
Company made two principal payments on the subordinated note in the aggregate
amount of $1,166,000.
Note 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and for income tax purposes. A deferred income
tax asset is recognized if realization of such asset is more likely than not,
based upon the weight of available evidence which includes historical
operating performance and the Company's forecast of future operating
performance. The Company evaluates the realizability of its deferred income
tax assets and a valuation allowance is provided, as necessary, in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". During this evaluation, the Company reviews
its forecasts of income in conjunction with the positive and negative
evidence surrounding the realizability of its deferred income tax assets to
determine if a valuation allowance is needed.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(FIN 48), which was adopted by the Company in fiscal 2008, defines the
threshold for recognizing the benefits of tax return positions in the
financial statements as "more-likely-than-not" to be sustained by the taxing
authorities. FIN 48 provides guidance on de-recognition, measurement and
classification of income tax uncertainties, along with any related interest
and penalties. FIN 48 also includes guidance concerning accounting for
income tax uncertainties in interim periods and increases the level of
disclosures associated with any recorded income tax uncertainties. At May
31, 2009, the Company has unrecognized tax benefits of $6,449,000 which, if
recognized, would impact the effective tax rate on income (loss) before
income taxes.
The Company files income tax returns in the U.S. federal jurisdiction,
various states and foreign jurisdictions. Income tax returns filed for
fiscal years 2000 and earlier are not subject to examination by U.S. federal
and state tax authorities. Certain income tax returns for fiscal years 2001
through 2009 remain open to examination by U.S federal and state tax
authorities. The income tax returns filed by the Company's French subsidiary
for fiscal years 2004 through 2007 are currently being examined by the French
tax authorities. Certain income tax returns for fiscal years 2006 through
2009 remain open to examination by Canada federal and Quebec provincial tax
authorities. The Company believes that it has made adequate provision for
all income tax uncertainties pertaining to these open tax years.
At May 31, 2009, the Company had a net deferred income tax asset balance
of $16,573,000. The current portion of the deferred tax assets is $3,301,000
and the noncurrent portion is $13,272,000. The net deferred income tax asset
balance is comprised of a gross deferred tax asset of $36.0 million and a
valuation allowance of $19.4 million.
The effective income tax benefit rate was 0% and 44% in the three months
ended May 31, 2009 and 2008, respectively. No tax benefit was recorded
during the quarter ended May 31, 2009 because future realizability of such
benefit was not considered to be more likely than not.
Note 6 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution, using the treasury stock method, that could
occur if securities or other contracts to issue common stock were exercised
or converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the Company. In computing diluted
earnings per share, the treasury stock method assumes that outstanding
options are exercised and the proceeds are used to purchase common stock at
the average market price during the period. Options will have a dilutive
effect under the treasury stock method only when the Company reports net
income and the average market price of the common stock during the period
exceeds the exercise price of the options.
The weighted average number of common shares outstanding was the same
amount for both basic and diluted loss per share for all periods presented.
Potentially dilutive securities outstanding amounting to 3,183,000 and
2,777,000 at May 31, 2009 and 2008, respectively, were excluded from the
computation of diluted earnings per share because the Company reported a net
loss and the effect of inclusion would be antidilutive (i.e., including such
securities would result in a lower loss per share). These potentially
dilutive securities consist of options, warrants, nonvested restricted stock,
and nonvested restricted stock units ("RSUs").
Note 7 - COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is defined as the total of net income (loss)
and all non-owner changes in equity. The following table details the
components of comprehensive loss for the three months ended May 31, 2009 and
2008 (in thousands):
Three Months Ended
May 31,
-------------------
2009 2008
------- -------
Net loss $(3,957) $ (497)
Foreign currency
translation gain (loss) 260 (78)
------- -------
Comprehensive loss $(3,697) $ (575)
======= =======
Note 8 - STOCK-BASED COMPENSATION
Stock-based compensation expense is included in the following captions
of the consolidated statements of operations (in thousands):
Three Months Ended
May 31,
-------------------
2009 2008
------- -------
Cost of revenues $ 21 $ 8
Research and development 60 48
Selling 21 33
General and administrative 310 (80)
------ ------
$ 412 $ 9
====== ======
Changes in the Company's outstanding stock options during the three
months ended May 31, 2009 were as follows:
Weighted Aggregate
Number of Weighted Average Intrinsic
Options Average Remaining Value
(000s) Exercise Price Contractual Term (000s)
-------- -------------- ---------------- ---------
Outstanding at February 28, 2009 1,869 $ 8.20
Granted 85 $ 0.58
Exercised -
Forfeited or expired (20) $12.91
-----
Outstanding at May 31, 2009 1,934 $ 7.82 6.3 years $ 40
=====
Exercisable at May 31, 2009 1,147 $10.86 4.7 years $ -
=====
Changes in the Company's unvested restricted stock shares and RSUs
during the three months ended May 31, 2009 were as follows:
Weighted
Number of Average
Shares and RSUs Fair Value at
(000s) Grant Date
-------- ----------
Outstanding at February 28, 2009 907 $ 2.50
Granted - -
Vested (4) 2.60
Forfeited (4) 4.28
----- ------
Outstanding at May 31, 2009 899 $ 2.49
===== ======
Of the 3,500 RSUs that vested during the period, 1,457 shares were
retained by the Company to cover the required amount of employee withholding
taxes.
As of May 31, 2009, there was $3.1 million of total unrecognized stock-
based compensation cost related to nonvested stock options, restricted stock
and RSUs. That cost is expected to be recognized as an expense over a
weighted-average remaining vesting period of 2.5 years.
Note 9 - CONCENTRATION OF RISK
Because the Company sells into markets dominated by a few large service
providers, a significant percentage of consolidated revenues and consolidated
accounts receivable relate to a small number of customers. Revenues from
customers that accounted for 10% or more of consolidated revenues for the
three months ended May 31, 2009 or 2008, as a percent of consolidated
revenues, are as follows:
Three Months Ended
May 31,
-------------------
Customer 2009 2008
------- -------
A 40.0% 2.5%
B - 24.3%
Accounts receivable from Customer A expressed as a percent of
consolidated net accounts receivable, are as follows:
May 31, February 28,
Customer 2009 2009
------ ------
A 25.0% 26.3%
Accounts receivable from Customer B was less than 10% of consolidated
net accounts receivable at May 31, 2009 and February 28, 2009.
Customers A and B are customers of the Company's Satellite business
unit.
Some of our components, assemblies and electronic manufacturing services
are purchased from sole source suppliers. One supplier, which functions as
an independent foreign procurement agent, accounted for 47% and 17% of
Company's total inventory purchases in the three months ended May 31, 2009
and 2008, respectively. As of May 31, 2009, this supplier accounted for 46%
of the Company's total accounts payable.
Note 10 - PRODUCT WARRANTIES
The Company generally warrants its products against defects over periods
ranging from 3 to 24 months. An accrual for estimated future costs relating
to products returned under warranty is recorded as an expense when products
are shipped. At the end of each quarter, the Company adjusts its liability
for warranty claims based on its actual warranty claims experience as a
percentage of revenues for the preceding three years and also considers the
impact of the known operational issues that may have a greater impact than
historical trends. Activity in the accrued warranty costs liability for the
three months ended May 31, 2009 and 2008 is as follows (in thousands):
Three months ended
May 31,
-----------------
2009 2008
------- -------
Balance at beginning of period $ 3,286 $ 4,869
Charged to costs and expenses 56 368
Deductions (336) (199)
------- ------
Balance at end of period $ 3,006 $ 5,038
======= ======
The cash impact of the warranty reserve at May 31, 2009 is anticipated
to occur over the next 12 months.
Note 11 - OTHER FINANCIAL INFORMATION
"Net cash provided by operating activities" in the consolidated
statements of cash flows includes cash payments (receipts) for interest and
income taxes as follows (in thousands):
Three months ended
May 31,
-----------------
2009 2008
------- -------
Interest paid $ 207 $ 548
Income taxes refunds, net $ (13) $(755)
Other current liabilities in the consolidated balance sheets consist of
the following (in thousands):
May 31, February 28,
2009 2009
------- ------
Income taxes payable $ 5,236 $ 5,218
Vendor commitment liability 889 1,283
Other 1,831 2,182
------- -------
$ 7,956 $ 8,683
======= =======
Note 12 - SEGMENT INFORMATION
Segment information for the three months ended May 31, 2009 and 2008 is
as follows (dollars in thousands):
Three months ended May 31, 2009
----------------------------------------
Business Segments
-------------------
Wireless
Satellite DataCom Corporate Total
-------- -------- ------- -----
Revenues $ 9,249 $ 13,751 $ 23,000
Gross profit $ 427 $ 4,280 $ 4,707
Gross margin 4.6% 31.1% 20.5%
Operating loss $ (617) $ (1,644) $(1,229) $ (3,490)
Three months May 31, 2008
----------------------------------------
Business Segments
-------------------
Wireless
Satellite DataCom Corporate Total
-------- -------- ------- -----
Revenues $ 7,641 $ 20,260 $ 27,901
Gross profit $ 733 $ 8,696 $ 9,429
Gross margin 9.6% 42.9% 33.8%
Operating income (loss) $ (332) $ 1,057 $(1,196) $ (471)
The Company considers operating income (loss) to be the primary measure
of profit or loss of its business segments. The amount shown for each period
in the "Corporate" column above for operating income (loss) consists of
corporate expenses not allocated to the business segments. Unallocated
corporate expenses include salaries and benefits of certain executive
officers, other corporate staff, and corporate expenses such as audit fees,
investor relations, stock listing fees, director and officer liability
insurance, and director fees and expenses.
Corporate expenses include stock-based compensation expense of $218,000
and ($208,000) in the three months ended May 31, 2009 and 2008, respectively.
The negative stock-based compensation expense last year was attributable to
the forfeiture of unvested stock options upon the resignation of the
Company's former President and Chief Executive Officer in March 2008.
Note 13 - COMMITMENTS AND CONTINGENCIES
DBS Product Field Performance Issues
------------------------------------
During 2007 a product performance issue arose involving certain DBS
equipment manufactured by CalAmp for a certain customer. After examining the
various component parts used in the manufacture of these products, it was
determined by the Company that the performance issue was the result of a
deterioration of the printed circuit board (PCB) laminate material used in
these products. In addition to returning product, in May 2007 this DBS
customer put on hold all orders for CalAmp products, including newer
generation products, pending the requalification of all products manufactured
by the Company for this customer. On December 14, 2007, the Company entered
into a settlement agreement with this customer. Under the terms of the
settlement agreement, the Company agreed to rework certain DBS products
returned by the customer through March 14, 2009. The Company also agreed to
provide extended warranty periods for workmanship (18 months) and product
failures due to the issue with the PCB laminate material (36 months). In
January 2008, the customer requalified CalAmp's designs for the affected
products and in May 2008 the Company resumed product shipments to this
customer.
At May 31, 2009, the Company has aggregate reserves of $4.7 million for
this matter, of which $1.1 million is an inventory reserve, $889,000 is a
vendor commitment liability included in other accrued liabilities, and the
remaining $2.7 million is a reserve for accrued warranty costs. The Company
believes that its established reserves as of May 31, 2009 of $4.7 million
will be adequate to cover the full resolution of this matter.
The Company has on-hand inventory of approximately $3.4 million and
outstanding purchase commitments of $2.8 million for materials that are
specific to the products that the Company manufactures for this customer,
which amounts are not currently reserved for because the Company believes
these materials can be used in the ordinary course of business as future
shipments of products are made to this customer. Nonetheless, changes in the
forecasted product demand from this customer could require that the inventory
reserve and/or the vendor commitment liability be increased to cover some
portion of these amounts.
Legal Proceedings
-----------------
In November 2008, a class action lawsuit was filed in the Los Angeles
County Superior Court against the Company, the former owner of the Company's
Aercept business and one of Aercept's distributors. The plaintiff seeks
monetary damages in an amount not yet specified. The class has not been
certified. The lawsuit alleges that Aercept made misrepresentations when the
plaintiff purchased analog vehicle tracking devices in 2005, which was prior
to CalAmp's acquisition of Aercept in an asset purchase. The tracking
devices ceased functioning in early 2008 due to termination of analog service
by the wireless network operators. The Company is seeking dismissal of the
lawsuit on the basis that the assertion of successor liability is not
supported by the law or the facts. No loss accrual has been made in the
accompanying unaudited consolidated financial statements for this matter.
In May 2007, a patent infringement suit was filed against the Company in
the U.S. District Court for the Eastern District of Texas. The lawsuit
contended that the Company infringed on four patents and sought injunctive
and monetary relief. In August 2007, the Company denied the plaintiff's
claims and asserted counterclaims. The District Court subsequently ordered
the dismissal of infringement claims related to three patents. In June 2008,
the United States Patent and Trademarks Office ("USPTO") issued a preliminary
office action rejecting the plaintiff's fourth patent. In August 2008, the
plaintiff filed a response to the USPTO's preliminary office action
requesting reconsideration. The case was stayed by the District Court
pending a final decision by the USPTO in the reexamination proceeding. In
June 2009, the USPTO issued a notice indicating that the reexamination of the
fourth patent is about to be concluded and that the fourth patent will be
confirmed as patentable. The Company continues to believe the lawsuit is
without merit and intends to vigorously defend against this action if and
when court proceedings resume. No loss accrual has been made in the
accompanying unaudited consolidated financial statements for this matter.
In addition to the foregoing matters, the Company from time to time is a
party, either as plaintiff or defendant, to various legal proceedings and
claims that arise in the ordinary course of business. While the outcome of
these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting periods.
Areas where significant judgments are made include, but are not necessarily
limited to: allowance for doubtful accounts, inventory valuation, product
warranties, deferred income taxes and uncertain tax positions, the valuation
of long-lived assets and preferred stock, and stock-based compensation.
Actual results could differ materially from these estimates.
Allowance for Doubtful Accounts
The Company establishes an allowance for estimated bad debts based upon
a review and evaluation of specific customer accounts identified as known and
expected collection problems, based on historical experience, or due to
insolvency, disputes or other collection issues. As further described in
Note 9 to the accompanying unaudited consolidated financial statements, the
Company's customer base is concentrated, with one customer accounting for 40%
of the Company's total revenue for the three months ended May 31, 2009 and
25% of the Company's net accounts receivable balance as of May 31, 2009.
Changes in either a key customer's financial position, or the economy as a
whole, could cause actual write-offs to be materially different from the
recorded allowance amount.
Inventories
The Company evaluates the carrying value of inventory on a quarterly
basis to determine if the carrying value is recoverable at estimated selling
prices. To the extent that estimated selling prices do not exceed the
associated carrying values, inventory carrying amounts are written down. In
addition, the Company generally treats inventory on hand or committed with
suppliers, which is not expected to be sold within the next 12 months, as
excess and thus appropriate write-downs of the inventory carrying amounts are
established through a charge to cost of sales. Estimated usage in the next
12 months is based on firm demand represented by orders in backlog at the end
of the quarter and management's estimate of sales beyond existing backlog,
giving consideration to customers' forecasted demand, ordering patterns and
product life cycles. Significant reductions in product pricing, or changes
in technology and/or demand may necessitate additional write-downs of
inventory carrying value in the future.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at May 31, 2009 the Company had an
inventory reserve of $1.1 million and a vendor commitment liability of
$889,000 that were established during fiscal 2008 in connection with a
product performance issue involving a key DBS customer. Also as described in
Note 13, the Company had on-hand inventory of $3.4 million and outstanding
purchase commitments of $2.8 million for materials that are specific to the
products that the Company manufactures for this customer. These amounts are
not currently reserved for because the Company believes these materials can
be used in the ordinary course of business as future shipments of products
are made to this customer. Nonetheless, changes in the forecasted product
demand from this customer could require that the inventory reserve and/or the
vendor commitment liability be increased to cover some portion of these
amounts.
Product Warranties
The Company initially provides for the estimated cost of product
warranties at the time revenue is recognized. While it engages in extensive
product quality programs and processes, the Company's warranty obligation is
affected by product failure rates and material usage and service delivery
costs incurred in correcting a product failure. Should actual product
failure rates, material usage or service delivery costs differ from
management's estimates, revisions to the estimated warranty liability would
be required.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at May 31, 2009 the Company had a $2.7
million reserve for accrued warranty costs in connection with a product
performance issue involving a key DBS customer. While the Company believes
that this $2.7 million warranty reserve will be adequate to cover total
future product rework costs for this issue, no assurances can be given that
the ultimate costs will not materially differ from the current estimate.
Deferred Income Taxes and Uncertain Tax Positions
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and for income tax purposes. A deferred income
tax asset is recognized if realization of such asset is more likely than not,
based upon the weight of available evidence, which includes historical
operating performance and the Company's forecast of future operating
performance. The Company evaluates the realizability of its deferred income
tax asset on a quarterly basis, and a valuation allowance is provided, as
necessary, in accordance with the provisions of SFAS No. 109, "Accounting for
Income Taxes". During this evaluation, the Company reviews its forecasts of
income in conjunction with the positive and negative evidence surrounding the
realizability of its deferred income tax asset to determine if a valuation
allowance is needed.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(FIN 48) defines the threshold for recognizing the benefits of tax return
positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authorities. FIN 48 provides guidance on de-
recognition, measurement and classification of income tax uncertainties,
along with any related interest and penalties. FIN 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income tax
uncertainties. At May 31, 2009, the Company had unrecognized tax benefits
of $6,449,000 which, if recognized, would impact the effective tax rate on
income (loss) before income taxes.
At May 31, 2009, the Company had a net deferred income tax asset balance
of $16,573,000. The current portion of the deferred tax assets is $3,301,000
and the noncurrent portion is $13,272,000. The net deferred income tax asset
balance is comprised of a gross deferred tax asset of $36.0 million and a
valuation allowance of $19.4 million. No tax benefit was recorded during
the quarter ended May 31, 2009 because future realizability of such benefit
was not considered to be more likely than not.
Impairment Assessments of Purchased Intangible Assets and
Other Long-Lived Assets
At May 31, 2009, the Company had $6.2 million in other intangible assets
on its consolidated balance sheet. The Company believes the estimate of its
valuation of long-lived assets is a "critical accounting estimate" because if
circumstances arose that led to a decrease in the valuation it could have a
material impact on the Company's results of operations.
The Company makes judgments about the recoverability of non-goodwill
intangible assets and other long-lived assets whenever events or changes in
circumstances indicate that an impairment in the remaining value of the
assets recorded on the balance sheet may exist.
In order to estimate the fair value of long-lived assets, the Company
typically makes various assumptions about the future prospects for the
business that the asset relates to, considers market factors specific to
that business and estimates future cash flows to be generated by that
business. These assumptions and estimates are necessarily subjective and
based on management's best estimates based on the information available at
the time such estimates are made. Based on these assumptions and estimates,
the Company determines whether it needs to record an impairment charge to
reduce the value of the asset stated on the balance sheet to reflect its
estimated fair value.
Investment in Preferred Stock of Private Company
An investment in preferred stock of a privately held company is included
in non-current Other Assets in the consolidated balance sheet and is
accounted for under the cost method of accounting because the Company does
not have the ability to exercise significant influence over the issuer's
operations. The originally ascribed carrying value of $3.1 million for this
preferred stock, which was received as partial consideration for the sale of
the TelAlert software business in August 2007, was determined using the
Black-Scholes Option Pricing Model, in which the preferred stock is treated
as a series of call options on the entity's enterprise value. Under the cost
method of accounting, this investment is carried at cost and is only adjusted
for other-than-temporary declines in fair value and distributions of
earnings. Management periodically evaluates the recoverability of this
preferred stock investment based on the performance and the financial
position of the issuer as well as other evidence of market value. Such
evaluations include, but are not limited to, reviewing the investee's cash
position, recent financings, projected and historical financial performance,
cash flow forecasts and financing requirements. During the fourth quarter of
the fiscal 2009, the Company recorded an impairment loss of $1.1 million,
representing the excess of the carrying amount of $3.1 million over the
investment's fair value of $2.0 million. During the three months ended May
31, 2009 and 2008, the Company did not recognize any losses due to other-
than-temporary decline of the value of this investment.
Stock-Based Compensation Expense
Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R") requires companies to measure all
employee stock-based compensation awards using a fair value method and record
such expense in their financial statements. Accordingly, the Company
measures stock-based compensation expense at the grant date, based on the
fair value of the award, and recognizes the expense over the employee's
requisite service (vesting) period using the straight-line method. The
measurement of stock-based compensation expense is based on several criteria
including, but not limited to, the valuation model used and associated input
factors, such as expected term of the award, stock price volatility, risk
free interest rate and forfeiture rate. Certain of these inputs are
subjective to some degree and are determined based in part on management's
judgment. The Company recognizes the compensation expense on a straight-line
basis for its graded-vesting awards. SFAS 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. However, the
cumulative compensation expense recognized at any point in time must at least
equal the portion of the grant-date fair value of the award that is vested at
that date. As used in this context, the term "forfeitures" is distinct from
"cancellations" or "expirations", and refers only to the unvested portion of
the surrendered equity awards.
RESULTS OF OPERATIONS
Basis of presentation
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal 2009 fell on February 28, 2009. The actual
interim periods ended on May 30, 2009 and May 31, 2008. In the accompanying
unaudited consolidated financial statements, the 2009 fiscal year end is
shown as February 28 and the interim period end for both years is shown as
May 31 for clarity of presentation.
Overview
CalAmp Corp. is a provider of wireless communications solutions that
enable anytime/anywhere access to critical data and content. CalAmp's
Wireless DataCom business services the public safety, utility, industrial
monitoring and controls, and mobile resource management ("MRM") markets.
CalAmp's Satellite business supplies outdoor customer premise equipment to
the U.S. Direct Broadcast Satellite ("DBS") market.
Wireless DataCom
The Wireless DataCom segment services the public safety, industrial
monitoring and controls, and MRM segments with wireless solutions that extend
communications networks to field applications, thereby enabling coordination
of emergency response teams, increasing productivity and optimizing workflow
for the mobile workforce, improving management controls over valuable remote
assets, and enabling novel applications in a connected world.
Satellite
The Company's DBS reception products are sold primarily to the two U.S.
DBS system operators, Echostar and DirecTV, for incorporation into complete
subscription satellite television systems. Prior to fiscal 2008, the
Company's overall revenue consisted principally of sales of satellite
television outdoor reception equipment for the U.S. DBS industry. As the
result of a DBS product performance issue, the Company's historically largest
DBS customer substantially reduced its purchases of the Company's products in
fiscal 2008. In May 2008, the Company resumed product shipments to this
customer. There were no sales to the Company's other DBS customer in the
preceding two fiscal quarters due to pricing and competitive pressures and
the time period involved in getting the next generation product qualified
with this customer.
Operating Results by Business Segment
The Company's revenue, gross profit and operating income (loss) by
business segment are as follows:
REVENUE BY SEGMENT
Three Months Ended May 31,
-----------------------------------
2009 2008
--------------- ---------------
% of % of
Segment $000s Total $000s Total
----------- ------- ----- ------ -----
Satellite $ 9,249 40.2% $ 7,641 27.4%
Wireless DataCom 13,751 59.8% 20,260 72.6%
------ ----- ------ -----
Total $23,000 100.0% $27,901 100.0%
====== ===== ====== =====
GROSS PROFIT BY SEGMENT
Three Months Ended May 31,
-----------------------------------
2009 2008
--------------- ---------------
% of % of
Segment $000s Total $000s Total
----------- ------- ----- ------ -----
Satellite $ 427 9.1% $ 733 7.8%
Wireless DataCom 4,280 90.9% 8,696 92.2%
------ ----- ------ -----
Total $ 4,707 100.0% $ 9,429 100.0%
====== ===== ====== =====
OPERATING INCOME (LOSS) BY SEGMENT
Three Months Ended May 31,
-----------------------------------
2009 2008
--------------- ---------------
% of % of
Segment $000s Sales $000s Sales
----------- -------- ----- ------ -----
Satellite $ (617) (2.7%) $ (332) (1.2%)
Wireless DataCom (1,644) (7.1%) 1,057 3.8%
Corporate expenses (1,229) (5.4%) (1,196) (4.3%)
------- ----- ------ -----
Total $(3,490) (15.2%) $ (471) (1.7%)
======= ===== ====== =====
Revenue
Satellite revenue increased $1.6 million, or 21%, to $9.2 million in the
three months ended May 31, 2009 from $7.6 million for the same period in the
previous fiscal year. As discussed above, the Company's historically largest
DBS customer put on hold all orders with the Company in late May 2007,
including orders for newer generation products, pending a requalification of
all products manufactured by CalAmp for this customer. In January 2008, the
customer requalified CalAmp's designs for the affected products and in late
May 2008 the Company resumed product shipments to this customer. Revenues
from this DBS customer were $8.5 million higher for the quarter ended May 31,
2009 compared to the same period last year. However, there were no sales to
the Company's other DBS customer in the first quarter of the current fiscal
year compared to sales of $6.8 million from that customer for the same period
in the previous fiscal year due to pricing and competitive pressures and the
time period involved in getting the next generation product qualified with
this customer. The Company does not expect to begin shipping this next
generation product until late in fiscal 2010. Although the Company expects
that its Satellite revenue will increase in fiscal 2010 compared to fiscal
2009, in the foreseeable future it does not expect its Satellite revenue to
fully return to pre-fiscal 2008 levels as a result of macroeconomic and
competitive factors.
Wireless DataCom revenue declined by $6.5 million, or 32%, to $13.8
million in the first quarter of fiscal 2010 compared to the fiscal 2009 first
quarter. Almost a quarter of the decrease was due to the sale of patent
rights which contributed $1.5 million to Wireless DataCom revenue for the
three months ended May 31, 2008. The remainder of the decrease was due to
lower sales by the Wireless DataCom business units as the result of the
global economic downturn.
Gross Profit and Gross Margins
Satellite gross profit decreased by $306,000 to $427,000 in the fiscal
2010 first quarter compared to the first quarter of last year. Satellite's
gross margin declined to 4.6% in the first quarter of fiscal 2010 from 9.6%
in the first quarter of fiscal 2009. Gross profit in the fiscal 2009 first
quarter was benefited by $587,000 associated with the sale of Satellite
products for which the inventory cost had been fully reserved in the prior
fiscal year. If this product cost had not been reserved in the prior year,
Satellite gross margin in the fiscal 2009 first quarter would have been 1.9%.
Wireless DataCom gross profit declined 51% to $4.3 million in the fiscal
2010 first quarter compared to $8.7 million in the first quarter of last
year. Wireless DataCom's gross margin decreased to 31.1% in the first
quarter of fiscal 2010 from 42.9% in the first quarter of fiscal 2009 due
primarily to the decline in revenue and to the $1.5 million patent sale last
year. Excluding the patent sale, Wireless DataCom's gross margin was 38.4%
in the first quarter of last year.
See also Note 12 to the accompanying unaudited consolidated financial
statements for additional operating data by business segment.
Operating Expenses
Consolidated research and development expense decreased by $302,000 to
$2,898,000 in the first quarter of fiscal 2010 from $3,200,000 last year.
This decrease is primarily due to personnel reductions in the Public Safety
Mobile unit of the Wireless DataCom segment.
Consolidated selling expenses decreased 3% to $2,201,000 in the first
quarter of this year from $2,272,000 last year. Last year's first quarter
was benefited by a $205,000 reversal of a bad debts reserve for a contracts
receivable. Selling expense was lower in the first quarter of this year
primarily because of lower commissions expense on the lower revenue level
compared to the first quarter of last year.
Consolidated general and administrative expenses ("G&A") decreased by
$339,000 to $2,757,000 in the first quarter of this year compared to the
prior year. Cost reduction actions implemented by the Company subsequent to
the first quarter of last year resulted in lower G&A expense in the first
quarter of this year. However, the effect of these cost reduction actions on
G&A was partially offset by an increase in stock-based compensation expense
because the first quarter of last year included a $507,000 reduction of stock
compensation expense as the result of the forfeiture of unvested stock
options upon the resignation of the Company's former President and Chief
Executive Officer in March 2008.
Amortization of intangibles decreased from $1,332,000 in the first
quarter of last year to $341,000 in the first quarter of this year. The
reduction is attributable to lower carrying value of intangible assets as a
result of the impairment write-down recorded in the fourth quarter of fiscal
2009.
Non-operating Expense, Net
Non-operating expense increased $51,000 from the first quarter of last
year to the first quarter of this year due a foreign currency loss of
$269,000 in the current quarter compared to a $107,000 foreign currency gain
during the first quarter of fiscal 2009. The effect was partially offset by
a decrease in interest expense of $363,000 as a result of lower average
outstanding bank debt during the current fiscal quarter.
Income Tax Provision
The effective income tax benefit rate was 0% and 44% in the three months
ended May 31, 2009 and 2008, respectively. There was no tax benefit recorded
during the quarter ended May 31, 2009. No tax benefit was recorded during
the quarter ended May 31, 2009 because future realizability of such benefit
was not considered to be more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $4,382,000 at May 31, 2009. During the three
months ended May 31, 2009, cash and cash equivalents decreased by $2,531,000.
Cash was used for debt repayments of $3,125,000 and capital expenditures of
$273,000, partially offset by cash provided by operations of $570,000,
collections on a note receivable of $75,000 and the effect of exchange rate
changes on cash of $255,000.
In May 2006, the Company entered into a Credit Agreement (the "Credit
Agreement") with Bank of Montreal (BMO), as administrative agent, and the
other financial institutions that from time to time may become parties to the
Credit Agreement (collectively, the "Banks"). Borrowings are secured by
substantially all of the assets of CalAmp Corp. and its domestic
subsidiaries. At the Company's option, borrowings under the Credit Agreement
bear interest at BMO's prime rate ("Prime Based Loans") plus a margin ranging
from 2.50% to 2.75% (the "Prime Rate Margin") or LIBOR ("LIBOR Based Loans")
plus a margin ranging from 3.25% to 3.75% (the "LIBOR Margin"). The Prime
Rate Margin and the LIBOR Margin vary depending on the Company's ratio of
debt to earnings before interest, taxes, depreciation, amortization and other
noncash charges. Interest is payable on the last day of the calendar quarter
for Prime Based Loans and at the end of the fixed-rate LIBOR period (ranging
from 1 to 12 months) in the case of LIBOR Based Loans. At May 31, 2009, the
effective interest rate on the bank term loan was 4.07%, comprised of a one-
month LIBOR rate of 0.32% plus the LIBOR Margin of 3.75%.
The Credit Agreement also provides for a working capital line of credit
("revolver") of $3,375,000. At May 31, 2009, $1,725,000 of the working
capital line of credit was reserved for outstanding irrevocable stand-by
letters of credit and $1,650,000 was available for working capital
borrowings. Outstanding amounts under the revolver would bear interest at
BMO's prime rate plus 4% or LIBOR plus 5%. There were no outstanding
borrowings on the revolver at May 31, 2009.
On February 13, 2009, the Company entered into the Seventh Amendment and
Consent to the Credit Agreement (the "Seventh Amendment"), pursuant to which
the Banks consented to an amendment of a subordinated note payable as
described below, and the Company agreed to make additional principal payments
on the bank term loan of $7.50 per unit for the first 120,000 units of a
certain product sold to a key DBS customer beginning in January 2009.
On May 1, 2009, the Company entered into the Eighth Amendment and
Consent to the Credit Agreement, pursuant to which, the Banks waived certain
financial covenant violations and agreed to change the minimum levels of
consolidated earnings before interest, taxes, depreciation and amortization
(EBITDA) and Wireless DataCom revenues required by the financial covenants
for the remaining term of the Credit Agreement. The Company was in
compliance with these financial covenants at May 31, 2009.
At May 31, 2009, the Company had an outstanding principal balance of
$15,735,000 under the term loan. Subsequently, on June 30, 2009 the Company
made a principal payment of $1,673,500, consisting of $1,600,000 scheduled
principal payment and $73,500 additional principal payment under the Seventh
Amendment as described above. A principal payment of $1,600,000 is due on
September 30, 2009. The Company is also required to make mandatory
prepayments under the credit facility in certain circumstances, including
following the Company's incurrence of certain indebtedness, disposition of
its property or extraordinary income. The Credit Agreement has a maturity
date of December 31, 2009, at which time all outstanding borrowings are due
and payable. In addition, a fee of $150,000 will be due and payable to the
Banks on December 31, 2009.
The Credit Agreement also includes customary affirmative and negative
covenants including, without limitation, negative covenants regarding
additional indebtedness, investments, maintenance of the business, liens,
guaranties, transfers and sales of assets, and the payment of dividends and
other restricted payments.
As noted above, the Company's Credit Agreement with the Banks has a
maturity date of December 31, 2009. Prior to maturity the Company expects to
refinance the outstanding borrowings under the Credit Agreement with an
asset-based loan, possibly supplemented by proceeds from another funding
source. Although the Company believes that its expectations are reasonable,
in light of the Company's current financial condition, economic conditions
generally, and the state of the credit markets at the present time, no
assurance can be given that the Company will be able to refinance the
outstanding borrowings under the Credit Agreement from other funding sources
prior to the maturity date.
On December 14, 2007, the Company entered into a settlement agreement
with a key DBS customer. Under the terms of the settlement agreement, the
Company issued to the customer a $5 million non-interest bearing promissory
note that is payable at a rate of $5.00 per unit on the first one million DBS
units purchased by this customer after the date of the settlement agreement.
The promissory note, which is subordinated to the outstanding indebtedness
under CalAmp's bank credit facility, will be accelerated if the Company
becomes insolvent, files for bankruptcy, or undergoes a change of control.
On February 13, 2009, the Company entered into an amendment of the
subordinated promissory note (the "Note Amendment"). Pursuant to the Note
Amendment, the Company agreed to increase the principal payments on the
subordinated note from $5.00 to $20.00 per unit for sales to this customer of
a certain product during the period from January through May 2009. Effective
June 1, 2009, the per unit note principal payment applicable to sales of this
product reverted to $5.00. From January 2009 through May 31, 2009, the
Company shipped 110,200 units of this product. During the quarter ended May
31, 2009, the Company made principal payments of $1,310,000. At May 31,
2009, the note had a balance of $2,218,000. Subsequently, in June 2009 the
Company made two principal payments on the subordinated note in the aggregate
amount of $1,166,000.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at May 31, 2009 the Company had a $2.7
million reserve for accrued warranty costs and a $1.1 million inventory
reserve in connection with the aforementioned DBS product performance issue.
Also as described in Note 13 to the accompanying unaudited consolidated
financial statements, at May 31, 2009 the Company has a vendor commitment
liability of $889,000 related to this product performance issue. While the
Company believes that these reserves will be adequate to cover total future
product rework costs under this settlement agreement and vendor commitment
liabilities for materials not expected to be utilizable in the future, no
assurances can be given that the ultimate costs will not materially increase
from the current estimates. Substantially all of the cash impact of these
reserves is anticipated to occur over the next 12 months.
FORWARD LOOKING STATEMENTS
Forward looking statements in this Form 10-Q which include, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, projections and other information
regarding future performance, are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The words "may",
"will", "could", "plans", "intends", "seeks", "believes", "anticipates",
"expects", "estimates", "judgment", "goal", and variations of these words and
similar expressions, are intended to identify forward-looking statements.
These forward-looking statements reflect the Company's current views with
respect to future events and financial performance and are subject to certain
risks and uncertainties, including, without limitation, product demand,
market growth, competitive pressures and pricing declines in the Company's
Satellite and Wireless markets, supplier constraints, manufacturing yields,
the length and extent of the global economic downturn that has and may
continue to adversely affect the Company's business, the ability of the
Company to refinance or extend its bank term loan prior to the December 31,
2009 maturity date, and other risks and uncertainties that are set forth
under the caption "Risk Factors" in Part I, Item 1A of the Annual Report on
Form 10-K for the year ended February 28, 2009 as filed with the Securities
and Exchange Commission on May 12, 2009. Such risks and uncertainties could
cause actual results to differ materially from historical or anticipated
results. Although the Company believes the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give
no assurance that its expectations will be attained. The Company undertakes
no obligation to update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates. The Company's Canadian
subsidiary uses the Canadian dollar, the local currency, as its functional
currency. A cumulative foreign currency translation loss related to the
Company's Canadian subsidiary and French subsidiary of $59,000 and $801,000,
respectively, is included in accumulated other comprehensive income (loss) in
the stockholders' equity section of the consolidated balance sheet at May 31,
2009. Foreign currency gain (loss) included in the consolidated statements
of operations for the three months ended May 31, 2009 and 2008 was $(269,000)
and $107,000, respectively.
Interest Rate Risk
The Company has variable-rate bank debt. A fluctuation of one percent
in interest rate would have an annual impact of approximately $100,000 net of
tax on the Company's consolidated statement of operations.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's principal executive officer and principal financial
officer have concluded, based on their evaluation of disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, (the "Exchange Act")) as of the end of the period
covered by this Report, that the Company's disclosure controls and procedures
are effective to ensure that the information required to be disclosed in
reports that are filed or submitted under the Exchange Act is accumulated and
communicated to management, including the principal executive officer and
principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure and that such information is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities Exchange Commission.
Internal Control Over Financial Reporting
There has been no change in the Company's internal control over
financial reporting that occurred during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In November 2008, a class action lawsuit was filed in the Los Angeles
County Superior Court against the Company, the former owner of the Company's
Aercept business and one of Aercept's distributors. The plaintiff seeks
monetary damages in an amount not yet specified. The class has not been
certified. The lawsuit alleges that Aercept made misrepresentations when the
plaintiff purchased analog vehicle tracking devices in 2005, which was prior
to CalAmp's acquisition of Aercept in an asset purchase. The tracking
devices ceased functioning in early 2008 due to termination of analog service
by the wireless network operators. The Company is seeking dismissal of the
lawsuit on the basis that the assertion of successor liability is not
supported by the law or the facts. No loss accrual has been made in the
accompanying unaudited consolidated financial statements for this matter.
In May 2007, a patent infringement suit was filed against the Company
in the U.S. District Court for the Eastern District of Texas. The lawsuit
contended that the Company infringed on four patents and sought injunctive
and monetary relief. In August 2007, the Company denied the plaintiff's
claims and asserted counterclaims. The District Court subsequently ordered
the dismissal of infringement claims related to three patents. In June 2008,
the United States Patent and Trademarks Office ("USPTO") issued a preliminary
office action rejecting the plaintiff's fourth patent. In August 2008, the
plaintiff filed a response to the USPTO's preliminary office action
requesting reconsideration. The case was stayed by the District Court
pending a final decision by the USPTO in the reexamination proceeding. In
June 2009, the USPTO issued a notice indicating that the reexamination of the
fourth patent is about to be concluded and that the fourth patent will be
confirmed as patentable. The Company continues to believe the lawsuit is
without merit and intends to vigorously defend against this action if and
when court proceedings resume. No loss accrual has been made in the
accompanying unaudited consolidated financial statements for this matter.
ITEM 1A. Risk Factors
The reader is referred to Part I, "Item 1A. Risk Factors" in the
Company's Annual Report on Form 10-K for the year ended February 28, 2009,
for a discussion of factors that could materially affect the Company's
business, financial condition or future results.
ITEM 5. OTHER INFORMATION
The corrected version of the Second Amendment to Employment Agreement
dated May 11, 2009 between the Company and Richard Gold is attached as
Exhibit 10.1 to this Form 10-Q. The amendment was described under the
heading "Other Information" in Part II, Item 9B. of the Company's Annual
Report on Form 10-K for the year ended February 28, 2009 as filed with the
Securities and Exchange Commission on May 12, 2009.
ITEM 6. EXHIBITS
Exhibit 10.1 - Second Amendment to Employment Agreement dated
May 11, 2009 between the Company and Richard
Gold (corrected version)
Exhibit 31.1 - Chief Executive Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 31.2 - Chief Financial Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32 - Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
July 9, 2009 /s/ Richard K. Vitelle
------------ ----------------------------
Date Richard K. Vitelle
Vice President Finance & CFO
(Principal Financial Officer
and Chief Accounting Officer)