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: November 28, 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 27,660,728 shares of Common Stock outstanding as of
December 31, 2009.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except par value amounts)
November 30, February 28,
2009 2009
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 4,515 $ 6,913
Accounts receivable, less allowance for
doubtful accounts of $563 and $552 at November
30, 2009 and February 28, 2009, respectively 14,458 13,682
Inventories 11,633 15,139
Deferred income tax assets 3,473 3,479
Prepaid expenses and other current assets 4,119 4,962
-------- --------
Total current assets 38,198 44,175
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 2,175 2,139
Deferred income tax assets, less current portion 9,254 13,111
Intangible assets, net 5,486 6,473
Other assets 1,909 3,749
-------- --------
$ 57,022 $ 69,647
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank loan payable $ 13,955 $ 17,550
Note payable - 3,528
Accounts payable 15,609 5,422
Accrued payroll and employee benefits 2,707 3,380
Accrued warranty costs 1,999 3,286
Other current liabilities 3,002 8,683
Deferred revenue 4,039 3,609
-------- --------
Total current liabilities 41,311 45,458
-------- --------
Non-current liabilities 546 990
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; 25,729 and 25,217 shares issued
and outstanding at November 30, 2009 and
February 28, 2009, respectively 257 252
Additional paid-in capital 146,085 144,881
Accumulated deficit (130,333) (120,814)
Accumulated other comprehensive loss (844) (1,120)
-------- --------
Total stockholders' equity 15,165 23,199
-------- --------
$ 57,022 $ 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 Nine Months Ended
November 30, November 30,
------------------- -------------------
2009 2008 2009 2008
-------- -------- -------- --------
Revenues $ 30,692 $ 25,834 $ 77,632 $ 77,043
Cost of revenues 24,795 18,193 62,224 52,505
-------- -------- -------- --------
Gross profit 5,897 7,641 15,408 24,538
-------- -------- -------- --------
Operating expenses:
Research and development 2,726 3,199 8,257 9,530
Selling 2,517 2,656 7,120 6,575
General and administrative 2,753 2,990 8,011 9,352
Intangible asset amortization 342 1,240 1,025 3,812
-------- -------- -------- --------
Total operating expenses 8,338 10,085 24,413 29,269
-------- -------- -------- --------
Operating loss (2,441) (2,444) (9,005) (4,731)
Non-operating income (expense):
Interest expense, net (243) (476) (622) (1,361)
Loss on sale of investment - - (1,008) -
Other income (expense), net (9) (46) (258) 89
-------- -------- -------- --------
Total non-operating expense (252) (522) (1,888) (1,272)
-------- -------- -------- --------
Loss before income taxes (2,693) (2,966) (10,893) (6,003)
Income tax benefit 1,374 1,128 1,374 2,170
-------- -------- -------- --------
Net loss $ (1,319) $ (1,838) $ (9,519) $ (3,833)
======== ======== ======== ========
Basic and diluted loss
per share $ (0.05) $ (0.07) $ (0.38) $ (0.15)
======== ======== ======== ========
Shares used in computing
basic and diluted loss
per share 25,015 24,809 24,931 24,750
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Nine Months Ended
November 30,
---------------------
2009 2008
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (9,519) $ (3,833)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,906 5,552
Stock-based compensation expense 1,416 838
Deferred tax assets, net - (2,371)
Loss on sale of investment 1,008 -
Changes in operating assets and liabilities:
Accounts receivable (739) 4,643
Inventories 3,588 5,117
Prepaid expenses and other assets 587 1,269
Accounts payable 10,187 (3,315)
Other accrued liabilities (4,642) (3,658)
Deferred revenue 430 (991)
Other 24 -
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 4,246 3,251
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (835) (650)
Proceeds from sale of investment 992 -
Collections on note receivable 225 420
Earnout payments on Technocom acquisition - (1,183)
Other (36) 296
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 346 (1,117)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowing 1,650 -
Debt repayments (8,808) (2,778)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (7,158) (2,778)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 168 (241)
------- -------
Net change in cash and cash equivalents (2,398) (885)
Cash and cash equivalents at beginning of period 6,913 6,588
------- -------
Cash and cash equivalents at end of period $ 4,515 $ 5,703
======= =======
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 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 serves 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 November 28, 2009 and November 29,
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 November 30 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 November 30, 2009 and
its results of operations for the three and nine months ended November 30,
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 November 30, 2009.
The Company has evaluated subsequent events through January 7, 2010,
the date these interim financial statements were issued, for matters of
potential accounting recognition or financial statement disclosure.
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):
November 30, February 28,
2009 2009
------ -------
Raw materials $ 9,778 $12,036
Work in process 411 164
Finished goods 1,444 2,939
------- -------
$11,633 $15,139
======= =======
Note 3 - INTANGIBLE ASSETS
Intangible assets are comprised as follows (in thousands):
November 30, 2009 February 28, 2009
-------------------------- ----------------------------
New Accumulated New Accumulated
Amortization Cost Amorti- Cost Amorti-
Period Basis zation Net Basis zation Net
------ ------ ------ ----- ----- ------ ------
Developed/core
technology 5-7 yrs. $3,101 $ 830 $2,271 $3,101 $ 155 $2,946
Customer lists 5-7 yrs. 1,339 374 965 1,339 70 1,269
Covenants not
to compete 4-5 yrs. 138 52 86 138 10 128
Patents 5 yrs. 39 5 34 - - -
Tradename Indefinite 2,130 - 2,130 2,130 - 2,130
----- ------ ----- ----- ----- -----
$6,747 $1,261 $5,486 $6,708 $ 235 $6,473
===== ====== ===== ===== ===== =====
Amortization expense of intangible assets was $342,000 and $1.2 million
for the three months ended November 30, 2009 and 2008, respectively, and was
$1.0 million and $3.8 million for the nine month periods then ended. All
intangible asset amortization expense was attributable to the Wireless DataCom
business. The new cost basis of intangible assets was established effective
as of December 31, 2008 in connection with recognizing a fiscal 2009 fourth
quarter impairment charge that reduced the carrying amount of intangible
assets other than goodwill by $13.5 million and that resulted in netting
accumulated amortization of $12.8 million at that date against the original
cost basis of such intangible assets.
Estimated amortization expense for the fiscal years ending February 28 is
as follows (in thousands):
2010 (remainder) $ 342
2011 1,133
2012 990
2013 732
2014 159
-----
$3,356
=====
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. At November 30, 2009, the Company had an outstanding
principal balance of $13,955,000 consisting of $12,305,000 under the term
loan of the Credit Agreement and $1,650,000 under the working capital line
of credit ("revolver"). Also at November 30, 2009, $1,100,000 of the
revolver was reserved for outstanding irrevocable stand-by letters of
credit.
As further described in Note 14 to the accompanying unaudited
consolidated financial statements, on December 22, 2009 the Company paid in
full the $13,955,000 outstanding principal balance under its credit facility
with BMO and two other banks, which had a maturity date of December 31,
2009. The Company also placed a cash deposit of $1,155,000 with BMO to
secure the outstanding irrevocable stand-by letters of credit.
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 was 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. This repayment rate was subsequently increased to
$20 per unit for certain product shipments made during January through May
2009. At November 30, 2009, this note had been paid in full.
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. 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.
The Income Taxes Topic of the FASB Accounting Standards Codification
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 and also provides guidance on de-recognition, measurement
and classification of income tax uncertainties, along with any related
interest and penalties. At November 30, 2009, the Company had unrecognized
tax benefits of $1,265,000 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 certain foreign jurisdictions. Income tax returns filed
for fiscal years 2005 and earlier are not subject to examination by U.S.
federal and state tax authorities. Certain income tax returns for fiscal
years 2006 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 November 30, 2009, the Company had a net deferred income tax asset
balance of $12,727,000. The current portion of the deferred tax assets is
$3,473,000 and the noncurrent portion is $9,254,000. The net deferred
income tax asset balance is comprised of a gross deferred tax asset of $53.3
million and a valuation allowance of $40.6 million. During the quarter
ended November 30, 2009, the Company recorded an increase in deferred income
tax assets of $18.1 million that was attributable to the unrecovered cost
basis in an inactive subsidiary that was dissolved. A corresponding
increase in the deferred tax asset valuation allowance was also recorded
because future realization of such tax benefits is not considered to be more
likely than not. In connection with recording this increase in deferred tax
assets for the unrecovered cost basis in the inactive subsidiary that was
dissolved, the Company reversed an uncertain tax position of $3.8 million
from income taxes payable with a corresponding reduction of deferred tax
assets. This reversal related to a portion of a tax loss carryforward of
the liquidated subsidiary that was extinguished as a result of claiming an
income tax benefit for the unrecovered cost basis of that subsidiary.
The effective income tax benefit rate was 13% and 36% in the nine
months ended November 30, 2009 and 2008, respectively. The tax benefit of
$1.4 million during the three and nine month periods ended November 30,
2009 was related to the reversal of an uncertain tax position which was
resolved. This uncertain tax position reversal was recorded as an income
tax benefit because the benefit had been recognized in the applicable
income tax returns but had not previously been recognized in the
consolidated statement of operations. No other tax benefit was recorded
for three and nine month periods ended November 30, 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 stock options 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 of 4,261,000 and
3,207,000 at November 30, 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, unvested
restricted stock, and unvested 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 and nine months ended
November 30, 2009 and 2008 (in thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
------------------- -------------------
2009 2008 2009 2008
-------- -------- -------- --------
Net loss $(1,319) $ (1,838) $(9,519) $(3,833)
Foreign currency
translation adjustments (20) (632) 276 (1,055)
------- -------- ------- -------
Comprehensive loss $(1,339) $ (2,470) $(9,243) $(4,888)
======= ======== ======= =======
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 Nine Months Ended
November 30, November 30,
------------------- -------------------
2009 2008 2009 2008
-------- -------- -------- --------
Cost of revenues $ 55 $ 30 $ 103 $ 53
Research and development 85 100 210 195
Selling 39 24 90 72
General and administrative 379 323 1,013 518
------ ------ ------ ------
$ 558 $ 477 $ 1,416 $ 838
====== ====== ====== ======
Changes in the Company's outstanding stock options during the nine
months ended November 30, 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 320 $ 1.48
Exercised -
Forfeited or expired (78) $11.80
-----
Outstanding at November 30, 2009 2,111 $ 7.05 6.3 years $1,176
=====
Exercisable at November 30, 2009 1,233 $ 4.70 4.7 years $ 156
=====
Changes in the Company's unvested restricted stock shares and RSUs
during the nine months ended November 30, 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 1,140 1.79
Vested (231) 2.49
Forfeited (36) 2.29
----- ------
Outstanding at November 30, 2009 1,780 $ 2.05
===== ======
Of the 231,000 restricted stock shares and RSUs that vested during
the period, 71,293 shares were retained by the Company to cover the
required amount of employee withholding taxes.
As of November 30, 2009, there was $4.3 million of total unrecognized
stock-based compensation cost related to unvested stock options,
restricted stock and RSUs. This amount will be recognized as compensation
expense over an estimated weighted-average remaining vesting period of 2.8
years, subject to periodic adjustments for forfeitures.
On October 6, 2009, the Company issued to a supplier warrants to
purchase 20,000 shares of the Company's common stock at an exercise price
of $1.00 per share. The warrants, which will become exercisable on April
6, 2010, have an expiration date of October 6, 2012. The fair value of
the warrants determined using the Black-Scholes Option Pricing Model was
$32,000, which is being amortized to expense over the six-month vesting
period.
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 and nine months ended November 30, 2009 or 2008,
as a percent of consolidated revenues, are as follows:
Three Months Ended Nine Months Ended
November 30, November 30,
------------------- -------------------
Customer 2009 2008 2009 2008
------- ------- ------- -------
A 54.6% 19.4% 46.2% 10.0%
B - 8.9% - 13.2%
The accounts receivable balance from Customer A, expressed as a
percent of consolidated net accounts receivable, is as follows:
November 30, February 28,
Customer 2009 2009
------ ------
A 46.9% 26.3%
There were no accounts receivable from Customer B at November 30,
2009 and February 28, 2009.
Customers A and B are customers of the Company's Satellite business
unit. See Note 13 for a description of a product performance issue and
related matters involving Customer A.
Some of the Company's components, assemblies and electronic
manufacturing services are purchased from sole source suppliers. One
supplier, which functions as an independent foreign procurement agent,
accounted for 50% and 19% of the Company's total inventory purchases in
the nine months ended November 30, 2009 and 2008, respectively. As of
November 30, 2009, this supplier accounted for 54% 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 nine months ended November 30,
2009 and 2008 is as follows (in thousands):
Nine months ended
November 30,
-----------------
2009 2008
------- -------
Balance at beginning of period $ 3,286 $ 4,869
Charged to costs and expenses 397 206
Deductions (1,684) (1,154)
------- ------
Balance at end of period $ 1,999 $ 3,921
======= ======
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):
Nine months ended
November 30,
-----------------
2009 2008
------- -------
Interest paid $ 531 $ 987
Income taxes paid (refunded) $ (5) $ (790)
Other current liabilities in the consolidated balance sheets consist
of the following (in thousands):
November 30, February 28,
2009 2009
------- ------
Income taxes payable $ 9 $ 5,218
Vendor commitment liability 725 1,283
Other 2,268 2,182
------- -------
$ 3,002 $ 8,683
======= =======
Income taxes payable was reduced by a total of $5,184,000 during the
quarter ended November 30, 2009 due to the resolution of uncertain tax
positions as discussed in Note 5 herein.
Non-operating income (expense) in the consolidated statement of
operations for the nine months ended November 30, 2009 included a $1.0
million loss on the sale of an investment. This loss was incurred on the
Company's sale in July 2009 of its investment in the preferred stock of a
privately-held company to a group of investors not affiliated with the
Company. The carrying value of this investment at the time of sale was
$2.0 million, and the sales price was $1.0 million.
Note 12 - SEGMENT INFORMATION
Segment information for the three and nine months ended November 30,
2009 and 2008 is as follows (dollars in thousands):
Three months ended Three months ended
November 30, 2009 November 30, 2008
------------------------------------ -------------------------------------
Business Segments Business Segments
------------------- -------------------
Wireless Wireless
Satellite DataCom Corporate Total Satellite DataCom Corporate Total
-------- -------- ------- ----- -------- ------- ------- -----
Revenues $ 16,802 $ 13,890 $ 30,692 $ 7,384 $ 18,450 $ 25,834
Gross profit $ 1,647 $ 4,250 $ 5,897 $ 253 $ 7,388 $ 7,641
Gross margin 9.8% 30.6% 19.2% 3.4% 40.0% 29.6%
Operating
income (loss) $ 494 $ (1,848) $(1,087) $ (2,441) $ (838) $ (293) $(1,313) $ (2,444)
Nine months ended Nine months ended
November 30, 2009 November 30, 2008
------------------------------------ -------------------------------------
Business Segments Business Segments
------------------- -------------------
Wireless Wireless
Satellite DataCom Corporate Total Satellite DataCom Corporate Total
-------- -------- ------- ----- -------- ------- ------- ------
Revenues $ 36,015 $ 41,617 $ 77,632 $ 18,201 $ 58,842 $ 77,043
Gross profit $ 2,405 $ 13,003 $ 15,408 $ 905 $ 23,633 $ 24,538
Gross margin 6.7% 31.2% 19.9% 5.0% 40.2% 31.8%
Operating
income (loss) $ (851) $(4,791) $(3,363) $ (9,005) $ (2,494) $ 1,680 $(3,917) $ (4,731)
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
$263,000 and $228,000 in the three months ended November 30, 2009 and
2008, respectively, and $704,000 and $248,000 in the nine month periods
then ended.
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 November 30, 2009, the Company has aggregate reserves of $3.4
million for this matter, of which $1.1 million is an inventory reserve, $0.7
million is a vendor commitment liability included in other accrued
liabilities, and the remaining $1.6 million is a reserve for accrued
warranty costs. The Company believes that its established reserves will be
adequate to cover the full resolution of this matter.
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
plaintiff's assertion of successor liability is not supported by the law
or the facts.
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 claims on the 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.
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 believes that the outcome of any of these legal
matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
Other Contingencies
-------------------
On October 5, 2009, the Company, as the successor-in-interest to a
subcontract for the installation of a public safety communications project
for a county government, received a letter from the county notifying the
prime contractor and the Company of its intent to terminate the prime
contract effective November 1, 2009. The subcontract has a total value of
$2.7 million, of which $2.5 million has been paid by the prime contractor.
Of this amount paid, approximately $500,000 was received by the Company and
approximately $2 million was received by a predecessor-in-interest that
served as the original subcontracting party. While the Company is still
evaluating its rights and obligations in this matter, based on currently
available information Company management believes that the ultimate
resolution will not have a material adverse effect on the Company's
financial position or results of operations. No loss accrual has been made
in the accompanying unaudited consolidated financial statements for this
matter.
Note 14 - SUBSEQUENT EVENTS
On December 22, 2009, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with Square 1 Bank of Durham, North
Carolina. This revolving credit facility has a two-year term and provides
for borrowings up to the lesser of $12 million or 85% of the Company's
eligible accounts receivable. Outstanding borrowings under this facility
bear interest at Square 1 Bank's prime rate plus 2.0%, subject to minimum
interest of 6.0% per annum or $20,000 per month, whichever is greater.
Interest is payable on the last day of each calendar month. The Company
paid a loan fee of $120,000 to Square 1 Bank in connection with this new
credit facility.
The Loan Agreement contains a financial covenant that requires the
Company to maintain minimum levels of earnings before interest, income
taxes, depreciation, amortization and other noncash charges ("EBITDA"). The
Loan Agreement also provides for a number of standard events of default,
including a provision that a material adverse change constitutes an event of
default that permits the lender, at its option, to accelerate the loan.
Among other provisions, the Loan Agreement also requires a lock-box and cash
collateral account whereby cash remittances from the Company's customers are
directed to the cash collateral account and which amounts are applied to
reduce the revolving loan principal balance. Borrowings under the Loan
Agreement are secured by substantially all of the assets of the Company and
its domestic subsidiaries.
Also on December 22, 2009, the Company entered into a Subordinated Note
and Warrant Purchase Agreement (the "Note Purchase Agreement") with nine
investors. The Company raised $1,925,000 from this issuance of subordinated
debt (the "Subordinated Notes"). The Company sold $325,000 in principal
amount of Subordinated Notes to three investors affiliated with the Company.
The Subordinated Notes bear interest at 12% per annum and have a maturity
date of December 22, 2012. Interest is payable semiannually on the last day
of June and December, and all Subordinated Note principal is payable at the
maturity date. The Company also issued a total of 192,500 common stock
purchase warrants (the "Warrants") to the Subordinated Note holders at an
exercise price of $4.02 per share, which represents a 20% premium to the
average closing price of the Company's common stock for the 20 consecutive
trading days prior to December 22, 2009. The Subordinated Notes and
Warrants were sold in a private placement transaction, have not been
registered under the Securities Act of 1933, as amended, and were not and
may not be offered or sold in the United States absent registration or an
applicable exemption from registration requirements.
Pursuant to the Note Purchase Agreement, the Company and the holders of
the Warrants entered into a Registration Rights Agreement, dated December
22, 2012 (the "Warrant Registration Rights Agreement"). Under the Warrant
Registration Rights Agreement, if the Company proposes to register any
shares of its common stock, it will use reasonable efforts to effect the
registration of the shares of common stock underlying the Warrants.
Also on December 22, 2009, the Company sold 1,931,819 shares of common
stock for $4,250,000 in a private placement with 13 investors, none of whom
were officers, directors, or other affiliates of the Company. The Company
issued these securities in reliance upon an exemption from registration
under Rule 506 of Regulation D or Section 4(2) of the Securities Act of
1933, as amended. The Company agreed to use commercially reasonable efforts
to file a registration statement with the Securities and Exchange Commission
and have it declared effective for purposes of registering these privately-
issued securities.
B. Riley & Co. LLC, the Company's financial advisor, was paid a
placement fee of $209,000 in connection with the Square 1 Bank Loan
Agreement and the Subordinated Note and Warrant Purchase Agreement and
$161,000 in connection with the equity private placement. B. Riley & Co.
LLC or its employee retirement trust purchased a total of $300,000 of the
Subordinated Notes. B. Riley & Co. LLC or its officers and employees also
purchased a total of 329,546 shares in the private placement.
And finally on December 22, 2009, the Company paid in full the
$13,955,000 outstanding principal balance of its credit facility with Bank
of Montreal and two other banks, which had a maturity date of December 31,
2009. The funds for this payoff were provided by a drawdown of $7,780,000
under the new revolving credit facility with Square 1 Bank and proceeds of
$1,925,000 from the issuance of subordinated debt, supplemented by proceeds
of $4,250,000 from the private placement of common stock. As a result of
this payoff, the credit facility with Bank of Montreal and the two other
banks was terminated. The Company borrowed an additional $1,150,000 under
the new credit facility and deposited this amount with Bank of Montreal to
secure outstanding irrevocable stand-by letters of credit issued by that
bank.
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 other
intangible assets and long-lived assets, 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 46% of the Company's total revenue for the nine
months ended November 30, 2009 and 47% of the Company's net accounts
receivable balance at that date. 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 revenues.
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. In addition and as further described in Note 9 to the
accompanying unaudited consolidated financial statements, the Company's
suppliers are concentrated, with one supplier accounting for 50% of the
Company's total cost of sales for the nine months ended November 30, 2009.
Any material disruption in the delivery of inventory by this supplier
could have a material adverse effect on the Company's ability to timely
meet its order requirements.
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. If
actual product failure rates, material usage or service delivery costs
differ from management's previous estimates, revisions to the estimated
warranty liability are recorded.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at November 30, 2009 the Company had a
$1.6 million reserve for accrued warranty costs in connection with a product
performance issue involving a key DBS customer. While the Company believes
that the 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. 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.
Income Taxes Topic of the FASB Accounting Standards Codification
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 and also provides guidance on de-recognition, measurement
and classification of income tax uncertainties, along with any related
interest and penalties. At November 30, 2009, the Company had unrecognized
tax benefits of $1,265,000 which, if recognized, would impact the effective
tax rate on income (loss) before income taxes.
At November 30, 2009, the Company had a net deferred income tax asset
balance of $12,727,000. The current portion of the deferred tax assets is
$3,473,000 and the noncurrent portion is $9,254,000. The net deferred
income tax asset balance is comprised of a gross deferred tax asset of $53.3
million and a valuation allowance of $40.6 million.
Impairment Assessments of Purchased Intangible Assets and
Other Long-Lived Assets
At November 30, 2009, the Company had $5.5 million in other intangible
assets on its consolidated balance sheet. The Company believes the estimate
of its valuation of purchased intangible assets and other 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 purchased
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.
Stock-Based Compensation Expense
Stock Compensation Topic of the FASB Accounting Standards Codification
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. Forfeitures are 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 is 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 November 28, 2009 and November 29,
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 November 30 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 serves 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 serves 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 last 12 months due to pricing and competitive pressures and the time
period involved in getting next generation products 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 November 30, Nine Months Ended November 30,
----------------------------------- ---------------------------------
2009 2008 2009 2008
--------------- --------------- -------------- --------------
% of % of % of % of
Segment $000s Total $000s Total $000s Total $000s Total
----------- ------- ----- ------ ----- ------- ----- ------ -----
Satellite $16,802 54.7% $ 7,384 28.6% $36,015 46.4% $18,201 23.6%
Wireless DataCom 13,890 45.3% 18,450 71.4% 41,617 53.6% 58,842 76.4%
------ ----- ------ ----- ------ ----- ------ -----
Total $30,692 100.0% $25,834 100.0% $77,632 100.0% $77,043 100.0%
====== ===== ====== ===== ====== ===== ======= =====
GROSS PROFIT BY SEGMENT
Three Months Ended November 30, Nine Months Ended November 30,
----------------------------------- ---------------------------------
2009 2008 2009 2008
--------------- --------------- ---------------- --------------
% of % of % of % of
Segment $000s Total $000s Total $000s Total $000s Total
----------- ------- ----- ------ ----- ------- ------- ------ -------
Satellite $ 1,647 27.9% $ 253 3.3% $ 2,405 15.6% $ 905 3.7%
Wireless DataCom 4,250 72.1% 7,388 96.7% 13,003 84.4% 23,633 96.3%
------ ----- ------ ----- ------ ------- ------ ------
Total $ 5,897 100.0% $ 7,641 100.0% $ 15,408 100.0% $ 24,538 100.0%
====== ===== ====== ===== ====== ======= ====== ======
OPERATING INCOME (LOSS) BY SEGMENT
Three Months Ended November 30, Nine Months Ended November 30,
----------------------------------- ---------------------------------
2009 2008 2009 2008
--------------- --------------- ---------------- --------------
% of % of % of % of
Segment $000s Sales $000s Sales $000s Sales $000s Sales
----------- ------- ----- ------ ----- ------- ----- ------ -----
Satellite $ 494 1.6% $ (838) (3.2%) $ (851) (1.1%) $(2,494) (3.2%)
Wireless DataCom (1,848) (6.0%) (293) (1.1%) (4,791) (6.2%) 1,680 2.2%
Corporate
expenses (1,087) (3.5%) (1,313) (5.1%) (3,363) (4.3%) (3,917) (5.1%)
------ ----- ------ ----- ------ ----- ------ -----
Total $(2,441) (7.9%) $(2,444) (9.4%) $(9,005) (11.6%) $(4,731) (6.1%)
====== ===== ====== ===== ====== ===== ====== =====
Revenue
Satellite revenue increased $9.4 million, or 128%, to $16.8 million in
the three months ended November 30, 2009 from $7.4 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 $11.7 million higher for the
quarter ended November 30, 2009 compared to the same period last year.
However, there were no sales to the Company's other DBS customer in the
third quarter of the current fiscal year compared to sales of $2.3 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
next generation products qualified with this customer. The Company does not
expect to begin shipping these next generation products until the second
half of fiscal 2011.
For the nine months ended November 30, 2009, Satellite revenue
increased $17.8 million, or 98%, to $36.0 million from $18.2 million for the
same period of the prior year. Revenues from the Company's historically
largest DBS customer were $28.1 million higher for the nine months ended
November 30, 2009 compared to the same period last year due to the reasons
noted above. There were no sales to the Company's other DBS customer in the
nine months ended November 30, 2009 compared to sales of $10.2 million to
that customer for the same period in the previous fiscal year, due to the
reasons noted above.
Wireless DataCom revenue declined by $4.6 million, or 25%, to $13.9
million in the third quarter of fiscal 2010 compared to $18.5 million in
the fiscal 2009 third quarter. For the nine months ended November 30,
2009, Wireless DataCom revenue decreased $17.2 million, or 29%, to $41.6
million compared to the same period of the prior year. The decrease in
revenue for the three- and nine-month periods is 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 was $1,647,000 in the fiscal 2010 third
quarter compared to $253,000 in the third quarter of last year. Satellite
gross margin was 9.8% for the three months ended November 30, 2009,
compared to 3.4% for the same period last year. The increase in gross
profit and gross margin is attributable to the increase in revenue, which
resulted in higher absorption of fixed manufacturing costs.
The Satellite segment had a gross profit of $2,405,000 for the nine
months ended November 30, 2009, compared with a gross profit of $905,000
for the same period last year. The increase in gross profit is
attributable to the increase in revenue. Satellite gross margin was 6.7%
for the nine months ended November 30, 2009, compared to 5.0% for the same
period last year. Gross profit and gross margin for the nine months ended
November 30, 2008 were benefited by (i) $587,000 associated with the sale
of Satellite products for which the inventory cost had been fully reserved
in the prior fiscal year; and (ii) a reduction of $735,000 in estimated
expenses to correct a product performance issue. If these benefits had
not been recorded, Satellite would have had a negative gross margin in the
nine months ended November 30, 2008 of 2.4%.
Wireless DataCom gross profit declined 42% to $4.3 million in the
fiscal 2010 third quarter compared to $7.4 million in the third quarter of
last year. Wireless DataCom's gross margin decreased to 30.6% in the
third quarter of fiscal 2010 from 40.0% in the third quarter of fiscal
2009 due primarily to the decline in revenue.
Wireless DataCom gross profit decreased 45% to $13.0 million in the
nine months ended November 30, 2009, compared to $23.6 million for the
same period of the prior year. Wireless DataCom gross margin was 31.2%
for the nine months ended November 30, 2009, compared to 40.2% for the
same period last year due to the decline in revenue and to the $1.5
million patent sale last year for which there was no associated cost.
Excluding the patent sale, Wireless DataCom gross margin was 38.6% for the
nine months ended November 30, 2008.
See also Note 12 to the accompanying unaudited consolidated financial
statements for additional operating data by business segment.
Operating Expenses
Consolidated research and development ("R&D") expense decreased by
$473,000 to $2,726,000 in the third quarter of fiscal 2010 from $3,199,000
last year. For the nine month year-to-date periods, R&D expense decreased
$1,273,000 from $9,530,000 last year to $8,257,000 this year. These
decreases are primarily due to personnel reductions in the Public Safety
Mobile unit of the Wireless DataCom segment.
Consolidated selling expenses decreased 5% to $2,517,000 in the third
quarter of this year from $2,656,000 last year. For the nine month year-
to-date periods, selling expenses increased by $545,000 from $6,575,000
last year to $7,120,000 this year. The increase in selling expenses for
the nine month periods is primarily due to bad debt reserve reductions
last year of $927,000 related to a Wireless DataCom customer.
Consolidated general and administrative expenses ("G&A") decreased by
$237,000 to $2,753,000 in the third quarter of this year from $2,990,000
last year. Cost reduction actions implemented by the Company resulted in
lower G&A expense in the third quarter of this year.
For the nine month periods, consolidated G&A decreased by $1.4
million to $8.0 million for fiscal 2010 from $9.4 million last year. The
decrease is attributable to (i) cost reduction actions; (ii) a $566,000
decrease in legal expense in the current year compared to last year; and
(iii) a $303,000 charge for severance costs of the Company's former
Satellite Division president in fiscal 2009. Partially offsetting the
effect of these expense reductions on G&A was an increase of $495,000 in
stock-based compensation expense because the G&A last year included a
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 intangible assets decreased from $1.2 million in the
third quarter of last year to $342,000 in the third quarter of this year.
For the nine month periods, amortization of intangibles decreased by $2.8
million to $1.0 million for fiscal 2010 from $3.8 million last year.
These reductions are attributable to the 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 in the third quarter of this year was
$252,000, compared to $522,000 in the third quarter of last year,
primarily due to a decrease in net interest expense of $233,000 as a
result of lower average outstanding bank debt during the nine months
ended November 30, 2009.
Non-operating expense was $1.9 million in the nine months ended
November 30, 2009, compared to non-operating expense of $1.3 million in
the nine months ended November 30, 2008. The increase was due to the
loss on the sale of an investment in the preferred stock of a privately
held company of $1.0 million in the second quarter of this year and a
$255,000 foreign currency loss this year compared to a foreign currency
gain of $92,000 gain last year. These losses were partially offset by a
decrease in net interest expense of $739,000 as a result of lower average
outstanding bank debt during the nine months ended November 30, 2009.
Income Tax Provision
The effective income tax benefit rate was 13% and 36% in the nine
months ended November 30, 2009 and 2008, respectively. The tax benefit of
$1.4 million during the three and nine month periods ended November 30,
2009 was related to the reversal of an uncertain tax position which was
resolved. This uncertain tax position reversal was recorded as an income
tax benefit because the benefit had been recognized in the applicable
income tax returns but had not previously been recognized in the
consolidated statement of operations. No other tax benefit was recorded
for the three and nine month periods ended November 30, 2009 because
future realizability of such tax benefits is 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 $4,515,000 at November 30, 2009. During
the nine months ended November 30, 2009, cash and cash equivalents
decreased by $2,398,000. Cash was used for debt repayments of $8,808,000
and capital expenditures of $835,000, partially offset by cash provided by
operations of $4,246,000, proceeds from the sale of investment of
$992,000, collections on a note receivable of $225,000, borrowings on the
bank line of credit of $1.6 million, and the effect of exchange rate
changes on cash of $168,000.
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. At November 30, 2009, the Company had an
outstanding principal balance of $13,955,000 consisting of $12,305,000
under the term loan of the Credit Agreement and $1,650,000 under the
working capital line of credit ("revolver"). At November 30, 2009,
$1,100,000 of the revolver was reserved for outstanding irrevocable stand-
by letters of credit.
On December 22, 2009, the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with Square 1 Bank of Durham, North
Carolina. This revolving credit facility has a two-year term and provides
for borrowings up to the lesser of $12 million or 85% of the Company's
eligible accounts receivable. Outstanding borrowings under this facility
bear interest at Square 1 Bank's prime rate plus 2.0%, subject to minimum
interest of 6.0% per annum or $20,000 per month, whichever is greater.
Interest is payable on the last day of each calendar month. The Company
paid a loan fee of $120,000 to Square 1 Bank in connection with this new
credit facility.
The Loan Agreement contains a financial covenant that requires the
Company to maintain minimum levels of earnings before interest, income
taxes, depreciation, amortization and other noncash charges ("EBITDA"). The
Loan Agreement also provides for a number of standard events of default,
including a provision that a material adverse change constitutes an event of
default that permits the lender, at its option, to accelerate the loan.
Among other provisions, the Loan Agreement also requires a lock-box and cash
collateral account whereby cash remittances from the Company's customers are
directed to the cash collateral account and which amounts are applied to
reduce the revolving loan principal balance. Borrowings under the Loan
Agreement are secured by substantially all of the assets of the Company and
its domestic subsidiaries.
Also on December 22, 2009, the Company entered into a Subordinated Note
and Warrant Purchase Agreement (the "Note Purchase Agreement") with nine
investors. The Company raised $1,925,000 from this issuance of subordinated
debt (the "Subordinated Notes"). The Company sold $325,000 in principal
amount of Subordinated Notes to three investors affiliated with the Company.
The Subordinated Notes bear interest at 12% per annum and have a maturity
date of December 22, 2012. Interest is payable semiannually on the last day
of June and December, and all Subordinated Note principal is payable at the
maturity date. The Company also issued a total of 192,500 common stock
purchase warrants (the "Warrants") to the Subordinated Note holders at an
exercise price of $4.02 per share, which represents a 20% premium to the
average closing price of the Company's common stock for the 20 consecutive
trading days prior to December 22, 2009.
Also on December 22, 2009, the Company sold 1,931,819 shares of
common stock for $4,250,000 in a private placement with 13 investors, none
of whom were officers, directors, or other affiliates of the Company.
And finally on December 22, 2009, the Company paid in full the
$13,955,000 outstanding principal balance of its credit facility with
Bank of Montreal and two other banks, which had a maturity date of
December 31, 2009. The funds for this payoff were provided by a drawdown
of $7,780,000 under the new revolving credit facility with Square 1 Bank
and proceeds of $1,925,000 from the issuance of subordinated debt,
supplemented by proceeds of $4,250,000 from the private placement of
common stock. As a result of this payoff, the credit facility with Bank
of Montreal and the two other banks was terminated. The Company borrowed
an additional $1,155,000 from the new credit facility with Square 1 Bank
and deposited such amount with Bank of Montreal to secure outstanding
irrevocable stand-by letters of credit issued by that bank.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at November 30, 2009 the Company had a
$1.6 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 November 30, 2009 the Company has a vendor
commitment liability of $0.7 million 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, 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 as its functional currency, while the
Company's French subsidiary uses the U.S. dollar as its functional currency.
A cumulative foreign currency translation loss related to the Company's
Canadian and French subsidiaries of $43,000 and $801,000, respectively, is
included in accumulated other comprehensive loss in the stockholders' equity
section of the consolidated balance sheet at November 30, 2009. Foreign
currency gain (loss) included in the consolidated statements of operations
for the nine months ended November 30, 2009 and 2008 was $(255,000) and
$92,000, respectively.
Interest Rate Risk
The Company has variable-rate bank debt. A fluctuation of one percent
in the interest rate on the new revolving credit facility of $12 million
would have an annual impact of approximately $70,000 net of tax on the
Company's consolidated statement of operations assuming that the full amount
of the facility was borrowed. The Subordinated Notes in the aggregate
amount of $1,925,000 bear a fixed rate of interest and hence are not subject
to interest rate risk.
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
plaintiff's assertion of successor liability is not supported by the law
or the facts.
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 claims on the 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.
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 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On October 6, 2009, the Company issued to a supplier warrants to
purchase 20,000 shares of the Company's common stock at an exercise price
of $1.00 per share. The warrants, which will become exercisable on April
6, 2010, have an expiration date of October 6, 2012. The warrants were
issued in respect of the ongoing services provided by this supplier, and
the Company did not receive any cash consideration for the issuance of the
warrants. The Company issued these warrants in reliance upon an exemption
from registration under Section 4(2) of the Securities Act of 1933, as
amended.
ITEM 6. EXHIBITS
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.
January 7, 2010 /s/ Richard K. Vitelle
--------------- ----------------------------
Date Richard K. Vitelle
Vice President Finance & CFO
(Principal Financial Officer
and Chief Accounting Officer)