Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 |
For the quarterly period ended August 28, 2010
or
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o |
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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
CALAMP CORP.
(Exact name of Registrant as specified in its Charter)
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Delaware
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95-3647070 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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1401 N. Rice Avenue
Oxnard, California
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93030 |
(Address of principal executive offices)
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(Zip Code) |
(805) 987-9000
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark 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.
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ |
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(Do not check if a smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The number of shares outstanding of the registrants common stock as of September 22, 2010 was
28,137,012.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP.
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands, except par value)
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August 31, |
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February 28, |
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2010 |
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2010 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
4,051 |
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$ |
2,986 |
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Accounts receivable, less allowance for doubtful accounts of
$534 and $413 at August 31, 2010 and February 28, 2010, respectively |
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13,650 |
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16,520 |
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Inventories |
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11,987 |
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10,608 |
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Deferred income tax assets |
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2,161 |
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2,656 |
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Prepaid expenses and other current assets |
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4,551 |
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4,720 |
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Total current assets |
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36,400 |
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37,490 |
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Property, equipment and improvements, net of
accumulated depreciation and amortization |
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2,087 |
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2,055 |
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Deferred income tax assets, less current portion |
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9,686 |
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10,017 |
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Intangible assets, net |
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4,562 |
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5,144 |
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Other assets |
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1,783 |
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2,247 |
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$ |
54,518 |
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$ |
56,953 |
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Liabilities and Stockholders Equity |
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Current liabilities: |
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Bank working capital line of credit |
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$ |
7,799 |
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$ |
5,901 |
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Accounts payable |
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15,158 |
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16,186 |
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Accrued payroll and employee benefits |
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2,572 |
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2,742 |
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Deferred revenue |
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5,097 |
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4,740 |
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Other current liabilities |
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2,642 |
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3,526 |
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Total current liabilities |
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33,268 |
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33,095 |
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Long-term debt |
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4,315 |
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4,170 |
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Other non-current liabilities |
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546 |
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489 |
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Commitments and contingencies |
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Stockholders equity: |
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Preferred stock, $.01 par value; 3,000 shares authorized;
no shares issued or outstanding |
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Common stock, $.01 par value; 40,000 shares authorized;
28,137 and 27,662 shares issued and outstanding
at August 31, 2010 and February 28, 2010, respectively |
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281 |
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277 |
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Additional paid-in capital |
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152,046 |
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151,453 |
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Accumulated deficit |
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(135,072 |
) |
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(131,665 |
) |
Accumulated other comprehensive loss |
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(866 |
) |
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(866 |
) |
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Total stockholders equity |
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16,389 |
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19,199 |
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$ |
54,518 |
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$ |
56,953 |
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See accompanying notes to consolidated financial statements.
2
CALAMP CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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Six Months Ended |
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August 31, |
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August 31, |
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2010 |
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2009 |
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2010 |
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2009 |
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Revenues |
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$ |
29,490 |
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$ |
23,940 |
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$ |
55,836 |
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$ |
46,940 |
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Cost of revenues |
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22,122 |
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19,136 |
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42,345 |
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37,429 |
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Gross profit |
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7,368 |
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4,804 |
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13,491 |
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9,511 |
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Operating expenses: |
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Research and development |
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2,779 |
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2,633 |
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5,542 |
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5,531 |
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Selling |
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2,675 |
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2,402 |
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5,297 |
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4,603 |
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General and administrative |
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2,200 |
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2,501 |
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4,709 |
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5,258 |
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Intangible asset amortization |
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276 |
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342 |
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582 |
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683 |
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Total operating expenses |
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7,930 |
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7,878 |
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16,130 |
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16,075 |
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Operating loss |
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(562 |
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(3,074 |
) |
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(2,639 |
) |
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(6,564 |
) |
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Non-operating income (expense): |
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Interest expense, net |
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(368 |
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(174 |
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(736 |
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(379 |
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Loss on sale of investment |
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(1,008 |
) |
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(1,008 |
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Other income (expense), net |
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13 |
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(32 |
) |
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(249 |
) |
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Total non-operating expense |
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(368 |
) |
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(1,169 |
) |
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(768 |
) |
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(1,636 |
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Loss before income taxes |
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(930 |
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(4,243 |
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(3,407 |
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(8,200 |
) |
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Income tax provision |
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Net loss |
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$ |
(930 |
) |
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$ |
(4,243 |
) |
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$ |
(3,407 |
) |
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$ |
(8,200 |
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Basic and diluted loss per share |
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$ |
(0.03 |
) |
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$ |
(0.17 |
) |
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$ |
(0.13 |
) |
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$ |
(0.33 |
) |
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Shares used in computing basic and diluted loss per share |
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27,094 |
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24,918 |
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27,038 |
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24,889 |
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See accompanying notes to consolidated financial statements.
3
CALAMP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
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Six Months Ended |
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August 31, |
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2010 |
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2009 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
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$ |
(3,407 |
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$ |
(8,200 |
) |
Adjustments to reconcile net loss
to net cash provided by operating activities: |
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Depreciation and amortization |
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1,253 |
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1,283 |
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Stock-based compensation expense |
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1,004 |
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858 |
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Amortization of debt issue costs and discount |
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268 |
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Loss on sale of investment |
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1,008 |
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Deferred tax assets, net |
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807 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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2,870 |
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1,534 |
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Inventories |
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(1,379 |
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3,529 |
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Prepaid expenses and other assets |
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281 |
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631 |
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Accounts payable |
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(1,028 |
) |
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5,324 |
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Accrued liabilities |
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(1,317 |
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(2,695 |
) |
Deferred revenue |
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677 |
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244 |
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Other |
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9 |
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23 |
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NET CASH PROVIDED BY OPERATING ACTIVITIES |
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38 |
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3,539 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Capital expenditures |
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(712 |
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(544 |
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Proceeds from sale of investment |
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992 |
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Collections on note receivable |
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229 |
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150 |
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Other |
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(36 |
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES |
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(483 |
) |
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562 |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Net proceeds from bank line of credit borrowings |
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1,898 |
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1,000 |
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Debt repayments |
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(7,683 |
) |
Taxes paid related to net share settlement of vested equity awards |
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(388 |
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(105 |
) |
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
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1,510 |
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(6,788 |
) |
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EFFECT OF EXCHANGE RATE CHANGES ON CASH |
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175 |
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Net change in cash and cash equivalents |
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1,065 |
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(2,512 |
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Cash and cash equivalents at beginning of period |
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2,986 |
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6,913 |
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Cash and cash equivalents at end of period |
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$ |
4,051 |
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$ |
4,401 |
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See accompanying notes to consolidated financial statements.
4
CALAMP CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2010 AND 2009
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NOTE 1 |
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DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
Description of Business and Basis of Presentation
CalAmp Corp. (CalAmp or the Company) develops and markets wireless communications
solutions that deliver data, voice and video for critical networked communications and other
applications. The Companys two business segments are Wireless DataCom, which serves utility,
governmental and enterprise customers, and Satellite, which focuses on the North American Direct
Broadcast Satellite market.
The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which
for fiscal 2010 fell on February 27, 2010. The actual interim periods ended on August 28, 2010 and
August 29, 2009. In the accompanying unaudited consolidated financial statements, the 2010 fiscal
year end is shown as February 28 and the interim period end for both years is shown as August 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 Companys 2010 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on May 6, 2010.
In the opinion of the Companys management, the accompanying unaudited consolidated financial
statements reflect all adjustments (consisting of normal recurring adjustments) considered
necessary to present fairly the Companys financial position at August 31, 2010 and its results of
operations for the three and six months ended August 31, 2010 and 2009. 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.
Certain amounts in the financial statements of the prior year have been reclassified to
conform to the fiscal 2011 presentation with no effect on net earnings.
Disclosures About Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate:
Cash and cash equivalents, accounts receivable and accounts payable The carrying amount is
a reasonable estimate of fair value given the short maturity of these instruments.
Debt The estimated fair value of the Companys bank debt approximates the carrying value of
such debt because the interest rate is variable and is market-based. The estimated fair
value of the Companys 12% subordinated promissory notes due December 22, 2012 approximates
the carrying value of this debt, such carrying value consisting of the $5 million face amount
of the notes less a debt discount comprised of the unamortized fair value of the stock
purchase warrants that were issued with the notes.
Recent Authoritative Pronouncements
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue
Arrangements. ASU No. 2009-13 addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting and how the arrangement
consideration should be allocated among the separate units of accounting. ASU No. 2009-13 will be
effective for the Companys fiscal year 2012 with early adoption permitted. The guidance may be
applied retrospectively or prospectively for new or materially modified arrangements. The Company
is currently assessing the impact that this guidance will have on its consolidated financial
statements.
5
Also in October 2009, the FASB issued ASU No. 2009-14, Software (Topic 985): Certain Revenue
Arrangements That Include Software Elements. ASU No. 2009-14 modifies the scope of the software
revenue recognition guidance to exclude (a) non-software components of tangible products and
(b) software components of tangible products that are sold, licensed or leased with tangible
products when the software components and non-software components of the tangible product function
together to deliver the tangible products essential functionality. ASC No. 2009-14 will be
effective for the Companys fiscal year 2012 with early adoption permitted. The guidance may be
applied retrospectively or prospectively for new or materially modified arrangements. The Company
is currently assessing the impact that this guidance will have on its consolidated financial
statements.
NOTE 2 INVENTORIES
Inventories consist of the following (in thousands):
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August 31, |
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February 28, |
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2010 |
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2010 |
|
Raw materials |
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$ |
10,129 |
|
|
$ |
9,483 |
|
Work in process |
|
|
342 |
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|
209 |
|
Finished goods |
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1,516 |
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|
916 |
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$ |
11,987 |
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$ |
10,608 |
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NOTE 3 INTANGIBLE ASSETS
Intangible assets are comprised as follows (in thousands):
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August 31, 2010 |
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February 28, 2010 |
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Accum- |
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Accum- |
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Gross |
|
|
ulated |
|
|
|
|
|
|
Gross |
|
|
ulated |
|
|
|
|
|
|
Amortization |
|
|
Carrying |
|
|
Amortiz- |
|
|
|
|
|
|
Carrying |
|
|
Amortiz- |
|
|
|
|
|
|
Period |
|
|
Amount |
|
|
ation |
|
|
Net |
|
|
Amount |
|
|
ation |
|
|
Net |
|
Developed/core technology |
|
5-7 years |
|
$ |
3,101 |
|
|
$ |
1,430 |
|
|
$ |
1,671 |
|
|
$ |
3,101 |
|
|
$ |
1,054 |
|
|
$ |
2,047 |
|
Customer lists |
|
5-7 years |
|
|
1,339 |
|
|
|
656 |
|
|
|
683 |
|
|
|
1,339 |
|
|
|
475 |
|
|
|
864 |
|
Covenants not to compete |
|
4-5 years |
|
|
138 |
|
|
|
87 |
|
|
|
51 |
|
|
|
138 |
|
|
|
66 |
|
|
|
72 |
|
Patents |
|
4-5 years |
|
|
39 |
|
|
|
12 |
|
|
|
27 |
|
|
|
39 |
|
|
|
8 |
|
|
|
31 |
|
Tradename |
|
Indefinite |
|
|
2,130 |
|
|
|
|
|
|
|
2,130 |
|
|
|
2,130 |
|
|
|
|
|
|
|
2,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,747 |
|
|
$ |
2,185 |
|
|
$ |
4,562 |
|
|
$ |
6,747 |
|
|
$ |
1,603 |
|
|
$ |
5,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense of intangible assets was $276,000 and $342,000 for the three months ended
August 31, 2010 and 2009, respectively, and was $582,000 and $683,000 for the six-month periods
then ended. All intangible asset amortization expense was attributable to the Wireless DataCom
business.
Estimated future amortization expense for the fiscal years ending February 28 is as follows
(in thousands):
|
|
|
|
|
2011 (remainder) |
|
$ |
551 |
|
2012 |
|
$ |
990 |
|
2013 |
|
$ |
732 |
|
2014 |
|
$ |
159 |
|
6
NOTE 4 FINANCING ARRANGEMENTS
Bank Working Capital Line of Credit
On December 22, 2009, the Company entered into a Loan and Security Agreement (the Loan
Agreement) with Square 1 Bank. This revolving credit facility has a two-year term and provides
for borrowings up to the lesser of $12 million or 85% of the Companys eligible accounts
receivable. Outstanding borrowings under this facility bear interest at Square 1 Banks 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. Outstanding borrowings on
the revolver at August 31, 2010 and February 28, 2010 amounted to $7,799,000 and $5,901,000,
respectively. At August 31, 2010 and February 28, 2010, the effective interest rate on the
revolver was 6.0%.
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) on a rolling six-month basis. The Loan Agreement also provides for a number of
customary 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 requires a lock-box and cash collateral account whereby cash
remittances from the Companys 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.
Long-Term Debt
Long-term debt is comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
February 28, |
|
|
|
2010 |
|
|
2010 |
|
Subordinated promissory notes due December 22, 2012 |
|
$ |
5,000 |
|
|
$ |
5,000 |
|
Less unamortized discount |
|
|
(685 |
) |
|
|
(830 |
) |
|
|
|
|
|
|
|
|
|
$ |
4,315 |
|
|
$ |
4,170 |
|
|
|
|
|
|
|
|
On December 22, 2009 and January 15, 2010, the Company raised a total of $5,000,000 from the
issuance of subordinated debt (the Subordinated Notes), including $325,000 of Subordinated Notes
that were sold 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 banking day of June and December, and all Subordinated Note principal is
payable at the maturity date. The discount on long-term debt represents the unamortized fair value
of the warrants issued to the holders of the promissory notes in the original amount of $870,000.
The fair value was estimated using the Black-Scholes option pricing model. This discount is being
amortized on a straight-line basis to interest expense over the three-year term of the Subordinated
Notes.
The Company also incurred debt issue costs of $543,000 on the Square 1 Bank credit facility
and the Subordinated Notes. These costs are being amortized on a straight-line basis to interest
expense over an average period of approximately 2.8 years. These debt issue costs, net of
amortization, are included in Other Assets in the consolidated balance sheets at August 31, 2010
and February 28, 2010.
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 that includes historical operating
performance and the Companys 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.
7
On March 1, 2007, the Company adopted the provisions of ASC 740, Income Taxes (formerly
FIN 48, Accounting for Uncertainty in Income Taxes An Interpretation of FASB Statement No. 109)
(ASC 740), which clarifies the accounting for income taxes by prescribing a minimum recognition
threshold that a tax position is required to meet before being recognized in the financial
statements. ASC 740 also provides guidance on derecognition, measurement, classification, interest
and penalties, accounting in interim periods, disclosure and transition. Management determined
based on its evaluation of the Companys income tax positions that it has one uncertain tax
position relating to federal research and development (R&D) tax credits of $1.3 million at August
31, 2010 and February 28, 2010 for which the Company has not recognized an income tax benefit for
financial reporting purposes. Assuming these tax benefits were recognized at the present time,
such amount would be offset by an equal increase in the deferred income tax valuation allowance
because the Company has recorded a full valuation allowance against its recognized federal R&D tax
credits due to uncertainty as to future realization. The fully reserved recognized federal R&D tax
credit balance as of August 31, 2010 and February 28, 2010 was $2.5 million.
The Company files income tax returns in the U.S. federal jurisdiction, various states and
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 2010 remain open to examination by U.S federal and state tax authorities. The
income tax returns filed by the Companys French subsidiary for fiscal years 2004 through 2007 are
currently being examined by French tax authorities. Certain income tax returns for fiscal years
2007 through 2010 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
obligations pertaining to these open tax years.
At August 31, 2010, the Company had net deferred income tax assets of $11,847,000. The
current portion of the deferred tax assets is $2,161,000 and the noncurrent portion is $9,686,000.
The net deferred income tax asset balance is comprised of gross deferred tax assets of $54.3
million and a valuation allowance of $42.5 million.
During the quarter ended August 31, 2010, the Company received $807,000 for recouping U.S.
federal income taxes paid in the 5 years preceding its fiscal year 2008. The Worker,
Homeownership, and Business Assistance Act of 2009 (WHBAA) provided for a Net Operating Loss
(NOL) carryback of up to 5 years for NOLs incurred in taxable years beginning or ending in either
2008 or 2009 (but not both). The carry back provision also qualified for Alternative Minimum Tax
(AMT). Use of an AMT NOL is limited to 90% of alternative minimum taxable income, however, the
WHBAA legislation suspended the 90% limitation on the use of any AMT NOL for the carryback period.
Approximately 75% of the $807,000 tax refund relates to federal AMT paid in prior years, and the
remainder represents regular federal taxes paid. The $807,000 tax refund was recorded as a
reduction of deferred income tax assets.
No tax benefit was recorded during the three and six-month periods ended August 31, 2010 and
2009 because the 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
in the amount of 5,107,000 and 4,297,000 at August 31, 2010 and 2009, 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).
8
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 six months ended August 31, 2010 and 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Net loss |
|
$ |
(930 |
) |
|
$ |
(4,243 |
) |
|
$ |
(3,407 |
) |
|
$ |
(8,200 |
) |
Foreign currency translation adjustments |
|
|
|
|
|
|
(4 |
) |
|
|
|
|
|
|
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(930 |
) |
|
$ |
(4,247 |
) |
|
$ |
(3,407 |
) |
|
$ |
(7,944 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 8 STOCK-BASED COMPENSATION
Stock-based compensation expense is included in the following captions of the unaudited
consolidated statements of operations (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
August 31, |
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
Cost of revenues |
|
$ |
34 |
|
|
$ |
27 |
|
|
$ |
73 |
|
|
$ |
48 |
|
Research and development |
|
|
74 |
|
|
|
65 |
|
|
|
153 |
|
|
|
125 |
|
Selling |
|
|
60 |
|
|
|
30 |
|
|
|
100 |
|
|
|
51 |
|
General and administrative |
|
|
313 |
|
|
|
324 |
|
|
|
678 |
|
|
|
634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
481 |
|
|
$ |
446 |
|
|
$ |
1,004 |
|
|
$ |
858 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the Companys outstanding stock options during the six months ended August 31, 2010
were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted |
|
|
|
Options |
|
|
Average |
|
|
|
(in 000s) |
|
|
Option Price |
|
Outstanding at February 28, 2010 |
|
|
2,023 |
|
|
$ |
5.82 |
|
Granted |
|
|
186 |
|
|
|
2.34 |
|
Exercised |
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(51 |
) |
|
|
20.88 |
|
|
|
|
|
|
|
|
Outstanding at August 31, 2010 |
|
|
2,158 |
|
|
$ |
5.17 |
|
|
|
|
|
|
|
|
Exercisable at August 31, 2010 |
|
|
1,406 |
|
|
$ |
6.75 |
|
|
|
|
|
|
|
|
9
Changes in the Companys unvested restricted stock shares and RSUs during the six months ended
August 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted |
|
|
|
Shares |
|
|
Average Grant |
|
|
|
and RSUs |
|
|
Date Fair |
|
|
|
(in 000s) |
|
|
Value |
|
Outstanding at February 28, 2010 |
|
|
1,784 |
|
|
$ |
2.06 |
|
Granted |
|
|
863 |
|
|
|
2.34 |
|
Vested |
|
|
(528 |
) |
|
|
2.17 |
|
Forfeited |
|
|
(40 |
) |
|
|
1.88 |
|
|
|
|
|
|
|
|
Outstanding at August 31, 2010 |
|
|
2,079 |
|
|
$ |
2.15 |
|
|
|
|
|
|
|
|
During the six months ended August 31, 2010, the Company retained 163,341 of the vested
restricted stock shares and RSUs to cover the required amount of employee withholding taxes in the
amount of $388,000.
As of August 31, 2010, there was $4.4 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 2.8 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. One customer of the Companys Satellite business unit accounted for 38%
and 41%, respectively, of consolidated revenues for the quarters ended August 31, 2010 and 2009,
respectively, and accounted for 39% and 41% of consolidated revenues for the six-month periods then
ended. This customer also accounted for 36% and 48% of consolidated net accounts receivable at
August 31, 2010 and February 28, 2010, respectively. No other customer accounted for 10% or more
of consolidated revenues for the three and six months ended August 31, 2010 or 2009.
Some of the Companys components, assemblies and electronic manufacturing services are
purchased from sole source suppliers. One supplier, which functions as an independent foreign
procurement agent, accounted for approximately 50% of the Companys total inventory purchases in
the six months ended August 31, 2010 and 2009. At August 31, 2010, this supplier accounted for 66%
of the Companys total accounts payable balance.
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 six months ended August 31, 2010 and 2009 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
Balance at beginning of period |
|
$ |
1,231 |
|
|
$ |
3,286 |
|
Charged to costs and expenses |
|
|
360 |
|
|
|
350 |
|
Deductions |
|
|
(853 |
) |
|
|
(979 |
) |
|
|
|
|
|
|
|
Balance at end of period |
|
$ |
738 |
|
|
$ |
2,657 |
|
|
|
|
|
|
|
|
Accrued warranty costs are included in Other Current Liabilities in the consolidated balance
sheets at August 31, 2010 and February 28, 2010.
10
NOTE
11 OTHER FINANCIAL INFORMATION
Net cash provided by operating activities in the unaudited consolidated statements of cash
flows includes cash payments (receipts) for interest and income taxes as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
537 |
|
|
$ |
385 |
|
Net income tax refunds received |
|
$ |
(806 |
) |
|
$ |
(7 |
) |
Other Non-Current Liabilities
Other non-current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
August 31, |
|
|
February 28, |
|
|
|
2010 |
|
|
2010 |
|
Deferred rent |
|
$ |
20 |
|
|
$ |
88 |
|
Deferred revenue |
|
|
526 |
|
|
|
401 |
|
|
|
|
|
|
|
|
|
|
$ |
546 |
|
|
$ |
489 |
|
|
|
|
|
|
|
|
NOTE 12 SEGMENT INFORMATION
Segment information for the three and six months ended August 31, 2010 and 2009 is as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, 2010 |
|
|
Three Months Ended August 31, 2009 |
|
|
|
Operating Segments |
|
|
|
|
|
|
|
|
|
|
Operating Segments |
|
|
|
|
|
|
|
|
|
Satellite |
|
|
Wireless
DataCom |
|
|
Corporate |
|
|
Total |
|
|
Satellite |
|
|
Wireless
DataCom |
|
|
Corporate |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
11,416 |
|
|
$ |
18,074 |
|
|
|
|
|
|
$ |
29,490 |
|
|
$ |
9,964 |
|
|
$ |
13,976 |
|
|
|
|
|
|
$ |
23,940 |
|
Gross profit |
|
$ |
1,145 |
|
|
$ |
6,223 |
|
|
|
|
|
|
$ |
7,368 |
|
|
$ |
331 |
|
|
$ |
4,473 |
|
|
|
|
|
|
$ |
4,804 |
|
Gross margin |
|
|
10.0 |
% |
|
|
34.4 |
% |
|
|
|
|
|
|
25.0 |
% |
|
|
3.3 |
% |
|
|
32.0 |
% |
|
|
|
|
|
|
20.1 |
% |
Operating income (loss) |
|
$ |
31 |
|
|
$ |
618 |
|
|
$ |
(1,211 |
) |
|
$ |
(562 |
) |
|
$ |
(728 |
) |
|
$ |
(1,299 |
) |
|
$ |
(1,047 |
) |
|
$ |
(3,074 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended August 31, 2010 |
|
|
Six Months Ended August 31, 2009 |
|
|
|
Operating Segments |
|
|
|
|
|
|
|
|
|
|
Operating Segments |
|
|
|
|
|
|
|
|
|
Satellite |
|
|
Wireless
DataCom |
|
|
Corporate |
|
|
Total |
|
|
Satellite |
|
|
Wireless
DataCom |
|
|
Corporate |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
21,943 |
|
|
$ |
33,893 |
|
|
|
|
|
|
$ |
55,836 |
|
|
$ |
19,213 |
|
|
$ |
27,727 |
|
|
|
|
|
|
$ |
46,940 |
|
Gross profit |
|
$ |
1,938 |
|
|
$ |
11,553 |
|
|
|
|
|
|
$ |
13,491 |
|
|
$ |
758 |
|
|
$ |
8,753 |
|
|
|
|
|
|
$ |
9,511 |
|
Gross margin |
|
|
8.8 |
% |
|
|
34.1 |
% |
|
|
|
|
|
|
24.2 |
% |
|
|
3.9 |
% |
|
|
31.6 |
% |
|
|
|
|
|
|
20.3 |
% |
Operating income (loss) |
|
$ |
(239 |
) |
|
$ |
111 |
|
|
$ |
(2,511 |
) |
|
$ |
(2,639 |
) |
|
$ |
(1,345 |
) |
|
$ |
(2,943 |
) |
|
$ |
(2,276 |
) |
|
$ |
(6,564 |
) |
11
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 all executive officers, certain
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 $278,000 and $223,000 in the
three- month periods ended August 31, 2010 and 2009, respectively, and $585,000 and $441,000,
respectively, in the six-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
the Company 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 fiscal 2008, the Company recorded a charge of $17.9 million for this matter. 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. In December 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 CalAmps designs for the affected products and in May 2008 the Company resumed product
shipments to this customer.
At August 31, 2010, the Company has aggregate remaining reserves of $1.4 million for this
matter, of which $0.5 million is an inventory reserve, $0.5 million is a vendor commitment
liability included in Other Current Liabilities, and the remaining $0.4 million is a reserve for
accrued warranty costs that is also included in Other Current Liabilities. The Company believes
that its reserves as of August 31, 2010 of $1.4 million 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 CalAmp, the former owner of CalAmps Aercept business, and one of Aercepts distributors.
The lawsuit alleged that Aercept made misrepresentations when the plaintiffs purchased analog
vehicle tracking devices in 2005, which was prior to CalAmps acquisition of Aercept in an asset
purchase. In April 2010, the parties entered into a settlement agreement on terms and conditions
that did not have a material impact on CalAmps financial condition or results of operations. On
August 4, 2010, the Court granted final approval of the settlement.
In December 2009, a patent infringement suit was filed against the Company in the Northern
District of Georgia. The suit alleged infringement of four U.S. patents. On June 14, 2010, the
plaintiff filed with the court a notice of voluntary dismissal without prejudice of this lawsuit.
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 Companys consolidated financial position or results of operations.
12
|
|
|
ITEM 2. |
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The Companys discussion and analysis of its financial condition and results of operations are
based upon the Companys 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. Actual results could differ materially from these estimates. The critical
accounting policies listed below affect the Companys more significant accounting judgments and
estimates used in the preparation of the consolidated financial statements. These policies
are described in greater detail in Managements Discussion and Analysis (MD&A) under Part II,
Item 7 of the Companys Annual Report on Form 10-K for the year ended February 28, 2010 as filed
with the Securities and Exchange Commission on May 6, 2010 and include the following areas:
|
|
|
Allowance for doubtful accounts; |
|
|
|
|
Inventory write-downs; |
|
|
|
|
Product warranties; |
|
|
|
|
Deferred income tax and uncertain tax position; |
|
|
|
|
Impairment assessments of purchased intangible assets and other long-lived assets; |
|
|
|
|
Stock-based compensation expense; and |
|
|
|
|
Revenue recognition. |
RESULTS OF OPERATIONS
Overview
CalAmp Corp. (CalAmp or the Company) develops and markets wireless communications
solutions that deliver data, voice and video for critical networked communications and other
applications.
The Companys two business segments are Wireless DataCom, which serves utility, governmental
and enterprise customers, and Satellite, which focuses on the North American Direct Broadcast
Satellite market.
WIRELESS DATACOM
The Wireless DataCom segment provides wireless communications technologies, products and
services to the wireless networks and mobile resource management markets for a wide range of
applications. CalAmp has expertise in designing and providing applications involving various
combinations of private and public (cellular infrastructure) networks, narrow-band and broad-band
frequencies, licensed and unlicensed radio spectrum, and mobile and fixed-remote communications.
The Companys Wireless DataCom segment is comprised of a Wireless Networks business and a Mobile
Resource Management (MRM) business.
SATELLITE
The Companys DBS reception products have historically been sold to the two U.S. DBS system
operators, EchoStar and DirecTV, for incorporation into complete subscription satellite television
systems. However, during fiscal 2010 and the first half of fiscal 2011 the Company has not sold
any products to DirecTV due to pricing and competitive pressures on older generation products and
the time required to get the next generation products qualified with this customer. The Company is
currently developing next generation products for DirecTV and is targeting initial deliveries of
one such product in the fourth quarter of this fiscal year.
13
Operating Results by Business Segment
The Companys revenue, gross profit and operating loss by business segment are as follows:
REVENUE BY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, |
|
|
Six Months Ended August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
$000s |
|
|
Total |
|
|
$000s |
|
|
Total |
|
|
$000s |
|
|
Total |
|
|
$000s |
|
|
Total |
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite |
|
$ |
11,416 |
|
|
|
38.7 |
% |
|
$ |
9,964 |
|
|
|
41.6 |
% |
|
$ |
21,943 |
|
|
|
39.3 |
% |
|
$ |
19,213 |
|
|
|
40.9 |
% |
Wireless DataCom |
|
|
18,074 |
|
|
|
61.3 |
% |
|
|
13,976 |
|
|
|
58.4 |
% |
|
|
33,893 |
|
|
|
60.7 |
% |
|
|
27,727 |
|
|
|
59.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
29,490 |
|
|
|
100.0 |
% |
|
$ |
23,940 |
|
|
|
100.0 |
% |
|
$ |
55,836 |
|
|
|
100.0 |
% |
|
$ |
46,940 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT BY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, |
|
|
Six Months Ended August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
$000s |
|
|
Total |
|
|
$000s |
|
|
Total |
|
|
$000s |
|
|
Total |
|
|
$000s |
|
|
Total |
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite |
|
$ |
1,145 |
|
|
|
15.5 |
% |
|
$ |
331 |
|
|
|
6.9 |
% |
|
$ |
1,938 |
|
|
|
14.4 |
% |
|
$ |
758 |
|
|
|
8.0 |
% |
Wireless DataCom |
|
|
6,223 |
|
|
|
84.5 |
% |
|
|
4,473 |
|
|
|
93.1 |
% |
|
|
11,553 |
|
|
|
85.6 |
% |
|
|
8,753 |
|
|
|
92.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
7,368 |
|
|
|
100.0 |
% |
|
$ |
4,804 |
|
|
|
100.0 |
% |
|
$ |
13,491 |
|
|
|
100.0 |
% |
|
$ |
9,511 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME (LOSS) BY SEGMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended August 31, |
|
|
Six Months Ended August 31, |
|
|
|
2010 |
|
|
2009 |
|
|
2010 |
|
|
2009 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Total |
|
|
|
$000s |
|
|
Revenue |
|
|
$000s |
|
|
Revenue |
|
|
$000s |
|
|
Revenue |
|
|
$000s |
|
|
Revenue |
|
Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satellite |
|
$ |
31 |
|
|
|
0.1 |
% |
|
$ |
(728 |
) |
|
|
(3.0 |
%) |
|
$ |
(239 |
) |
|
|
(0.4 |
%) |
|
$ |
(1,345 |
) |
|
|
(2.9 |
%) |
Wireless DataCom |
|
|
618 |
|
|
|
2.1 |
% |
|
|
(1,299 |
) |
|
|
(5.4 |
%) |
|
|
111 |
|
|
|
0.2 |
% |
|
|
(2,943 |
) |
|
|
(6.3 |
%) |
Corporate expenses |
|
|
(1,211 |
) |
|
|
(4.1 |
%) |
|
|
(1,047 |
) |
|
|
(4.4 |
%) |
|
|
(2,511 |
) |
|
|
(4.5 |
%) |
|
|
(2,276 |
) |
|
|
(4.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(562 |
) |
|
|
(1.9 |
%) |
|
$ |
(3,074 |
) |
|
|
(12.8 |
%) |
|
$ |
(2,639 |
) |
|
|
(4.7 |
%) |
|
$ |
(6,564 |
) |
|
|
(14.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
Satellite revenue increased $1.4 million, or 15%, to $11.4 million in the three months ended
August 31, 2010 from $10.0 million for the same period in the previous fiscal year. As discussed
above, the Companys historically largest DBS customer put on hold all orders with the Company in
2007, including orders for newer generation products, pending a requalification of all products
manufactured by CalAmp for this customer. In 2008, the customer requalified CalAmps designs for
the affected products and the Company resumed product shipments to this customer. Revenues from
this DBS customer were $1.2 million higher for the quarter ended August 31, 2010 compared to the
quarter ended August 31, 2009 because the business with this customer was still ramping up last
year.
For the six months ended August 31, 2010, Satellite revenue increased $2.7 million, or 14%, to
$21.9 million from $19.2 million for the same period of the prior year. Revenues from the
Companys historically largest DBS customer were $2.5 million higher for the six months ended
August 31, 2010 compared to the same period last year due to the reasons cited above.
Wireless DataCom revenue increased by $4.1 million, or 29%, to $18.1 million in the second
quarter of fiscal 2011 compared to the fiscal 2010 second quarter. For the six months ended August
31, 2010, Wireless DataCom revenue increased by $6.2 million, or 22%, to $33.9 million compared to
the same period of the prior year. The revenue improvement was predominantly related to the MRM
business and was attributable to the addition of new customers and growth in orders from existing
customers.
14
Gross Profit and Gross Margins
Satellite gross profit increased by $814,000 to $1.1 million in the fiscal 2011 second quarter
compared to the second quarter of last year. Satellites gross margin improved to 10.0% in the
second quarter of fiscal 2011 from 3.3% in the second quarter of fiscal 2010 due primarily to
increased absorption of fixed manufacturing costs on higher satellite revenue. Gross profit and
gross margin in the second quarter of fiscal 2011 also benefited from royalty income of $200,000
that had no corresponding cost of revenue.
The Satellite segment had gross profit of $1.9 million for the six months ended August 31,
2010, compared with gross profit of $758,000 for the same period last year. The increase in gross
profit is primarily attributable to the increase in revenue. Satellite gross margin was 8.8% for
the six months ended August 31, 2010, compared to 3.9% for the same period last year. Gross
margin for the latest six-month period improved year-over-year for the same reasons cited above.
Wireless DataCom gross profit increased by $1.8 million to $6.2 million in the fiscal 2011
second quarter compared to $4.4 million in the second quarter of last year. Wireless DataComs
gross margin improved to 34.4% in the second quarter of fiscal 2011 from 32.0% in the second
quarter of fiscal 2010 due primarily to increased absorption of fixed manufacturing costs on higher
revenue.
Wireless DataCom gross profit increased 32% to $11.6 million in the six months ended August
31, 2010, compared to $8.8 million for the same period of the prior year. Wireless DataCom gross
margin increased from 31.6% in the first half of fiscal 2010 to 34.1% in the first half of fiscal
2011 due primarily to higher revenue.
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 increased by $146,000 to $2,779,000 in
the second quarter of fiscal 2011 from $2,633,000 last year. Almost $100,000 of this increase is
due to development expenses incurred by the Satellite segment on new products. For both of the
six-month year-to-date periods, consolidated R&D expense was $5.5 million.
Consolidated selling expenses increased by $273,000 to $2,675,000 in the second quarter of
this year from $2,402,000 last year. For the six-month year-to-date periods, selling expenses
increased by $694,000 from $4,603,000 last year to $5,297,000 this year. These year-over-year
increases are due primarily to higher incentive and commission expense on the higher revenue level,
increased salaries expense and higher travel expenses.
Consolidated general and administrative expenses (G&A) decreased by $301,000 to $2,200,000
in the second quarter of this year compared to the prior year. For the six-month periods,
consolidated G&A decreased by $549,000 to $4,709,000 for fiscal 2011 from $5,258,000 last year.
These year-over-year decreases are due to workforce reductions and other cost cutting actions
implemented by the Company.
Amortization of intangibles decreased from $342,000 in the second quarter of last year to
$276,000 in the second quarter of this year. The reduction is attributable to some intangible
assets becoming fully amortized during the first half of this year. For the six-month periods,
amortization of intangibles decreased to $582,000 from $683,000 last year.
Non-operating Expense, Net
Non-operating expense decreased $801,000 from the second quarter of last year to the second
quarter of this year. This decrease was primarily due to a loss of $1.0 million on the sale of an
investment in the preferred stock of a privately held company in the second quarter of last year,
partially offset by an increase in net interest expense of $194,000. The higher interest expense
in the second quarter of this year was attributable to the 6% per annum minimum interest on the
bank revolving credit facility, the 12% interest per annum fixed interest on the Subordinated
Notes, and the interest expense from amortization of debt issue costs and debt discount as
discussed in Note 4 to the accompanying unaudited consolidated financial statements.
Non-operating expense was $768,000 in the six months ended August 31, 2010, compared to
non-operating expense of $1,636,000 in the six months ended August 31, 2009. The decrease was due
to the aforementioned loss of sale of investment of $1.0 million last year and the $205,000
reduction of foreign currency loss from $246,000 last year to $41,000 this year, partially offset
by an increase in net interest expense of $357,000. The increase in net interest expense was due
to the reasons noted above.
15
Income Tax Provision
There was no tax benefit recorded during the three and six months ended August 31, 2010 and
2009 because future realizability of such benefit was not considered to be more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
The Companys primary sources of liquidity are its cash and cash equivalents, which amounted
to $4,051,000 at August 31, 2010, and the working capital line of credit with Square 1 Bank.
During the six months ended August 31, 2010, cash and cash equivalents increased by $1,065,000.
Cash was provided by net borrowings on the bank line of credit of $1,898,000 and collections on a
note receivable of $229,000, partially offset by capital expenditures of $712,000 and employee
withholding taxes paid related to net share settlement of vested equity awards of $388,000.
On December 22, 2009, the Company entered into a Loan and Security Agreement (the Loan
Agreement) with Square 1 Bank. This revolving credit facility has a two-year term and provides
for borrowings up to the lesser of $12 million or 85% of the Companys eligible accounts
receivable. Outstanding borrowings under this facility bear interest at Square 1 Banks 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. At August 31, 2010, the
Company had outstanding borrowings under this facility of $7,799,000, and the amount available to
borrow at that date amounted to $2,405,000. At August 31, 2010 and February 28, 2010, the
effective interest rate on the revolver was 6.0%.
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 customary 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
requires a lock-box and cash collateral account whereby cash remittances from the Companys
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.
On December 22, 2009 and January 15, 2010, the Company raised a total of $5,000,000 from the
issuance of subordinated debt (the Subordinated Notes), including $325,000 of Subordinated Notes
that were sold 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.
At August 31, 2010 the Company had aggregate reserves of $1.4 million for a DBS product
performance issue as described in Note 13 to the accompanying unaudited consolidated financial
statements. While the Company believes that these reserves will be adequate to cover the remaining
product rework costs under the settlement agreement reached with the particular customer 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 Companys 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 Companys 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 Companys 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 Companys 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, 2010 as filed with the Securities and Exchange Commission on May 6,
2010. 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.
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ITEM 3. |
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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. A cumulative foreign currency translation loss of $866,000 related to the
Companys Canadian and French subsidiaries is included in accumulated other comprehensive loss in
the stockholders equity section of the consolidated balance sheet at August 31, 2010 and February
28, 2010. Foreign currency gains of $2,000 and $23,000 were included in the consolidated
statements of operations for the three months ended August 31, 2010 and 2009, respectively.
Foreign currency losses of $41,000 and $246,000 were included in the consolidated statements of
operations for the six months ended August 31, 2010 and 2009, respectively.
Interest Rate Risk
The Company has variable-rate bank debt. A fluctuation of one percent in the interest rate on
the $12 million revolving credit facility with Square 1 Bank would have an annual impact of
approximately $70,000 net of tax on the Companys consolidated statement of operations assuming
that the full amount of the facility was borrowed. The Subordinated Notes in the aggregate amount
of $5,000,000 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 Companys 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 Companys 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 Companys internal control over financial reporting that
occurred during the Companys most recently completed fiscal quarter that has materially affected,
or is reasonably likely to materially affect, the Companys internal control over financial
reporting.
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PART II. OTHER INFORMATION
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ITEM 1. |
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LEGAL PROCEEDINGS |
In November 2008, a class action lawsuit was filed in the Los Angeles County Superior Court
against CalAmp, the former owner of CalAmps Aercept business and one of Aercepts distributors.
The lawsuit alleged that Aercept made misrepresentations when the plaintiffs purchased analog
vehicle tracking devices in 2005, which was prior to CalAmps acquisition of Aercept in an asset
purchase. In April 2010, the parties entered into a settlement agreement on terms and conditions
that did not have a material impact on CalAmps financial condition or results of operations for
fiscal 2010. On August 4, 2010, the Court granted final approval of the settlement.
In December 2009, a patent infringement suit was filed against the Company in the Northern
District of Georgia. The suit alleged infringement of four U.S. patents. On June 14, 2010, the
plaintiff filed with the court a notice of voluntary dismissal without prejudice of this lawsuit.
The reader is referred to Part I, Item 1A. Risk Factors in the Companys Annual Report on
Form 10-K for the year ended February 28, 2010 as filed with the Securities and Exchange Commission
on May 6, 2010, for a discussion of factors that could materially affect the Companys business,
financial condition or future results.
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Exhibit 31.1 -
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Chief Executive Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act
of 2002 |
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Exhibit 31.2 -
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Chief Financial Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act
of 2002 |
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Exhibit 32 -
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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.
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October 6, 2010
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/s/ Richard K. Vitelle
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Date
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Richard K. Vitelle |
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Vice President Finance & CFO |
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(Principal Financial Officer and
Chief Accounting Officer) |
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