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: August 29, 2009
_________________
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
__________ ____________
Commission File Number: 0-12182
Exact Name of Registrant as
Specified in Its Charter: CalAmp Corp.
_______________________
DELAWARE 95-3647070
_______________________________ _______________
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
Address of Principal Executive Offices: 1401 N. Rice Avenue
Oxnard, CA 93030
Registrant's Telephone Number: (805) 987-9000
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(S232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes [ ] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated
filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] (Do not check
if a smaller reporting company) Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The registrant had 25,728,909 shares of Common Stock outstanding as of
October 2, 2009.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except par value amounts)
August 31, February 28,
2009 2009
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 4,401 $ 6,913
Accounts receivable, less allowance for
doubtful accounts of $698 and $552 at August
31, 2009 and February 28, 2009, respectively 12,178 13,682
Inventories 11,671 15,139
Deferred income tax assets 3,274 3,479
Prepaid expenses and other current assets 4,253 4,962
-------- --------
Total current assets 35,777 44,175
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 2,085 2,139
Deferred income tax assets, less current portion 13,252 13,111
Other intangible assets, net 5,828 6,473
Other assets 1,783 3,749
-------- --------
$ 58,725 $ 69,647
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Bank loan payable $ 13,985 $ 17,550
Subordinated note payable 410 3,528
Accounts payable 10,746 5,422
Accrued payroll and employee benefits 2,630 3,380
Accrued warranty costs 2,657 3,286
Other current liabilities 7,553 8,683
Deferred revenue 3,853 3,609
-------- --------
Total current liabilities 41,834 45,458
-------- --------
Non-current liabilities 975 990
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; 25,719 and 25,217 shares issued
and outstanding at August 31, 2009 and
February 28, 2009, respectively 257 252
Additional paid-in capital 145,537 144,881
Accumulated deficit (129,014) (120,814)
Accumulated other comprehensive loss (864) (1,120)
-------- --------
Total stockholders' equity 15,916 23,199
-------- --------
$ 58,725 $ 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 Six Months Ended
August 31, August 31,
------------------- -------------------
2009 2008 2009 2008
-------- -------- -------- --------
Revenues $ 23,940 $ 23,308 $ 46,940 $ 51,209
Cost of revenues 19,136 15,840 37,429 34,312
-------- -------- -------- --------
Gross profit 4,804 7,468 9,511 16,897
-------- -------- -------- --------
Operating expenses:
Research and development 2,633 3,131 5,531 6,331
Selling 2,402 1,647 4,603 3,919
General and administrative 2,501 3,266 5,258 6,362
Intangible asset amortization 342 1,240 683 2,572
-------- -------- -------- --------
Total operating expenses 7,878 9,284 16,075 19,184
-------- -------- -------- --------
Operating loss (3,074) (1,816) (6,564) (2,287)
Non-operating income (expense):
Interest expense, net (174) (361) (379) (885)
Loss on sale of investment (1,008) - (1,008) -
Other income (expense), net 13 27 (249) 135
-------- -------- -------- --------
Total non-operating expense (1,169) (334) (1,636) (750)
-------- -------- -------- --------
Loss before income taxes (4,243) (2,150) (8,200) (3,037)
Income tax benefit - 652 - 1,042
-------- -------- -------- --------
Net loss $ (4,243) $ (1,498) $ (8,200) $ (1,995)
======== ======== ======== ========
Basic and diluted loss
per share $ (0.17) $ (0.06) $ (0.33) $ (0.08)
======== ======== ======== ========
Shares used in computing
basic and diluted loss
per share 24,918 24,737 24,889 24,720
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
August 31,
---------------------
2009 2008
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,200) $ (1,995)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,283 3,770
Stock-based compensation expense 858 361
Deferred tax assets, net - (1,046)
Loss on sale of investment 1,008 -
Changes in operating assets and liabilities:
Accounts receivable 1,534 3,431
Inventories 3,529 1,120
Prepaid expenses and other assets 631 (933)
Accounts payable 5,324 (1,167)
Other accrued liabilities (2,800) (1,907)
Deferred revenue 244 (920)
Other 23 -
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,434 714
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (544) (561)
Proceeds from sale of investment 992 -
Collections on note receivable 150 420
Earnout payments on Technocom acquisition - (872)
Other (36) 296
------- -------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 562 (717)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line of credit borrowing 1,000 -
Debt repayments (7,683) (1,500)
------- -------
NET CASH USED IN FINANCING ACTIVITIES (6,683) (1,500)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 175 (388)
------- -------
Net change in cash and cash equivalents (2,512) (1,891)
Cash and cash equivalents at beginning of period 6,913 6,588
------- -------
Cash and cash equivalents at end of period $ 4,401 $ 4,697
======= =======
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED AUGUST 31, 2009 and 2008
Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
CalAmp Corp. ("CalAmp" or the "Company") is a provider of wireless
communications solutions that enable anytime/anywhere access to critical data
and content. CalAmp's Wireless DataCom business 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 August 29, 2009 and August 30, 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 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
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 August 31, 2009 and its results of operations
for the three and six months ended August 31, 2009 and 2008. The results of
operations for such periods are not necessarily indicative of results to be
expected for the full fiscal year.
All significant intercompany transactions and accounts have been
eliminated in consolidation.
The accompanying consolidated balance sheet as of February 28, 2009
contains certain reclassifications to conform with the presentation used in
the unaudited balance sheet as of August 31, 2009.
The Company has evaluated subsequent events through October 8, 2009, 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):
August 31, February 28,
2009 2009
------ -------
Raw materials $ 9,245 $12,036
Work in process 354 164
Finished goods 2,072 2,939
------- -------
$11,671 $15,139
======= =======
Note 3 - OTHER INTANGIBLE ASSETS
Other intangible assets are comprised as follows (in thousands):
August 31, 2009 February 28, 2009
-------------------------- ----------------------------
Amortization Cost Amorti- Cost Amorti-
Period Basis zation Net Basis zation Net
------ ------ ------ ----- ----- ------ ------
Developed/core
technology 5-7 yrs. $3,101 $ 605 $2,496 $3,101 $ 155 $2,946
Customer lists 5-7 yrs. 1,339 272 1,067 1,339 70 1,269
Covenants not
to compete 4-5 yrs. 138 38 100 138 10 128
Patents 5 yrs. 39 4 35 - - -
Tradename Indefinite 2,130 - 2,130 2,130 - 2,130
----- ------ ----- ----- ----- -----
$6,747 $ 919 $5,828 $6,708 $ 235 $6,473
===== ====== ===== ===== ===== =====
Amortization expense of other intangible assets was $0.3 million and
$1.2 million for the three months ended August 31, 2009 and 2008,
respectively, and was $0.7 million and $2.6 million for the six month periods
then ended. All intangible asset amortization expense was attributable to
the Wireless DataCom business.
Estimated amortization expense for the fiscal years ending February 28
is as follows (in thousands):
2010 (remainder) $ 684
2011 1,133
2012 990
2013 732
2014 159
-----
$3,698
=====
Note 4 - FINANCING ARRANGEMENTS
Bank Credit Facility
In May 2006, the Company entered into a Credit Agreement (the "Credit
Agreement") with Bank of Montreal (BMO), as administrative agent, and the
other financial institutions that from time to time may become parties to the
Credit Agreement (collectively, the "Banks"). At August 31, 2009, the
Company had an outstanding principal balance of $12,985,000 under the term
loan of the Credit Agreement and $1,000,000 under the working capital line of
credit ("revolver").
On August 4, 2009, the Company entered into the Ninth Amendment and
Consent to the Credit Agreement, pursuant to which proceeds of $1 million
from the sale of the Company's investment in preferred stock of a privately
held company were applied to the scheduled principal payment on September 30,
2009, thereby reducing the amount paid on that date from $1,600,000 to
$600,000. See Note 11 for further details of this investment sale.
On October 5, 2009, the Company entered into the Tenth Amendment and
Waiver to the Credit Agreement (the "Tenth Amendment"), pursuant to which the
Banks waived the Company's noncompliance with the financial covenants
pertaining to minimum levels of consolidated earnings before interest, taxes,
depreciation and amortization (EBITDA) as of August 29, 2009 and Wireless
DataCom revenues as of September 26, 2009. The Tenth Amendment also changed
the interest rate structure, as described below, and imposed an amendment fee
of $100,000 that will be waived if all borrowings under the Credit Agreement
are repaid by December 31, 2009.
Borrowings under the Credit Agreement are secured by substantially all
of the assets of CalAmp Corp. and its domestic subsidiaries. At August 31,
2009, the effective interest rate on the bank term loan was 4.01%, comprised
of a one-month LIBOR rate of 0.26% plus a LIBOR Margin of 3.75%. Pursuant to
the Tenth Amendment, effective October 5, 2009 borrowings under the Credit
Agreement bear interest at either: (i) BMO's prime rate or 3.00%, whichever
is greater, plus a margin of 4.25% ("Prime Based Loans"); or (ii) LIBOR or
2.00%, whichever is greater, plus a margin of 5.25% ("LIBOR Based Loans").
Interest is payable on the last day of the calendar quarter for Prime Based
Loans and at the end of the fixed-rate LIBOR period (ranging from 1 to 12
months) in the case of LIBOR Based Loans. The effective interest rate on the
bank term loan was increased to 7.25% at October 5, 2009 as a result of the
Tenth Amendment.
The Credit Agreement also provides for a revolver of $3,375,000. At
August 31, 2009, there were outstanding borrowings on the revolver of
$1,000,000 bearing interest at 7.25%. Effective October 5, 2009, the interest
on the revolver was increased to 7.50%. At August 31, 2009, $1,725,000 of the
working capital line of credit was reserved for outstanding irrevocable
stand-by letters of credit and $650,000 was available for working capital
borrowings.
The Company is required to make mandatory prepayments under the credit
facility in certain circumstances, including following the Company's
incurrence of certain indebtedness, disposition of its property or
extraordinary income. The Credit Agreement has a maturity date of December
31, 2009, at which time all outstanding borrowings are due and payable. In
addition, a fee of $250,000 will be due and payable to the Banks on December
31, 2009, except that $100,000 of this fee will be waived if the debt is
repaid by December 31, 2009.
The Credit Agreement also includes customary affirmative and negative
covenants including, without limitation, negative covenants regarding
additional indebtedness, investments, maintenance of the business, liens,
guaranties, transfers and sales of assets, and the payment of dividends and
other restricted payments.
Subordinated Note Payable
On December 14, 2007, the Company entered into a settlement agreement
with a key DBS customer. Under the terms of the settlement agreement, the
Company issued to the customer a $5 million non-interest bearing promissory
note that is payable at a rate of $5.00 per unit on the first one million DBS
units purchased by this customer after the date of the settlement agreement.
This repayment rate was subsequently increased to $20 per unit for certain
product shipments made during January through May 2009. At August 31, 2009,
the note had a balance of $410,000.
Note 5 - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and for income tax purposes. A deferred income
tax asset is recognized if realization of such asset is more likely than not,
based upon the weight of available evidence which includes historical
operating performance and the Company's forecast of future operating
performance. The Company evaluates the realizability of its deferred income
tax assets and a valuation allowance is provided, as necessary, in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes". During this evaluation, the Company reviews
its forecasts of income in conjunction with the positive and negative
evidence surrounding the realizability of its deferred income tax assets to
determine if a valuation allowance is needed.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(FIN 48), which was adopted by the Company in fiscal 2008, defines the
threshold for recognizing the benefits of tax return positions in the
financial statements as "more-likely-than-not" to be sustained by the taxing
authorities. FIN 48 provides guidance on de-recognition, measurement and
classification of income tax uncertainties, along with any related interest
and penalties. FIN 48 also includes guidance concerning accounting for
income tax uncertainties in interim periods and increases the level of
disclosures associated with any recorded income tax uncertainties. At August
31, 2009, the Company has unrecognized tax benefits of $6,449,000 which, if
recognized, would impact the effective tax rate on income (loss) before
income taxes.
The Company files income tax returns in the U.S. federal jurisdiction,
various states and certain foreign jurisdictions. Income tax returns filed
for fiscal years 2000 and earlier are not subject to examination by U.S.
federal and state tax authorities. Certain income tax returns for fiscal
years 2001 through 2009 remain open to examination by U.S federal and state
tax authorities. The income tax returns filed by the Company's French
subsidiary for fiscal years 2004 through 2007 are currently being examined by
the French tax authorities. Certain income tax returns for fiscal years 2006
through 2009 remain open to examination by Canada federal and Quebec
provincial tax authorities. The Company believes that it has made adequate
provision for all income tax uncertainties pertaining to these open tax
years.
At August 31, 2009, the Company had a net deferred income tax asset
balance of $16,526,000. The current portion of the deferred tax assets is
$3,274,000 and the noncurrent portion is $13,252,000. The net deferred
income tax asset balance is comprised of a gross deferred tax asset of $37.3
million and a valuation allowance of $20.8 million.
The effective income tax benefit rate was 0% and 34% in the six months
ended August 31, 2009 and 2008, respectively. No tax benefit was recorded
during the three and six month periods ended August 31, 2009 because future
realizability of such benefit was not considered to be more likely than not.
Note 6 - EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income
(loss) available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
reflects the potential dilution, using the treasury stock method, that could
occur if 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 4,297,000 and 3,382,000 at
August 31, 2009 and 2008, respectively, were excluded from the computation of
diluted earnings per share because the Company reported a net loss and the
effect of inclusion would be antidilutive (i.e., including such securities
would result in a lower loss per share). These potentially dilutive
securities consist of options, warrants, 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 six months ended August
31, 2009 and 2008 (in thousands):
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -------------------
2009 2008 2009 2008
-------- -------- -------- --------
Net loss $(4,243) $ (1,498) $(8,200) $(1,995)
Foreign currency
translation adjustments (4) (345) 256 (423)
------- -------- ------- -------
Comprehensive loss $(4,247) $ (1,843) $(7,944) $(2,418)
======= ======== ======= =======
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 Six Months Ended
August 31, August 31,
------------------- -------------------
2009 2008 2009 2008
-------- -------- -------- --------
Cost of revenues $ 27 $ 15 $ 48 $ 23
Research and development 65 46 125 95
Selling 30 16 51 48
General and administrative 324 275 634 195
------ ------ ------ ------
$ 446 $ 352 $ 858 $ 361
====== ====== ====== ======
Changes in the Company's outstanding stock options during the six months
ended August 31, 2009 were as follows:
Weighted Aggregate
Number of Weighted Average Intrinsic
Options Average Remaining Value
(000s) Exercise Price Contractual Term (000s)
-------- -------------- ---------------- ---------
Outstanding at February 28, 2009 1,869 $ 8.20
Granted 320 $ 1.48
Exercised -
Forfeited or expired (70) $12.80
-----
Outstanding at August 31, 2009 2,119 $ 7.04 6.6 years $ 216
=====
Exercisable at August 31, 2009 1,225 $10.03 4.9 years $ -
=====
Changes in the Company's unvested restricted stock shares and RSUs
during the six months ended August 31, 2009 were as follows:
Weighted
Number of Average
Shares and RSUs Fair Value at
(000s) Grant Date
-------- ----------
Outstanding at February 28, 2009 907 $ 2.50
Granted 1,140 1.79
Vested (214) 2.58
Forfeited (5) 4.03
----- ------
Outstanding at August 31, 2009 1,828 $ 2.05
===== ======
Of the 214,000 restricted stock shares and RSUs that vested during the
period, 64,767 shares were retained by the Company to cover the required
amount of employee withholding taxes.
As of August 31, 2009, there was $5.0 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.
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 six months ended August 31, 2009 or 2008, as a percent of
consolidated revenues, are as follows:
Three Months Ended Six Months Ended
August 31, August 31,
------------------- -------------------
Customer 2009 2008 2009 2008
------- ------- ------- -------
A 41.0% 8.5% 40.7% 5.3%
B 6.1% 10.3% 5.8% 6.3%
C - 4.7% - 15.3%
Accounts receivable from Customer A expressed as a percent of
consolidated net accounts receivable, are as follows:
August 31, February 28,
Customer 2009 2009
------ ------
A 32.0% 26.3%
Accounts receivable from Customers B and C were less than 10% of
consolidated net accounts receivable at August 31, 2009 and February 28,
2009.
Customers A and C are customers of the Company's Satellite business
unit. Customer B is a customer of the Company's Wireless DataCom segment.
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 14% of the Company's total inventory purchases in the
six months ended August 31, 2009 and 2008, respectively. As of August 31,
2009, this supplier accounted for 51% 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
six months ended August 31, 2009 and 2008 is as follows (in thousands):
Six months ended
August 31,
-----------------
2009 2008
------- -------
Balance at beginning of period $ 3,286 $ 4,869
Charged to costs and expenses 350 488
Deductions (979) (490)
------- ------
Balance at end of period $ 2,657 $ 4,867
======= ======
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):
Six months ended
August 31,
-----------------
2009 2008
------- -------
Interest paid $ 385 $ 864
Income taxes paid (net
refunds received) $ (7) $ (740)
Other current liabilities in the consolidated balance sheets consist of
the following (in thousands):
August 31, February 28,
2009 2009
------- ------
Income taxes payable $ 5,192 $ 5,218
Vendor commitment liability 777 1,283
Other 1,584 2,182
------- -------
$ 7,553 $ 8,683
======= =======
In August 2009, the Company sold its investment in preferred stock of a
privately-held company to a group of private investors not affiliated with
the Company. This stock was received by the Company in August 2007 as part
of the sales consideration for the TelAlert software business. The carrying
value of this investment at the time of sale was $2.0 million, and the sales
price was $1.0 million. The $1.0 million loss on this sale is shown as a
non-operating expense in the accompanying consolidated statement of
operations.
Note 12 - SEGMENT INFORMATION
Segment information for the three and six months ended August 31, 2009
and 2008 is as follows (dollars in thousands):
Three months ended Three months ended
August 31, 2009 August 31, 2008
------------------------------------ -------------------------------------
Business Segments Business Segments
------------------- -------------------
Wireless Wireless
Satellite DataCom Corporate Total Satellite DataCom Corporate Total
-------- -------- ------- ----- -------- ------- ------- -----
Revenues $ 9,964 $ 13,976 $ 23,940 $ 3,176 $ 20,132 $ 23,308
Gross profit
(loss) $ 331 $ 4,473 $ 4,804 $ (81) $ 7,549 $ 7,468
Gross margin 3.3% 32.0% 20.1% (2.6%) 37.5% 32.0%
Operating
income (loss) $ (728) $ (1,299) $(1,047) $ (3,074) $ (1,324) $ 916 $(1,408)$ (1,816)
Six months ended Six months ended
August 31, 2009 August 31, 2008
------------------------------------ -------------------------------------
Business Segments Business Segments
------------------- -------------------
Wireless Wireless
Satellite DataCom Corporate Total Satellite DataCom Corporate Total
-------- -------- ------- ----- -------- ------- ------- ------
Revenues $ 19,213 $ 27,727 $ 46,940 $ 10,817 $ 40,392 $ 51,209
Gross profit $ 758 $ 8,753 $ 9,511 $ 652 $ 16,245 $ 16,897
Gross margin 3.9% 31.6% 20.3% 6.0% 40.2% 33.0%
Operating
income (loss) $ (1,345) $(2,943) $(2,276) $ (6,564) $ (1,656) $ 1,973 $(2,604)$ (2,287)
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 $223,000
and $228,000 in the three months ended August 31, 2009 and 2008,
respectively, and $441,000 and $20,000 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 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 August 31, 2009, the Company has aggregate reserves of $4.1 million
for this matter, of which $1.1 million is an inventory reserve, $0.8 million
is a vendor commitment liability included in other accrued liabilities, and
the remaining $2.2 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.
The Company has on-hand inventory of approximately $1.7 million and
outstanding purchase commitments of $1.2 million for materials that are
specific to the products that the Company manufactures for this customer,
which amounts are not currently reserved for because the Company believes
these materials can be used in the ordinary course of business as future
shipments of products are made to this customer. Nonetheless, changes in the
forecasted product demand from this customer could require that the inventory
reserve and/or the vendor commitment liability be increased to cover some
portion of these amounts.
Legal Proceedings
-----------------
In November 2008, a class action lawsuit was filed in the Los Angeles
County Superior Court against the Company, the former owner of the Company's
Aercept business and one of Aercept's distributors. The plaintiff seeks
monetary damages in an amount not yet specified. The class has not been
certified. The lawsuit alleges that Aercept made misrepresentations when the
plaintiff purchased analog vehicle tracking devices in 2005, which was prior
to CalAmp's acquisition of Aercept in an asset purchase. The tracking
devices ceased functioning in early 2008 due to termination of analog service
by the wireless network operators. The Company is seeking dismissal of the
lawsuit on the basis that the plaintiff's assertion of successor liability is
not supported by the law or the facts. No loss accrual has been made in the
accompanying unaudited consolidated financial statements for this matter.
In May 2007, a patent infringement suit was filed against the Company in
the U.S. District Court for the Eastern District of Texas. The lawsuit
contended that the Company infringed on four patents and sought injunctive
and monetary relief. In August 2007, the Company denied the plaintiff's
claims and asserted counterclaims. The District Court subsequently ordered
the dismissal of infringement claims related to three patents. In June 2008,
the United States Patent and Trademarks Office ("USPTO") issued a preliminary
office action rejecting the plaintiff's 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. No loss
accrual has been made in the accompanying unaudited consolidated financial
statements for this matter.
In addition to the foregoing matters, the Company from time to time is a
party, either as plaintiff or defendant, to various legal proceedings and
claims that arise in the ordinary course of business. While the outcome of
these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated financial position or results of
operations.
Note 14 - SUBSEQUENT EVENT
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.
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
40.7% of the Company's total revenue for the six months ended August 31, 2009
and 32% 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.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at August 31, 2009 the Company had an
inventory reserve of $1.1 million and a vendor commitment liability of $0.8
million in connection with a product performance issue involving a key DBS
customer. Also as described in Note 13, the Company had on-hand inventory of
$1.7 million and outstanding purchase commitments of $1.2 million for
materials that are specific to the products that the Company manufactures for
this customer. These amounts are not currently reserved for because the
Company believes these materials can be used in the ordinary course of
business as future shipments of products are made to this customer.
Nonetheless, changes in the forecasted product demand from this customer
could require that the inventory reserve and/or the vendor commitment
liability be increased to cover some portion of these amounts.
Product Warranties
The Company initially provides for the estimated cost of product
warranties at the time revenue is recognized. While it engages in extensive
product quality programs and processes, the Company's warranty obligation is
affected by product failure rates and material usage and service delivery
costs incurred in correcting a product failure. 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 August 31, 2009 the Company had a $2.2
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, in accordance with the provisions of SFAS No. 109, "Accounting for
Income Taxes". During this evaluation, the Company reviews its forecasts of
income in conjunction with the positive and negative evidence surrounding the
realizability of its deferred income tax asset to determine if a valuation
allowance is needed.
FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes"
(FIN 48) defines the threshold for recognizing the benefits of tax return
positions in the financial statements as "more-likely-than-not" to be
sustained by the taxing authorities. FIN 48 provides guidance on de-
recognition, measurement and classification of income tax uncertainties,
along with any related interest and penalties. FIN 48 also includes guidance
concerning accounting for income tax uncertainties in interim periods and
increases the level of disclosures associated with any recorded income tax
uncertainties. At August 31, 2009, the Company had unrecognized tax
benefits of $6,449,000 which, if recognized, would impact the effective tax
rate on income (loss) before income taxes.
At August 31, 2009, the Company had a net deferred income tax asset
balance of $16,526,000. The current portion of the deferred tax assets is
$3,274,000 and the noncurrent portion is $13,252,000. The net deferred
income tax asset balance is comprised of a gross deferred tax asset of $37.3
million and a valuation allowance of $20.8 million. No tax benefit was
recorded during the six months ended August 31, 2009 because future
realizability of such benefit was not considered to be more likely than not.
Impairment Assessments of Purchased Intangible Assets and
Other Long-Lived Assets
At August 31, 2009, the Company had $5.8 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
Statement of Financial Accounting Standards No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R") requires companies to measure all
employee stock-based compensation awards using a fair value method and record
such expense in their financial statements. Accordingly, the Company
measures stock-based compensation expense at the grant date, based on the
fair value of the award, and recognizes the expense over the employee's
requisite service (vesting) period using the straight-line method. The
measurement of stock-based compensation expense is based on several criteria
including, but not limited to, the valuation model used and associated input
factors, such as expected term of the award, stock price volatility, risk
free interest rate and forfeiture rate. Certain of these inputs are
subjective to some degree and are determined based in part on management's
judgment. The Company recognizes the compensation expense on a straight-line
basis for its graded-vesting awards. SFAS 123R requires forfeitures to be
estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. However, the
cumulative compensation expense recognized at any point in time must at least
equal the portion of the grant-date fair value of the award that is vested at
that date. As used in this context, the term "forfeitures" is distinct from
"cancellations" or "expirations", and refers only to the unvested portion of
the surrendered equity awards.
RESULTS OF OPERATIONS
Basis of Presentation
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal 2009 fell on February 28, 2009. The actual
interim periods ended on August 29, 2009 and August 30, 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 August 31 for clarity of presentation.
Overview
CalAmp Corp. is a provider of wireless communications solutions that
enable anytime/anywhere access to critical data and content. CalAmp's
Wireless DataCom business 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 most
recent three fiscal quarters due to pricing and competitive pressures and the
time period involved in getting the next generation product qualified with
this customer.
Operating Results by Business Segment
The Company's revenue, gross profit and operating income (loss) by
business segment are as follows:
REVENUE BY SEGMENT
Three Months Ended August 31, Six Months Ended August 31,
----------------------------------- ---------------------------------
2009 2008 2009 2008
--------------- --------------- -------------- --------------
% of % of % of % of
Segment $000s Total $000s Total $000s Total $000s Total
----------- ------- ----- ------ ----- ------- ----- ------ -----
Satellite $ 9,964 41.6% $ 3,176 13.6% $19,213 40.9% $10,817 21.1%
Wireless DataCom 13,976 58.4% 20,132 86.4% 27,727 59.1% 40,392 78.9%
------ ----- ------ ----- ------ ----- ------ -----
Total $23,940 100.0% $23,308 100.0% $46,940 100.0% $51,209 100.0%
====== ===== ====== ===== ====== ===== ====== =====
GROSS PROFIT (LOSS) BY SEGMENT
Three Months Ended August 31, Six Months Ended August 31,
----------------------------------- ---------------------------------
2009 2008 2009 2008
--------------- --------------- ---------------- --------------
% of % of % of % of
Segment $000s Total $000s Total $000s Total $000s Total
----------- ------- ----- ------ ----- ------- ------- ------ -------
Satellite $ 331 6.9% $ (81) (1.1%) $ 758 8.0% $ 652 3.9%
Wireless DataCom 4,473 93.1% 7,549 101.1% 8,753 92.0% 16,245 96.1%
------ ----- ------ ----- ------ ------- ------ ------
Total $ 4,804 100.0% $ 7,468 100.0% $ 9,511 100.0% $ 16,897 100.0%
====== ===== ====== ===== ====== ======= ====== ======
OPERATING INCOME (LOSS) BY SEGMENT
Three Months Ended August 31, Six Months Ended August 31,
----------------------------------- ---------------------------------
2009 2008 2009 2008
--------------- --------------- -------------- --------------
% of % of % of % of
Segment $000s Sales $000s Sales $000s Sales $000s Sales
----------- ------- ----- ------ ----- ------- ----- ------ -----
Satellite $ (728) (3.0%) $(1,324) (5.7%) $(1,345) (2.9%) $(1,656) (3.2%)
Wireless DataCom (1,299) (5.4%) 916 3.9% (2,943) (6.3%) 1,973 3.9%
Corporate
expenses (1,047) (4.4%) (1,408) (6.0%) (2,276) (4.8%) (2,604) (5.2%)
------ ----- ------ ----- ------ ----- ------ -----
Total $(3,074) (12.8%) $(1,816) (7.8%) $(6,564) (14.0%) $(2,287) (4.5%)
====== ===== ====== ===== ====== ===== ====== =====
Revenue
Satellite revenue increased $6.8 million, or 214%, to $10.0 million in
the three months ended August 31, 2009 from $3.2 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 $7.9 million higher for the
quarter ended August 31, 2009 compared to the same period last year.
However, there were no sales to the Company's other DBS customer in the
second quarter of the current fiscal year compared to sales of $1.1 million
from that customer for the same period in the previous fiscal year due to
pricing and competitive pressures and the time period involved in getting the
next generation product qualified with this customer. The Company does not
expect to begin shipping this next generation product until late in fiscal
2010.
For the six months ended August 31, 2009, Satellite revenue increased
$8.4 million, or 78%, to $19.2 million from $10.8 million for the same period
of the prior year. Revenues from the Company's historically largest DBS
customer were $16.3 million higher for the six months ended August 31, 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 six months ended
August 31, 2009 compared to sales of $7.9 million to that customer for the
same period in the previous fiscal year, due to the reasons noted above.
Wireless DataCom revenue declined by $6.2 million, or 31%, to $14.0
million in the second quarter of fiscal 2010 compared to $20.1 million in the
fiscal 2009 second quarter. For the six months ended August 31, 2009,
Wireless DataCom revenue decreased $12.7 million, or 31%, to $27.7 million
compared to the same period of the prior year. The decrease in revenue for
the three- and six-month periods is due to lower sales by the Wireless
DataCom business units as the result of the global economic downturn. The
sale of patent rights contributed $1.5 million to Wireless DataCom revenue in
the six months ended August 31, 2008.
Gross Profit and Gross Margins
Satellite gross profit was $331,000 in the fiscal 2010 second quarter
compared to a gross loss of $81,000 in the second quarter of last year. The
gross loss in the second quarter of last year was benefited by a $383,000
reduction in estimated expenses to correct a product performance issue
involving a key DBS customer. Satellite's gross margin increased to 3.3% in
the second quarter of fiscal 2010 from a negative gross margin of 2.6% in the
second quarter of fiscal 2009. The increase in gross profit and gross margin
is attributable to the increase in revenue.
The Satellite segment had a gross profit of $758,000 for the six months
ended August 31, 2009, compared with a gross profit of $652,000 for the same
period last year. The increase in gross profit is attributable to the
increase in revenue. Satellite gross margin was 3.9% for the six months
ended August 31, 2009, compared to 6.0% for the same period last year. Gross
profit and gross margin for the six months ended August 31, 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 $383,000 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 six months ended August 31, 2008 of
2.9%.
Wireless DataCom gross profit declined 41% to $4.5 million in the fiscal
2010 second quarter compared to $7.5 million in the second quarter of last
year. Wireless DataCom's gross margin decreased to 32.0% in the second
quarter of fiscal 2010 from 37.5% in the second quarter of fiscal 2009 due
primarily to the decline in revenue.
Wireless DataCom gross profit decreased 46% to $8.8 million in the six
months ended August 31, 2009, compared to $16.2 million for the same period
of the prior year. Wireless DataCom gross margin decreased from 40% in the
first half of fiscal 2009 to 32% in the first half of fiscal 2010 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 37.9% for the six months ended August 31, 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 expense decreased by $498,000 to
$2,633,000 in the second quarter of fiscal 2010 from $3,131,000 last year.
For the six month year-to-date periods, R&D expense decreased $800,000 from
$6,331,000 last year to $5,531,000 this year. These decreases are primarily
due to personnel reductions in the Public Safety Mobile unit of the Wireless
DataCom segment.
Consolidated selling expenses increased 46% to $2,402,000 in the second
quarter of this year from $1,647,000 last year. For the six month year-to-
date periods, selling expenses increased by $684,000 from $3,919,000 last
year to $4,603,000 this year. These year-over-year increases are primarily
due to bad debt reserve reductions in the three and six month periods of last
year of $722,000 and $927,000, respectively, related to a Wireless DataCom
customer.
Consolidated general and administrative expenses ("G&A") decreased by
$765,000 to $2,501,000 in the second quarter of this year from $3,266,000
last year. Cost reduction actions implemented by the Company subsequent to
the second quarter of last year resulted in lower G&A expense in the second
quarter of this year. G&A expense in the second quarter of last year
included a $303,000 charge for severance costs for the Company's former Chief
Operations Officer.
For the six month periods, consolidated G&A decreased by $1.1 million to
$5.3 million for fiscal 2010 from $6.4 million last year. The decrease is
attributable to (i) cost reduction actions; (ii) a $573,000 decrease in legal
expense in the current year compared to last year; and (iii) the
aforementioned severance costs of $303,000 in fiscal 2009. Partially
offsetting the effect of these cost reductions on G&A was an increase of
$439,000 in stock-based compensation expense because the second half of 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 $1,240,000 in the
second quarter of last year to $342,000 in the second quarter of this year.
For the six month periods, amortization of intangibles decreased by $1.9
million to $683,000 for fiscal 2010 from $2.6 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 second quarter of this year was $1.2
million, compared to $334,000 in the second quarter of last year. The change
was 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 this
year, partially offset by a decrease in net interest expense of $187,000 as a
result of lower average outstanding bank debt during the current period.
Non-operating expense was $1.6 million in the six months ended August
31, 2009, compared to non-operating expense of $750,000 in the six months
ended August 31, 2008. The decrease was due to the aforementioned loss on
sale of investment of $1.0 million and a $246,000 foreign currency loss this
year compared to a foreign currency gain of $133,000 gain last year. These
losses were partially offset by a decrease in net interest expense of
$506,000 as a result of lower average outstanding bank debt during the six
months ended August 31, 2009.
Income Tax Provision
The effective income tax benefit rate was 0% and 34% in the six months
ended August 31, 2009 and 2008, respectively. No tax benefit was recorded
during the three and six months ended August 31, 2009 because future
realizability of such benefit was not considered to be more likely than not.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $4,401,000 at August 31, 2009. During the six
months ended August 31, 2009, cash and cash equivalents decreased by
$2,512,000. Cash was used for debt repayments of $7,683,000 and capital
expenditures of $544,000, partially offset by cash provided by operations of
$3,434,000, proceeds from the sale of investment of $992,000, collections on
a note receivable of $150,000, borrowings on the working capital line of
credit of $1 million, and the effect of exchange rate changes on cash of
$175,000.
In May 2006, the Company entered into a Credit Agreement (the "Credit
Agreement") with Bank of Montreal (BMO), as administrative agent, and the
other financial institutions that from time to time may become parties to the
Credit Agreement (collectively, the "Banks"). At August 31, 2009, the
Company had an outstanding principal balance of $12,985,000 under the term
loan of the Credit Agreement and $1,000,000 under the working capital line of
credit ("revolver").
On August 4, 2009, the Company entered into the Ninth Amendment and
Consent to the Credit Agreement, pursuant to which proceeds of $1 million
from the sale of the Company's investment in preferred stock of a privately
held company were applied to the scheduled principal payment on September 30,
2009, thereby reducing the amount paid on that date from $1,600,000 to
$600,000. See Note 11 to the accompanying unaudited consolidated financial
statements for further details of this investment sale.
On October 5, 2009, the Company entered into the Tenth Amendment and
Waiver to the Credit Agreement (the "Tenth Amendment"), pursuant to which the
Banks waived the Company's noncompliance with the financial covenants
pertaining to minimum levels of consolidated earnings before interest, taxes,
depreciation and amortization (EBITDA) as of August 29, 2009 and Wireless
DataCom revenues as of September 26, 2009. The Tenth Amendment also changed
the interest rate structure, as described below, and imposed an amendment fee
of $100,000 that will be waived if all borrowings under the Credit Agreement
are repaid by December 31, 2009.
Borrowings under the Credit Agreement are secured by substantially all
of the assets of CalAmp Corp. and its domestic subsidiaries. At August 31,
2009, the effective interest rate on the bank term loan was 4.01%, comprised
of a one-month LIBOR rate of 0.26% plus a LIBOR Margin of 3.75%. Pursuant to
the Tenth Amendment, effective October 5, 2009 borrowings under the Credit
Agreement bear interest at either: (i) BMO's prime rate or 3.00%, whichever
is greater, plus a margin of 4.25% ("Prime Based Loans"); or (ii) LIBOR or
2.00%, whichever is greater, plus a margin of 5.25% ("LIBOR Based Loans").
Interest is payable on the last day of the calendar quarter for Prime Based
Loans and at the end of the fixed-rate LIBOR period (ranging from 1 to 12
months) in the case of LIBOR Based Loans. The effective interest rate on the
bank term loan was increased to 7.25% at October 5, 2009 as a result of the
Tenth Amendment.
The Credit Agreement also provides for a revolver of $3,375,000. At
August 31, 2009, there were outstanding borrowings on the revolver of
$1,000,000 bearing interest at 7.25%. Effective October 5, 2009, the interest
on the revolver was increased to 7.50%. At August 31, 2009, $1,725,000 of the
working capital line of credit was reserved for outstanding irrevocable
stand-by letters of credit and $650,000 was available for working capital
borrowings.
The Company is required to make mandatory prepayments under the credit
facility in certain circumstances, including following the Company's
incurrence of certain indebtedness, disposition of its property or
extraordinary income. The Credit Agreement has a maturity date of December
31, 2009, at which time all outstanding borrowings are due and payable. In
addition, a fee of $250,000 will be due and payable to the Banks on December
31, 2009, except that $100,000 of this fee will be waived if the debt is
repaid by December 31, 2009.
The Credit Agreement also includes customary affirmative and negative
covenants including, without limitation, negative covenants regarding
additional indebtedness, investments, maintenance of the business, liens,
guaranties, transfers and sales of assets, and the payment of dividends and
other restricted payments.
As noted above, the Company's Credit Agreement with the Banks has a
maturity date of December 31, 2009. Prior to maturity the Company expects to
refinance the outstanding borrowings under the Credit Agreement with an
asset-based loan, possibly supplemented by proceeds from other funding
sources. Although the Company believes that its expectations are reasonable,
in light of the Company's current financial condition, economic conditions
generally, and the state of the credit markets at the present time, no
assurance can be given that the Company will be able to refinance the
outstanding borrowings under the Credit Agreement from other funding sources
prior to the maturity date.
On December 14, 2007, the Company entered into a settlement agreement
with a key DBS customer. Under the terms of the settlement agreement, the
Company issued to the customer a $5 million non-interest bearing promissory
note that is payable at a rate of $5.00 per unit on the first one million DBS
units purchased by this customer after the date of the settlement agreement.
This repayment rate was subsequently increased to $20 per unit for certain
product shipments made during January through May 2009. At August 31, 2009,
the note had a balance of $410,000.
As further described in Note 13 to the accompanying unaudited
consolidated financial statements, at August 31, 2009 the Company had a $2.2
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 August 31, 2009 the Company has a vendor commitment
liability of $0.8 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, the ability of the
Company to refinance or extend its bank term loan prior to the December 31,
2009 maturity date, and other risks and uncertainties that are set forth
under the caption "Risk Factors" in Part I, Item 1A of the Annual Report on
Form 10-K for the year ended February 28, 2009 as filed with the Securities
and Exchange Commission on May 12, 2009. Such risks and uncertainties could
cause actual results to differ materially from historical or anticipated
results. Although the Company believes the expectations reflected in such
forward-looking statements are based upon reasonable assumptions, it can give
no assurance that its expectations will be attained. The Company undertakes
no obligation to update or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates. The Company's Canadian
subsidiary uses the Canadian dollar 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 $63,000 and $801,000, respectively, is
included in accumulated other comprehensive loss in the stockholders' equity
section of the consolidated balance sheet at August 31, 2009. Foreign
currency gain (loss) included in the consolidated statements of operations
for the six months ended August 31, 2009 and 2008 was $(246,000) and
$133,000, respectively.
Interest Rate Risk
The Company has variable-rate bank debt. A fluctuation of one percent
in interest rate would have an annual impact of approximately $100,000 net of
tax on the Company's consolidated statement of operations.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's principal executive officer and principal financial
officer have concluded, based on their evaluation of disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, (the "Exchange Act")) as of the end of the period
covered by this Report, that the Company's disclosure controls and procedures
are effective to ensure that the information required to be disclosed in
reports that are filed or submitted under the Exchange Act is accumulated and
communicated to management, including the principal executive officer and
principal financial officer, as appropriate, to allow timely decisions
regarding required disclosure and that such information is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the Securities Exchange Commission.
Internal Control Over Financial Reporting
There has been no change in the Company's internal control over
financial reporting that occurred during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In November 2008, a class action lawsuit was filed in the Los Angeles
County Superior Court against the Company, the former owner of the Company's
Aercept business and one of Aercept's distributors. The plaintiff seeks
monetary damages in an amount not yet specified. The class has not been
certified. The lawsuit alleges that Aercept made misrepresentations when the
plaintiff purchased analog vehicle tracking devices in 2005, which was prior
to CalAmp's acquisition of Aercept in an asset purchase. The tracking
devices ceased functioning in early 2008 due to termination of analog service
by the wireless network operators. The Company is seeking dismissal of the
lawsuit on the basis that the plaintiff's assertion of successor liability is
not supported by the law or the facts. No loss accrual has been made in the
accompanying unaudited consolidated financial statements for this matter.
In May 2007, a patent infringement suit was filed against the Company
in the U.S. District Court for the Eastern District of Texas. The lawsuit
contended that the Company infringed on four patents and sought injunctive
and monetary relief. In August 2007, the Company denied the plaintiff's
claims and asserted counterclaims. The District Court subsequently ordered
the dismissal of infringement claims related to three patents. In June 2008,
the United States Patent and Trademarks Office ("USPTO") issued a preliminary
office action rejecting the plaintiff's 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. No loss
accrual has been made in the accompanying unaudited consolidated financial
statements for this matter.
ITEM 1A. Risk Factors
The reader is referred to Part I, "Item 1A. Risk Factors" in the
Company's Annual Report on Form 10-K for the year ended February 28, 2009,
for a discussion of factors that could materially affect the Company's
business, financial condition or future results.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2009 Annual Meeting of Stockholders held on July 30, 2009, six
directors stood for reelection to a one year term expiring at the fiscal 2010
Annual Meeting. All six of the director nominees were reelected. The
results of the election of directors are summarized as follows:
Votes
Against or
Votes For Withheld Unvoted
--------- -------- -------
Frank Perna, Jr. 19,431,406 3,344,085 2,443,504
Kimberly Alexy 19,297,634 3,477,857 2,443,504
Richard Gold 22,011,230 764,261 2,443,504
A.J. "Bert" Moyer 19,630,674 3,144,817 2,443,504
Thomas Pardun 19,298,978 3,476,513 2,443,504
Larry Wolfe 22,012,796 762,695 2,443,504
In addition to the election of directors, the stockholders voted on a
proposed restatement and amendment of the Company's 2004 Incentive Stock
Plan, as described below. Following is a summary of the voting results on
this proposal, which was approved by the stockholders:
Votes
Against or Votes
Votes For Withheld Abstained Unvoted
--------- -------- --------- -------
Restatement and amendment of the
2004 Incentive Stock Plan to
increase the number of shares of
common stock reserved for issuance
by 3,000,000 and to make certain
other changes therein 8,728,569 3,929,087 116,753 12,444,586
ITEM 5. OTHER INFORMATION
On October 5, 2009, the Company entered into the Tenth Amendment and
Waiver to the Credit Agreement ("Tenth Amendment"), which is attached as
Exhibit 10.1 to this Form 10-Q. The information in Note 4 to the
accompanying unaudited consolidated financial statements as it pertains to
the Tenth Amendment is incorporated by reference to this Item 5.
ITEM 6. EXHIBITS
Exhibit 10.1 - Tenth Amendment and Waiver to Credit Agreement
between CalAmp Corp., Bank of Montreal and other
lenders party thereto dated October 5, 2009
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.
October 8, 2009 /s/ Richard K. Vitelle
--------------- ----------------------------
Date Richard K. Vitelle
Vice President Finance & CFO
(Principal Financial Officer
and Chief Accounting Officer)
1