UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 20102013
COMMISSION FILE NUMBER: 0-12182
____________________
CALAMP CORP.
Delaware | 95-3647070 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1401 N. Rice Avenue | ||
Oxnard, California | 93030 | |
(Address of principal executive offices) | (Zip Code) |
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (805)(805) 987-9000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: | |||
TITLE OF EACH CLASS | NAME OF EACH EXCHANGE | ||
None | None |
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: | |||
Nasdaq Global Select Market | |||
(Title of Class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso [ ] Noþ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X].
Yeso Noþ
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso [X] Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sregistrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. (Check one):
Large accelerated filer | [ ] | Accelerated filer | [X] | Non-accelerated filer | [ ] | Smaller Reporting Company |
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso [ ] Noþ
The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of August 29, 200925, 2012 was approximately $51,157,000.$184,430,000. As of April 30, 2010,15, 2013, there were 27,642,26735,051,618 shares of the Company’sCompany's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company’sCompany's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on July 29, 201025, 2013 are incorporated by reference into Part III, Items 10, 11, 12, 13 and 14 of this Form 10-K. This Proxy Statement will be filed within 120 days after the end of the fiscal year covered by this report.
ITEM 1. BUSINESS
THEOUR COMPANY
We are a leading provider of wireless communications solutions that deliver data, voice and video for critical networked communications and other applications. The Company’s twoa broad array of applications to customers globally. Our business segmentsactivities are organized into our Wireless DataCom which serves utility, governmental and enterprise customers, and Satellite which focuses on the North American Direct Broadcast Satellite (“DBS”) market.
WIRELESS DATACOM
Our Wireless DataCom segment providesoffers solutions to address the markets for Machine-to-Machine, or M2M, communications, Mobile Resource Management, or MRM, applications and other emerging applications that require anytime and everywhere connectivity. Our M2M and MRM solutions enable customers to optimize their operations by collecting, monitoring and efficiently reporting business-critical data and desired intelligence from high-value remote assets. Our extensive portfolio of intelligent communications devices, scalable cloud services platforms, and targeted software applications streamline otherwise complex M2M or MRM deployments for our customers. We are focused on delivering solutions globally in our core vertical markets in Energy, Government and Transportation. In addition, we anticipate significant future opportunities for adoption of our M2M and MRM solutions in Construction, Mining and Usage-Based Automobile Insurance vertical markets, as well as other emerging applications in additional markets.
Our broad portfolio of wireless communications technologies, products and services to the wireless networksincludes asset tracking devices, targeted telematics platforms, fixed and mobile resource management markets forwireless gateways and full-featured, multi-mode wireless routers. These wireless networking elements underpin a wide range of proprietary and third party M2M and MRM solutions worldwide and are well-suited for applications including:
In addition to our comprehensive product portfolio, our cloud-based software platforms facilitate integration of legacy and third party applications through simple Application Protocol Interfaces, or APIs, which enable our partners and customers to quickly bring full-featured M2M and MRM solutions to market. By leveraging our cloud-based device management platform, every device can be remotely managed, configured and upgraded throughout the entire deployment lifecycle. These solutions also easily integrate with wireless telecommunications carriers’ network management platforms, allowing our customers access to services that are essential to creating and supporting a comprehensive end-to-end solution.
Our portfolio of connected devices is configured to report data on a user-defined basis seamlessly to new or existing software applications. We have a proven, scalable and targeted Software-as-a-Service, or SaaS, business and core competency. Our SaaS delivery model for our MRM applications enables rapid, cost-effective deployment of high value solutions for our customers and provides an opportunity to incrementally grow our recurring revenues. Over the last several years, we have steadily grown our base of SaaS subscribers. Our acquisition of the Wireless Matrix business, discussed in greater detail below, will further expand our SaaS offerings and is expected to grow this subscriber base and recurring revenues.
The solutions offered through our Wireless DataCom segment address a wide variety of applications across key vertical markets. These markets are typically characterized by large enterprises with significant remote and/or mobile assets that perform business-critical tasks and services, are expensive to deploy and operate, and are difficult to manage in real time or near real time. Our solutions enable customers to optimize their operations by collecting, monitoring and efficiently reporting business-critical data and desired intelligence from these high-value remote and mobile assets. We believe our solutions benefit our customers in the following ways:
Wireless Matrix Acquisition
On March 4, 2013, we completed the acquisition of all the outstanding capital stock of Wireless Matrix USA, Inc. (“Wireless Matrix”). Under the terms of the agreement, we acquired Wireless Matrix for a cash payment of $52.9 million, subject to adjustment. The assets we acquired included cash of approximately $6 million.
This strategic acquisition is consistent with our long-term growth strategy and strengthens our position as a leading provider of integrated wireless communications technologydevices and software solutions for M2M and MRM deployments within our core industry vertical markets. We expect to Smart Grid power distribution automation for electric utilities.
revenues.
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MANUFACTURING
Electronic devices, components and made-to-order assemblies used in the Company’sour products are generally obtained from a number of suppliers, although certain components are obtained from sole source suppliers. Some devices or components are standard items while others are manufactured to the Company’sour specifications by its suppliers. The Company believes that most raw materials are available from alternative suppliers. However, any significant interruption in the delivery of such items, particularly those that are sole source materials or components, could have an adverse effect on the Company’sCompany's operations.
We outsource printed circuit board assembly to contract manufacturers in the Pacific Rim. The Company performsHistorically, we have performed final assembly and final test of itsour satellite products and some Wireless DataCom products at itsour principal facility in Oxnard, California. The Company performs additional final assembly and tests on other Wireless DataComHowever, during fiscal 2012, we transitioned our principal satellite products at its facility in Waseca, Minnesota. Printed circuit assemblies are mounted in various metal and plastic housings, electronically tested, and subjected to additional environmental tests prior to packaging and shipping.
A substantial portion of the Company’sour products, components, and substantially all printed circuit board assemblies and housings,subassemblies are procured from foreign suppliers and contract manufacturers located primarily in Hong Kong and mainland China, Taiwan, and other Pacific Rim countries. Any significant shift in U.S. trade policy toward these countries, or a significant downturn in the economic or financial condition of or any political instability in these countries, could cause disruption of the Company’s supply chain or otherwise disrupt the Company’s operations, which could adversely impact the Company’s business.
ISO 9001 INTERNATIONAL CERTIFICATION
We became registered to ISO 9001:1994 in 1995. The CompanyWe upgraded itsour registration to ISO 9001:2000 in 2003, and expects to upgrade itupgraded once again to ISO 9001:2008 in 2010. ISO 9001:2008 is the widely recognized international standard for quality management in product design, manufacturing, quality assurance and marketing. The Company believesWe believe that ISO certification is important to its businessour operations because most of the Company’sour key customers expect their suppliers to have and maintain ISO certification. Registration assessments are performed by Underwriters Laboratories Inc. (“UL”("UL") according to the ISO 9001:2008 International Standard. The CompanyWe continually performsperform internal audits to ensure compliance with this quality standard. In addition, UL performs an annual external Compliance Assessment, most recently inwith the next assessment scheduled for July 2009. The Company has2013. We have maintained itsour ISO certification through each Compliance Assessment. Every three years, UL performs a full system RecertificationAssessment. The next ComplianceRecertification Assessment is scheduled for May 2010.
July 2015.
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Each of the markets in which the Company competeswe compete is characterized by rapid technological change, evolving industry standards, and new product features to meet market requirements. During the last three years, the Company haswe have focused itsour research and development resources primarily on satellite DBS products, wireless communication systems for utilities, public safety and industrial monitoring and controls for mobile and fixed location IP data communication applications, GPS and cellular tracking products and services for mobile resource management applications. The Company hasMRM applications, and satellite DBS products. We have developed key technology platforms that can be leveraged across many of itsour businesses and applications. These include communications technology platforms based on proprietary licensed narrowband UHF and VHF frequency radios and modems, standards-based unlicensed broadband wireless IP router/radio modems, and cellular networkcellular-network based tracking units. In addition, development resources have been allocated to broadening existing product lines, reducing product costs, and improving performance through product redesign efforts.
Research and development expenses in fiscal years 2010, 20092013, 2012 and 20082011 were $10,943,000, $12,899,000$14,291,000, $11,328,000, and $15,710,000,$11,125,000, respectively. During this three yearthree-year period, the Company’sour research and development expenses have ranged between 10%8% and 13%10% of annual consolidated revenues.
SALES AND MARKETING
Our revenues wereare derived mainly from customers in the United States, which represented 93%82%, 89%, and 94%91% of consolidated revenues in fiscal 2010, 20092013, 2012 and 2008,2011, respectively.
Our Wireless DataCom segment sells its products and services through dedicated direct and indirect sales channels.channels with employees distributed across the U.S. The Wireless DataCom segment’s sales and marketing functions foractivities are supported internationally with sales personnel in Latin America, Israel and the MRM business are located in San Diego and Irvine, California. The sales and marketing functions for the Wireless Networks business are located in Waseca, Minnesota, Atlanta, Georgia and Montreal. In addition, the Wireless DataCom segment has a small sales office in Europe.
Our Satellite segment sells its DBS reception products primarily to the two DBS system operators in the U.S.Echostar, an affiliate of Dish Network, for incorporation into complete subscription satellite television systems. The sales and marketing functions for the Satellite segment are located primarily at the Company’sour corporate headquarters in Oxnard, California.
Customers that accounted for 10% or more of consolidated annual sales in any one of the last three years as a percent of consolidated sales, are as follows:
Year Ended February 28, | ||||||||||||||
Customer | Segment | 2010 | 2009 | 2008 | ||||||||||
EchoStar | Satellite | 48.6 | % | 15.7 | % | 10.9 | % | |||||||
DirecTV | Satellite | — | 10.3 | % | 23.9 | % | ||||||||
EFJ | Wireless | 3.9 | % | 9.0 | % | 14.2 | % |
Year Ended February 28, | ||||||||||||
Customer | Segment | 2013 | 2012 | 2011 | ||||||||
EchoStar | Satellite | 22.1 | % | 28.3 | % | 31.0 | % |
EchoStar and DirecTV serveserves the North American DBS market. EF Johnson Technologies, Inc. (EFJ) is a provider of two-way land mobile radios and communication systems for law enforcement, firefighters, EMS and the military. Sales to EFJ include sales by the Company directly to EFJ’s subcontractors. During fiscal 2010 the Company did not make any sales to DirecTV because of pricing and competitive pressures on older generation products. The Company is currently developing next generation products for DirecTV with target delivery in fiscal 2011. The Company believesWe believe that the loss of EchoStarEchostar as a customer could have a material adverse effect on the Company’sour financial position and results of operations.
COMPETITION
Our markets are highly competitive. In addition, if the markets for the Company’sour products grow, the Company anticipateswe anticipate increased competition from new companies entering such markets, some of whom may have financial and technical resources substantially greater than those of the Company. The Company believesours. We believe that competition in itsour markets is based primarily on performance, reputation, product reliability, technical supportresponsiveness and price. The Company’sOur continued success in these markets will depend in part upon itsour ability to continue to innovate, design and manufacture quality products at competitive prices.
prices and provide superior service to our customers.
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We believe that the principal competitors for itsour wireless products include Motorola GE-MDS, Freewave,Solutions, GE, GenX, TracknSpireon, Novatel Wireless, Xirgo, Sierra Wireless, Silver Spring Networks, Digi International, Trimble Navigation and Enfora.
Satellite
We believe that the principal competitors for itsour DBS products include Sharp, Wistron NeWeb Corporation, Microelectronics Technology, and Pro Brand.Global Invacom. Because the Company iswe are typically not the sole source supplier of itsour satellite products, it iswe are exposed to increasedongoing price and margin pressures.
BACKLOG
Our products are sold to customers that generally do not usually enter into long-term purchase agreements, and as a result the Company’sour backlog at any given date is not generally significant in relation to itsour annual sales. In addition, because of customer order modifications, cancellations, or orders requiring wire transfers or letters of credit from international customers, the Company’sour backlog as ofat any particular datepoint in time may not be indicative of sales for any future period.
INTELLECTUAL PROPERTY
At February 28, 2010, the Company2013, we had 19 U.S. patents and 11 foreign patents in itsour Wireless DataCom business.
Trademarks
CalAmp and Dataradio are federally registered trademarks of the Company.
EMPLOYEES
At February 28, 2010, the Company2013, we had approximately 400340 employees and approximately 11040 contracted production workers. None of the Company’sour employees or contract workers are represented by a labor union. The contracted production workers are engaged through independent temporary labor agencies in California.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
NAME | |||||||
AGE | POSITION | ||||||
Michael Burdiek | 53 | President and Chief | |||||
Garo Sarkissian | 46 | Vice President, Corporate Development | |||||
Richard Vitelle | 59 | Vice President, Finance, Chief Financial Officer and Corporate Secretary |
MICHAEL BURDIEK joined the Company as Executive Vice President in June 2006 and was appointed President of the Company’sCompany's Wireless DataCom segment in March 2007. Mr. Burdiek was appointed Chief Operating Officer in June 2008 and was promoted to President and COO in April 2010. In June 2011, he was promoted to CEO and was appointed to the Company’s Board of Directors. Prior to joining the Company, Mr. Burdiek was the President and CEO of Telenetics Corporation, a publicly held manufacturer of data communications products. From 2004 to 2005, he worked as an investment partner and advisor to the Kasten Group in the private equity sector. From 1987 to 2003, Mr. Burdiek held a variety of technical and general management positions with Comarco, Inc., a publicly held company, most recently as Senior Vice President and General Manager of Comarco’sComarco's Wireless Test Systems unit. Mr. Burdiek began his career as a design engineer with Hughes Aircraft Company.
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RICHARD VITELLE joined the Company in 2001 and currently serves as Executive Vice President, Finance, Chief Financial OfficerCFO and Corporate Secretary in July 2001.Secretary/Treasurer. Prior to joining the Company, he served as Vice President of Finance and CFO of SMTEK International, Inc., a publicly held electronics manufacturing services provider, where he was employed for a total of 11 years. Earlier in his career Mr. Vitelle served as a senior manager with Price Waterhouse.
The Company’sCompany's executive officers are appointed by and serve at the discretion of the Board of Directors.
AVAILABLE INFORMATION
The Company’sCompany's primary Internet address is www.calamp.com. The Company makes its Securities and Exchange Commission (“SEC”("SEC") periodic reports (Forms 10-Q and Forms 10-K) and current reports (Forms 8-K), and amendments to these reports, available free of charge through its website as soon as reasonably practicable after they are filed electronically with the SEC.
Materials that the Company files with the SEC may be read and copied at the SEC’sSEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Company that the Company files electronically with the SEC.
ITEM 1A. RISK FACTORS
The following list describes several risk factors which are uniqueapplicable to our Company:
The Company is dependent on its majora significant customer, the loss of which could have a material adverse effect on the Company’s future sales and its ability to grow.
EchoStar accounted for almost half22% of the Company’s consolidated revenues for fiscal 2010.2013. The loss of EchoStar as a customer, a deterioration in its overall business, or a decrease in its volume of sales, could result in decreased sales for us and could have a material adverse impact on our ability to grow our business. A substantial decrease or interruption in business from this key customer could result in write-offs or in the loss of future business and could have a material adverse effect on the Company’s business, financial condition or results of operations.
We do not currently have long-term contracts with customers and our customers may cease purchasing products at any time, which could significantly harm our revenues.
We generally do not have long-term contracts with our customers. As a result, our agreements with our customers do not currently provide us with any assurance of future sales. These customers can cease purchasing products from us at any time without penalty, they are free to purchase products from our competitors, they may expose us to competitive price pressure on each order and they are not required to make minimum purchases. Any of these actions taken by our customers could have a material adverse effect on the Company’s business, financial condition or results of operations.
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The market for our products is intensely competitive and characterized by rapid technological change, evolving standards, short product life cycles, and price erosion. We expect competition to intensify as our competitors expand their product offerings and new competitors enter the market. Given the highly competitive environment in which we operate, we cannot be sure that any competitive advantages currently enjoyed by our products will be sufficient to establish and sustain our products in the market. Any increase in price or other competition could result in erosion of our market share, to the extent we have obtained market share, and could have a negative impact on our financial condition and results of operations. We cannot provide assurance that we will have the financial resources, technical expertise or marketing and support capabilities to compete successfully.
Information about the Company’s competitors is included in Part I, Item 1 of this Annual Report on Form 10-K under the heading “COMPETITION”"COMPETITION".
Our business is subject to many factors that could cause our quarterly or annual operating results to fluctuate and our stock price to continue to be volatile.
Our quarterly and annual operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Some of the factors that could affect our quarterly or annual operating results include:
Due in part to factors such as the timing of product release dates, purchase orders and product availability, significant volume shipments of products could occur close to the end of a fiscal quarter. Failure to ship products by the end of a quarter may adversely affect operating results. In the future, our customers may delay delivery schedules or cancel their orders without notice. Due to these and other factors, our quarterly revenue, expenses and results of operations could vary significantly in the future, and period-to-period comparisons should not be relied upon as indications of future performance.
Because some of our components, assemblies and electronics manufacturing services are purchased from sole source suppliers or require long lead times, our business is subject to unexpected interruptions, which could cause our operating results to suffer.
Some of our key components are complex to manufacture and have long lead times. Also, our DBS outdoor receiver housings, subassembliesproducts are manufactured by a single subcontractor, and some of our electronic components are purchased from solean alternative supply source vendors for which alternative sources aremay not be readily available. In the event of a reduction or interruption of supply, or degradation in quality, it could take up to six months to begin receiving adequate supplies from alternative suppliers, if any. As a result, product shipments could be delayed and revenues and results of operations could suffer. Furthermore, if we receive a smaller allocation of component parts than is necessary to manufacture products in quantities sufficient to meet customer demand, customers could choose to purchase competing products and we could lose market share. Any of these events could have a material adverse effect on the Company’s business, financial condition or results of operations.
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In the past, we have experienced design and manufacturing difficulties that have delayed the development, introduction or marketing of new products and enhancements and which caused us to incur unexpected expenses. In addition, some of our existing customers have conditioned their future purchases of our products on the addition of new product features. In the past, we have experienced delays in introducing some new product features. Furthermore, in order to compete in some markets, we will have to develop different versions of existing products that operate at different frequencies and comply with diverse, new or varying governmental regulations in each market. Our inability to develop new products or product features on a timely basis, or the failure of new products or product features to achieve market acceptance, could adversely affect our business.
If demand for our products fluctuates rapidly and unpredictably, it may be difficult to manage the business efficiently, which may result in reduced gross margins and profitability.
Our cost structure is based in part on our expectations for future demand. Many costs, particularly those relating to capital equipment and manufacturing overhead, are relatively fixed. Rapid and unpredictable shifts in demand for our products may make it difficult to plan production capacity and business operations efficiently. If demand is significantly below expectations, we may be unable to rapidly reduce these fixed costs, which can diminish gross margins and cause losses. A sudden downturn may also leave us with excess inventory, which may be rendered obsolete asif products evolve during the downturn and demand shifts to newer products. Our ability to reduce costs and expenses may be further constrained because we must continue to invest in research and development to maintain our competitive position and to maintain service and support for our existing customer base. Conversely, in the event of a sudden upturn, we may incur significant costs to rapidly expedite delivery of components, procure scarce components and outsource additional manufacturing processes. These costs could reduce our gross margins and overall profitability. Any of these results could adversely affect our business.
Because we currently sell, and we intend to grow the sales of, certain of our products in countries other than the United States, we are subject to different regulatory schemes.policies. We may not be able to develop products that comply with the standards of different countries, which could result in our inability to sell our products and, further, we may be subject to political, economic, and other conditions affecting such countries, which could result in reduced sales of our products and which could adversely affect our business.
If our sales are to grow in the longer term, we believe we must grow our international business. Many countries require communications equipment used in their country to comply with unique regulations, including safety regulations, radio frequency allocation schemes and standards. If we cannot develop products that work with different standards, we will be unable to sell our products in those locations. If compliance proves to be more expensive or time consuming than we anticipate, our business would be adversely affected. Some countries have not completed their radio frequency allocation process and therefore we do not know the standards with which we would be required to comply. Furthermore, standards and regulatory requirements are subject to change. If we fail to anticipate or comply with these new standards, our business and results of operations will be adversely affected.
Sales to customers outside the U.S. accounted for 7%18%, 12%11% and 6%9% of CalAmp’s total sales for the fiscal years ended February 28, 2010, 20092013, 2012 and 2008,2011, respectively. Assuming that we continue to sell our products to foreign customers, we will be subject to the political, economic and other conditions affecting countries or jurisdictions other than the U.S., including in Africa, the Middle East, Europe and Asia. Any interruption or curtailment of trade between the countries in which we operate and our present trading partners, changes in exchange rates, significant shift in U.S. trade policy toward these countries, or significant downturn in the political, economic or financial condition of these countries, could cause demand for and sales of our products to decrease, or subject us to increased regulation including future import and export restrictions, any of which could adversely affect our business.
Additionally, a substantial portion of our products, components and subassemblies are currently procured from foreign suppliers located primarily in Hong Kong, mainland China, Taiwan, and other Pacific Rim countries. Any significant shift in U.S. trade policy toward these countries or a significant downturn in the political, economic or financial condition of these countries could cause disruption of our supply chain or otherwise disrupt operations, which could adversely affect our business.
Disruptions in global credit and financial markets could materially and adversely affect our business and results of operations.
There is significant uncertainty about the stability of global credit and financial markets. Credit market dislocations, including as a result of the Eurozone concerns, could cause interest rates and the cost of borrowing to rise or reduce the availability of credit, which could negatively affect customer demand for our products if they responded to such credit market dislocations by suspending, delaying or reducing their capital expenditures. Moreover, since we generate more than 10% of our revenues outside the United States, fluctuations in foreign currencies can have an impact on our results of operations which are expressed in U.S. dollars. In addition, ifcurrency variations can adversely affect profit margins on sales of our products in countries outside of the Chinese government allowsUnited States and margins on sales of products that include components obtained from suppliers located outside of the value of its currency to rise vis-à-vis the U.S. dollar, our product housings and subassemblies that are sourced in China could become more expensive, putting pressure on our profit margins.
United States.
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Other than in our Satellite products business, which currently does not depend upon patented technology, our ability to succeed in wireless data communications markets may depend, in large part, upon our intellectual property for some of our wireless technologies. We currently rely primarily on patents, trademark and trade secret laws, confidentiality procedures and contractual provisions to establish and protect our intellectual property. However, these mechanisms provide us with only limited protection. We currently hold 30 patents. As part of our confidentiality procedures, we enter into non-disclosure agreements with all employees, including officers, managers and engineers. Despite these precautions, third parties could copy or otherwise obtain and use our technology without authorization, or develop similar technology independently. Furthermore, effective protection of intellectual property rights is unavailable or limited in some foreign countries. The protection of our intellectual property rights may not provide us with any legal remedy should our competitors independently develop similar technology, duplicate our products and services, or design around any intellectual property rights we hold.
We rely on access to third-party patents and intellectual property, and our future results could be materially adversely affected if we are unable to secure such access in the future.
Many of our hardware solutions and services are designed to include third-party intellectual property, and in the future we may need to seek or renew licenses relating to such intellectual property. Although we believe that, based on past experience and industry practice, such licenses generally can be obtained on reasonable terms, there is no assurance that the necessary licenses would be available on acceptable terms or at all. Some licenses we obtain may be subjectnonexclusive and, therefore, our competitors may have access to infringement claims thatthe same technology licensed to us. If we fail to obtain a required license or are unable to design around a patent where we do not hold a license, we may disrupt the conductbe unable to sell some of our hardware solutions and services, and there can be no assurance that we would be able to design and incorporate alternative technologies, without a material adverse effect on our business, financial condition, and results of operations.
Our competitors have or may obtain patents that could restrict our ability to offer our hardware solutions, software and services, or subject us to additional costs, which could impede our ability to offer our hardware solutions, software and services and otherwise adversely affect our profitability.
Several of others, even thoughour competitors have obtained and can be expected to obtain patents that cover hardware solutions, software and services directly or indirectly related to those offered by us. There can be no assurance that we take stepsare aware of all existing patents held by our competitors or other third parties containing claims that may pose a risk of our infringement on such claims by our hardware solutions, software and services. In addition, patent applications in the United States may be confidential until a patent is issued and, accordingly, we cannot evaluate the extent to assurewhich our hardware solutions, software and services may infringe on future patent rights held by others.
Even with technology that neitherwe develop independently, a third party may claim that we are using inventions claimed by their patents and may initiate litigation to stop us from engaging in our employees nornormal operations and activities, such as engineering and development and the sale of any of our contractors knowingly incorporate unlicensed copyrights, trade secretshardware solutions, software and services. Furthermore, because of technological changes in the M2M industry, current extensive patent coverage, and the rapid issuance of new patents, it is possible that certain components of our hardware solutions, software, services, and business methods may unknowingly infringe the patents or other intellectual property into our products. Itrights of third parties. From time to time, we have been notified that we may be infringing such rights.
In the highly competitive and technology-dependent telecommunications field in particular, litigation over intellectual property rights is possible thata significant business risk, and some third parties are pursuing a litigation strategy with the goal of monetizing otherwise unutilized intellectual property portfolios via licensing arrangements entered into under threat of continued litigation. Regardless of merit, responding to such litigation can consume significant time and expense. In certain cases, we may claim that our products and services infringe upon their trademark, patent, copyright, or trade secret rights. Anyconsider the desirability of entering into such claims, regardless of their merit, could be time consuming, expensive, cause delays in introducing new or improved products or services, require us to enter into royalty or licensing agreements or requirearrangements, although no assurance can be given that these licenses can be obtained on acceptable terms or that litigation will not occur. If we are found to be infringing any intellectual property rights, we may be required to pay substantial damages. If there is a temporary or permanent injunction prohibiting us from marketing or selling certain hardware solutions, software and services or a successful claim of infringement against us requires us to stop usingpay royalties to a third party, our financial condition and operating results could be materially adversely affected, regardless of whether we can develop non-infringing technology. While in management’s opinion we do not have a potential liability for damages or royalties from any known current legal proceedings or claims related to the challengedinfringement of patent or other intellectual property. Successfulproperty rights that would individually or in the aggregate have a material adverse effect on our financial condition and operating results, the results of such potential claims cannot be predicted with certainty. In any potential matters related to infringement claimsof patent or other intellectual property rights of others or should several of these matters be resolved against us mayin the same reporting period, our financial condition and operating results could be materially disrupt the conduct of our business and affect profitability.
AvailabilityThe finite amount of radio frequenciesfrequency spectrum may restrict the growth of the wireless communications industry and demand for our products.
Radio frequencies are required to provide wireless services. Industry growth has been and may continue to be affected by the availability of licenses required to use frequencies and related costs. The allocation of frequencies is regulated in the United States and other countries throughout the world and limited spectrum space is allocated to the various wireless services. The growth of the wireless communications industry may be affected if adequate frequencies are not allocated or, alternatively, if new technologies are not developed to better utilize the frequencies currently allocated for such use.
A failure to rapidly transition or to transition at all to newer digital technologies could adversely affect our business.
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If we do not have continued access to sufficient capacity on reliable networks, we may be unable to deliver services and our sales could decrease. Our ability to grow and achieve profitability partly depends on our ability to buy sufficient capacity on the networks of wireless carriers and on the reliability and security of their systems. Some of our wireless services are delivered using airtime purchased from third parties. We depend on these third parties to provide uninterrupted service free from errors or defects and would not be able to satisfy our customers’ needs if theysuch third parties failed to provide the required capacity or needed level of service. In addition, our expenses would increase and profitability could be materially adversely affected if wireless carriers were to significantly increase the prices of their services. Our existing agreements with the wireless carriers generally have one-yearone to three-year terms. Some of these wireless carriers are, or could become our competitors, and if they compete with us, they may refuse to provide us with airtime on their networks.
New lawsOur business could be adversely impacted by the interruption, failure or corruption of our proprietary Internet-based systems that are used to configure and regulationscommunicate with the wireless tracking and monitoring devices that impactwe sell.
Our MRM business depends upon several Internet-based systems that are proprietary to our industry could increase costs or reduce opportunities forCompany. These applications, which are hosted by an independent data center and are connected via access points to cellular networks, are used by our customers and by us to earn revenue.
We may be subject to direct regulation by the Federal Communications Commission (“FCC”) or any other governmental agency, other than regulations applicablebreaches of our information technology systems, which could damage our reputation, vendor, and customer relationships, and our customers’ access to Delaware corporationsour services.
Our business operations require that we use and store personally identifiable information of similar size that are headquartered in California. However, in the future, we may become subject to regulation by the FCC or another regulatory agency. In addition, the wireless carriers that supply airtimeour employees and certain hardware suppliers are subjectcustomers. We require user names and passwords in order to regulation byaccess our information technology systems. We also use encryption and authentication technologies to secure the FCC,transmission and regulations that affect themstorage of data. These security measures may be compromised as a result of third-party security breaches, employee error, malfeasance, faulty password management, or other irregularity, and may result in persons obtaining unauthorized access to our data or accounts. If a computer security breach affects our systems, it could increasedamage our costs or reducereputation and also expose us to litigation and possible liability, which could have a material adverse effect on our ability to continue sellingbusiness, results of operations and supporting our services.
Some CalAmp’s products are subject to mandatory regulatory approvals in the United States and other countries that are subject to change, makingwhich could make compliance costly and unpredictable.
Some CalAmp products are subject to certain mandatory regulatory approvals in the United States, Canada and other countries in which it operates. In the United States, the FCCFederal Communications Commission (“FCC”) regulates many aspects of communication devices, including radiation of electromagnetic energy, biological safety and rules for devices to be connected to the telephone network. In Canada, similar regulations are administered by Industry Canada. Although CalAmp has obtained necessarythe required FCC and Industry Canada approvals for all products it currently sells, there can be no assurance that such approvals can be obtained for future products on a timely basis, or at all. In addition, such regulatory requirements may change or the Company may not in the future be able to obtain all necessary approvals from countries other than Canada or the United States in which it currently sells its products or in which it may sell its products in the future.
We may be slow in adopting new regulations allowing private wireless networkssubject to deliver higher data rates in licensed frequency bands for public safety applications. This couldproduct liability, warranty and recall claims, which may increase the costs of doing business and adversely affect demand for private networksour business, financial condition and results of operations.
We are subject to a risk of product liability or warranty claims if our products or services actually or allegedly fail to perform as traditional private network usersexpected or the use of our products results, or are alleged to result, in bodily injury and/or property damage. While we maintain what we believe to be reasonable limits of insurance coverage to appropriately respond to such liability exposures, large product liability claims, if made, could exceed our insurance coverage limits and insurance may opt for public network connections for allnot continue to be available on commercially acceptable terms, if at all. There can be no assurance that we will not incur significant costs to defend these claims or partthat we will not experience any product liability losses in the future. In addition, if any of their wireless communication needs. Thisour designed products are, or are alleged to be, defective, we may be required to participate in recalls and exchanges of such products. In the past five years, our warranty expense has fluctuated between approximately 0.3% and 9.5% of sales on an annual basis. Individual quarters were above or below the annual averages. The future cost associated with providing product warranties and/or bearing the cost of repair or replacement of our products could exceed our historical experience and have a material adverse effect on the Company’sour business, results of operations and financial condition since the Company’s Wireless Networks data products are currently used in private networks.
Reduced consumer or corporate spending due to the global economic downturn that began in 2008 and other uncertainties in the macroeconomic environment have affected and could continue to adversely affect our revenues and cash flow.
We depend on demand from the consumer, original equipment manufacturer, industrial, automotive and other markets we serve for the end market applications of our products. Our revenues are based on certain levels of consumer and corporate spending. If the significant reductions in consumer or corporate spending as a result of uncertain conditions in the macroeconomic environment continue, our revenues, profitability ability to make debt payments and cash flow could be adversely affected.
Our ability to make payments of principal and interest on our indebtedness depends upon our future financial performance and ability to generate positive operating cash flows, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of which are beyond our control.
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An increase in prevailing interest rates could have an immediate effect on the interest rates charged on our variable rate bank debt with Square 1 Bank, which rise and fall subject to a minimum monthly interest payment, upon changes in interest rates on a periodic basis. Any increased interest expense associated with increases in interest rates affects our profitability and cash flow and could affect our ability to service our debt.flow.
Risks Relating to Our Common Stock and the Securities Market
Anti-takeover defenses in our charter and under Delaware law could prevent us from being acquired or limit the price that investors might be willing to pay for our common stock in an acquisition.
Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years from the time the person became an interested stockholder, unless specific conditions are met. In addition, we have in place various protections which would make it difficult for a company or investor to buy the Company without the approval of our Board of Directors, including a stockholder rights plan, authorized but undesignated preferred stock and provisions requiring advance notice of board nominations and other actions to be taken at stockholder meetings. All of the foregoing could hinder, delay or prevent a change in control and could limit the price that investors might be willing to pay in the future for shares of our common stock.
The trading price of shares of our common stock may be affected by many factors and the price of shares of our common stock could decline.
As a publicly traded company, the trading price of our common stock has fluctuated significantly in the past. The future trading price of our common stock is likely tomay be volatile and could be subject to wide price fluctuations in response to such factors, including:
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The market price of our stock has been highly volatile and we expect it to remain highly volatile due to the risks and uncertainties described in this Annual Report, as well as other factors, including:
Over the two-year period ended February 28, 2010,2013, the price of CalAmp common stock as reported on The Nasdaq Stock Market ranged from a high of $3.77$11.50 to a low of $0.37.$2.60. The stock market has from time to time experienced extreme price and volume fluctuations that were unrelated to the operating performance of particular companies. In the past, companies that have experienced volatility have sometimes subsequently become the subject of securities class action litigation. If litigation were instituted on this basis, it could result in substantial costs and a diversion of management’s attention and resources.
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Lack of expected dividends may make our stock less attractive as an investment.
We intend to retain all future earnings for use in the development of our business. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. Generally, stocks that pay regular dividends command higher market trading prices, and so our stock price may be lower as a result of our dividend policy.
Risk Factors Relating to the Wireless Matrix Acquisition
We may be unable to successfully integrate Wireless Matrix’s business and realize the anticipated benefits of the acquisition.
We will be required to devote significant management attention and resources to integrating the business practices and operations of Wireless Matrix into our company. Potential difficulties that we may encounter in the integration process include the following:
For all these reasons, it is possible that the integration process following the Wireless Matrix acquisition could divert management’s attention, disrupt our ongoing business, or otherwise prove unsuccessful. Any such issues could adversely affect our ability to maintain relationships with customers, vendors and employees or to achieve the anticipated benefits of the acquisition, or could otherwise adversely affect our business and financial results.
We expect to incur transaction and integration expenses related to the Wireless Matrix acquisition.
We expect to incur certain expenses in connection with completing the Wireless Matrix acquisition and integrating Wireless Matrix’s operations, policies and procedures with ours, some of which may be significant. While we have assumed that a certain amount of transaction and integration expenses will be incurred, there are a number of factors beyond our control that could affect the total amount or the timing of these expenses.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our principal facilities at the end of fiscal 2013, all leased, arewere as follows:
Square | |||||||
Location | Footage | Use | |||||
Oxnard, California | 98,000 | Corporate office, Satellite | |||||
principal manufacturing plant | |||||||
Carlsbad, California | 18,000 | Wireless DataCom offices | |||||
Irvine, California | 7,000 | Wireless DataCom offices | |||||
Chaska, Minnesota | |||||||
5,000 | Wireless DataCom offices | ||||||
Waseca, Minnesota | 10,000 | ||||||
Wireless DataCom offices | |||||||
Montreal, Quebec, Canada | 8,000 | ||||||
Wireless DataCom offices | |||||||
Auckland, New Zealand | |||||||
4,000 | |||||||
Wireless DataCom offices |
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ITEM 3. LEGAL PROCEEDINGS
We are not currently involved in the Los Angeles County Superior Court against CalAmp, the former owner of CalAmp’s Aercept business and one of Aercept’s distributors. The lawsuit alleged that Aercept made misrepresentations when the plaintiffs 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. In April 2010, the parties entered into a settlement agreement on terms and conditions that did not have aany material impact on CalAmp’s financial condition or results of operations for fiscal 2010. The settlement agreement received the preliminary approval of the Court on April 19, 2010, and is subject to final Court approval.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. | MARKET FOR |
The Company’sCompany's Common Stock trades on the NASDAQ Global Select Market under the ticker symbol CAMP. The following table sets forth, for the last two years, the quarterly high and low sale prices for the Company’sCompany's Common Stock as reported by NASDAQ:
LOW | HIGH | |||||||
Fiscal Year Ended February 28, 2010 | ||||||||
1st Quarter | $ | 0.37 | $ | 1.22 | ||||
2nd Quarter | 0.71 | 2.27 | ||||||
3rd Quarter | 1.91 | 3.61 | ||||||
4th Quarter | 2.46 | 3.77 | ||||||
Fiscal Year Ended February 28, 2009 | ||||||||
1st Quarter | $ | 2.41 | $ | 3.44 | ||||
2nd Quarter | 1.67 | 2.60 | ||||||
3rd Quarter | 0.46 | 2.60 | ||||||
4th Quarter | 0.41 | 1.14 |
LOW | HIGH | |||||
Fiscal Year Ended February 28, 2013 | ||||||
1st Quarter | $ | 4.14 | $ | 6.79 | ||
2nd Quarter | $ | 5.80 | $ | 8.55 | ||
3rd Quarter | $ | 6.77 | $ | 9.72 | ||
4th Quarter | $ | 7.65 | $ | 11.50 | ||
Fiscal Year Ended February 28, 2012 | ||||||
1st Quarter | $ | 2.90 | $ | 3.38 | ||
2nd Quarter | $ | 2.70 | $ | 3.98 | ||
3rd Quarter | $ | 2.60 | $ | 4.49 | ||
4th Quarter | $ | 4.00 | $ | 5.14 |
At April 30, 2010March 31, 2013, the Company had approximately 1,8001,650 stockholders of record. The number of stockholders of record does not include the number of persons having beneficial ownership held in “street name”"street name" which are estimated to approximate 6,200.6,000. The Company has never paid a cash dividend and has no current plans to pay cash dividends on its Common Stock. The Company’sCompany's bank credit agreement prohibits payment of dividends without the prior written consent of the bank.
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ITEM 6. SELECTED FINANCIAL DATA
Year Ended February 28, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
(In thousands except per share amounts) | ||||||||||||||||||||
OPERATING DATA | ||||||||||||||||||||
Revenues | $ | 180,579 | $ | 138,728 | $ | 114,333 | $ | 112,113 | $ | 98,370 | ||||||||||
Cost of revenues | 123,686 | 96,709 | 84,775 | 89,723 | 60,244 | |||||||||||||||
Gross profit | 56,893 | 42,019 | 29,558 | 22,390 | 38,126 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 14,291 | 11,328 | 11,125 | 10,943 | 12,899 | |||||||||||||||
Selling | 12,725 | 11,060 | 10,503 | 9,542 | 8,959 | |||||||||||||||
General and administrative | 12,154 | 10,984 | 8,858 | 10,523 | 12,087 | |||||||||||||||
Intangible asset amortization | 1,743 | 1,277 | 1,132 | 1,367 | 4,429 | |||||||||||||||
Impairment loss | - | - | - | - | 44,736 | |||||||||||||||
Total operating expenses | 40,913 | 34,649 | 31,618 | 32,375 | 83,110 | |||||||||||||||
Operating income (loss) | 15,980 | 7,370 | (2,060 | ) | (9,985 | ) | (44,984 | ) | ||||||||||||
Non-operating expense, net | (532 | ) | (2,091 | ) | (1,395 | ) | (2,240 | ) | (911 | ) | ||||||||||
Income (loss) before income taxes | 15,448 | 5,279 | (3,455 | ) | (12,225 | ) | (45,895 | ) | ||||||||||||
Income tax benefit (provision) | 29,178 | (61 | ) | 172 | 1,374 | (3,770 | ) | |||||||||||||
Net income (loss) | $ | 44,626 | $ | 5,218 | $ | (3,283 | ) | $ | (10,851 | ) | $ | (49,665 | ) | |||||||
Earnings (loss) per share: | ||||||||||||||||||||
Basic | $ | 1.54 | $ | 0.19 | $ | (0.12 | ) | $ | (0.43 | ) | $ | (2.01 | ) | |||||||
Diluted | $ | 1.49 | $ | 0.18 | $ | (0.12 | ) | $ | (0.43 | ) | $ | (2.01 | ) | |||||||
February 28, | ||||||||||||||||||||
2013 | 2012 | 2011 | 2010 | 2009 | ||||||||||||||||
(In thousands except ratio) | ||||||||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||
Current assets | $ | 106,769 | $ | 39,789 | $ | 38,103 | $ | 37,490 | $ | 44,175 | ||||||||||
Current liabilities | $ | 28,949 | $ | 23,601 | $ | 32,869 | $ | 33,095 | $ | 45,458 | ||||||||||
Working capital (deficit) | $ | 77,820 | $ | 16,188 | $ | 5,234 | $ | 4,395 | $ | (1,283 | ) | |||||||||
Current ratio | 3.7 | 1.7 | 1.2 | 1.1 | 1.0 | |||||||||||||||
Total assets | $ | 150,771 | $ | 51,481 | $ | 55,485 | $ | 56,953 | $ | 69,647 | ||||||||||
Long-term debt | $ | 2,434 | $ | 1,900 | $ | 4,460 | $ | 4,170 | $ | - | ||||||||||
Stockholders' equity | $ | 117,549 | $ | 24,977 | $ | 17,602 | $ | 19,199 | $ | 23,199 |
Year Ended February 28, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In thousands except per share amounts) | ||||||||||||||||||||
OPERATING DATA | ||||||||||||||||||||
Revenues | $ | 112,113 | $ | 98,370 | $ | 140,907 | $ | 211,714 | $ | 196,908 | ||||||||||
Cost of revenues | 89,723 | 60,244 | 122,412 | 166,279 | 151,319 | |||||||||||||||
Gross profit | 22,390 | 38,126 | 18,495 | 45,435 | 45,589 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | 10,943 | 12,899 | 15,710 | 12,989 | 8,018 | |||||||||||||||
Selling | 9,542 | 8,959 | 10,633 | 6,765 | 2,715 | |||||||||||||||
General and administrative | 10,523 | 12,087 | 14,966 | 9,792 | 6,685 | |||||||||||||||
Intangible asset amortization | 1,367 | 4,429 | 6,418 | 3,463 | 778 | |||||||||||||||
Write-off of acquired in-process research and development | — | — | 310 | 6,850 | 310 | |||||||||||||||
Impairment loss | — | 44,736 | 71,276 | — | — | |||||||||||||||
Total operating expenses | 32,375 | 83,110 | 119,313 | 39,859 | 18,506 | |||||||||||||||
Operating income (loss) | (9,985 | ) | (44,984 | ) | (100,818 | ) | 5,576 | 27,083 | ||||||||||||
Non-operating income (expense), net | (2,240 | ) | (911 | ) | (2,472 | ) | 591 | 533 | ||||||||||||
Income (loss) from continuing operations before income taxes | (12,225 | ) | (45,895 | ) | (103,290 | ) | 6,167 | 27,616 | ||||||||||||
Income tax benefit (provision) | 1,374 | (3,770 | ) | 20,940 | (4,716 | ) | (11,154 | ) | ||||||||||||
Income (loss) from continuing operations | (10,851 | ) | (49,665 | ) | (82,350 | ) | 1,451 | 16,462 | ||||||||||||
Loss from discontinued operations, net of tax | — | — | (597 | ) | (32,639 | ) | (1,900 | ) | ||||||||||||
Loss on sale of discontinued operations, net of tax | — | — | (1,202 | ) | — | — | ||||||||||||||
Net income (loss) | $ | (10,851 | ) | $ | (49,665 | ) | $ | (84,149 | ) | $ | (31,188 | ) | $ | 14,562 | ||||||
Basic earnings (loss) per share from: | ||||||||||||||||||||
Continuing operations | $ | (0.43 | ) | $ | (2.01 | ) | $ | (3.45 | ) | $ | 0.06 | $ | 0.72 | |||||||
Discontinued operations | — | — | (0.08 | ) | (1.40 | ) | (0.08 | ) | ||||||||||||
Total basic earnings (loss) per share | $ | (0.43 | ) | $ | (2.01 | ) | $ | (3.53 | ) | $ | (1.34 | ) | $ | 0.64 | ||||||
Diluted earnings (loss) per share from: | ||||||||||||||||||||
Continuing operations | $ | (0.43 | ) | $ | (2.01 | ) | $ | (3.45 | ) | $ | 0.06 | $ | 0.70 | |||||||
Discontinued operations | — | — | (0.08 | ) | (1.40 | ) | (0.08 | ) | ||||||||||||
Total diluted earnings (loss) per share | $ | (0.43 | ) | $ | (2.01 | ) | $ | (3.53 | ) | $ | (1.34 | ) | $ | 0.62 | ||||||
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February 28, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
BALANCE SHEET DATA | ||||||||||||||||||||
Current assets | $ | 37,490 | $ | 44,175 | $ | 66,767 | $ | 113,524 | $ | 99,236 | ||||||||||
Current liabilities | $ | 33,095 | $ | 45,458 | $ | 40,059 | $ | 38,637 | $ | 21,873 | ||||||||||
Working capital | $ | 4,395 | $ | (1,283 | ) | $ | 26,708 | $ | 74,887 | $ | 77,363 | |||||||||
Current ratio | 1.1 | 1.0 | 1.7 | 2.9 | 4.5 | |||||||||||||||
Total assets | $ | 56,953 | $ | 69,647 | $ | 143,041 | $ | 229,703 | $ | 204,346 | ||||||||||
Long-term debt | $ | 4,170 | $ | — | $ | 27,187 | $ | 31,314 | $ | 5,511 | ||||||||||
Stockholders’ equity | $ | 19,199 | $ | 23,199 | $ | 73,420 | $ | 151,251 | $ | 176,109 |
Current assets | $ | 69,623 | ||
Current liabilities | $ | 33,280 | ||
Working capital | $ | 36,343 | ||
Current ratio | 2.1 | |||
Total assets | $ | 158,302 | ||
Long-term debt | $ | 5,634 | ||
Stockholders’ equity | $ | 117,549 |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
Forward looking statements in this Form 10-K which include, without limitation, statements relating to the Company’sCompany'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”"may", “will”"will", “could”"could", “plans”"plans", “intends”"intends", “seeks”"seeks", “believes”"believes", “anticipates”"anticipates", “expects”"expects", “estimates”"estimates", “judgment”"judgment", “goal”"goal", and variations of these words and similar expressions, are intended to identify forward-looking statements. These forward-looking statements reflect the Company’sCompany'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 SatelliteCompany's wireless and satellite markets, the timing of customer approvals of new product designs, intellectual property infringement claims, interruption or failure of our Internet-based systems used to wirelessly configure and communicate with the tracking and monitoring devices that we sell, our ability to integrate the business of Wireless markets, supplier constraints, manufacturing yields,Matrix and to achieve the length and extent of the global economic downturn that has and may continue to adversely affect the Company’s business,operating results management anticipates, and other risks and uncertainties that are set forth under the caption “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K. 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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The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal years 2010, 20092013, 2012 and 20082011 fell on March 2, 2013, February 27, 2010,25, 2012, and February 28, 2009, and March 1, 2008,26, 2011, respectively. In these consolidated financial statements, the fiscal year end for all years is shown as February 28 for clarity of presentation. Fiscal 2013 consisted of 53 weeks, while fiscal years 2010, 20092012 and 20082011 each consisted of 52 weeks.
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Overview
The Company is a leading provider of wireless communications solutions that deliver data, voice and video for critical networked communications and other applications.
WIRELESS DATACOM
The Company’s Wireless DataCom segment is comprised of a Wireless Networks business and aoffers solutions to address the markets for Machine-to-Machine, or M2M, communications, Mobile Resource Management, business.
SATELLITE
The Company's satellite products have historically beenare sold primarily to the two U.S. DBS system operators, EchoStar and DirecTV,Echostar, an affiliate of Dish Network, for incorporation into complete subscription satellite television systems. In fiscal 2010, the Company did not make any sales to DirecTV because of pricing and competitive pressures on older generation products. However, the Company is currently developing next generation products for DirecTV with target delivery in fiscal 2011. Revenue of the Company’s Satellite segment amounted to $54.7 million, $26.3 million and $50.5 million in fiscal years 2010, 2009 and 2008, respectively. The decline in Satellite revenue in fiscal years 2009 and 2008 from pre-fiscal 2008 levels was the result of a product performance issue that caused EchoStar, the Company’s historically largest DBS customer, to substantially reduce its purchases of the Company’s products. The Company resumed shipments to this customer in fiscal 2009, and sales have continued to ramp up with this customer though fiscal 2010. Nonetheless, revenues from this customer are still less than pre-fiscal 2008 levels. This DBS product performance issue is described in more detail below and in Note 11 to the accompanying consolidated financial statements. The decline in Satellite revenue in fiscal 2009 compared to fiscal 2008 is primarily the result of a reduction of orders from DirecTV, the Company’s other key DBS customer, due to pricing and competitive pressures, and the time required to get the next generation product qualified with this customer.
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The Company’sCompany's discussion and analysis of its financial condition and results of operations are based upon the Company’sCompany'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 limited to:to, the allowance for doubtful accounts, inventory valuation, product warranties, the deferred tax asset valuation allowance, and the valuation of long-lived assets and goodwill.assets. 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 or other collection issues. As further described in Note 1 to the accompanying consolidated financial statements, the Company’sCompany's customer base is concentrated, with one customer accounting for almost halfapproximately 22% of the Company’sCompany's fiscal 2010 sales.2013 consolidated revenues. Changes in either a key customer’scustomer's financial position, or the economy as a whole, could cause actual write-offs to be materially different from the recorded allowance amount.
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17
Product WarrantiesWarranty
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’sCompany's warranty obligation is affected by product failure rates and material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from management’smanagement's estimates, revisions to the estimated warranty liability would be required.
Deferred Income Tax 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 that includes historical operating performance and the Company’sCompany's forecast of future operating performance. The Company evaluates the realizability of its deferred income tax assets and a valuation allowance is provided, as necessary. During this evaluation, the Company reviews its forecasts of income in conjunction with the positive and negative evidence surrounding the realizability of its deferred income tax assets to determine if a valuation allowance is needed.
In 2007, the Company adopted an accounting pronouncement related to Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”("ASC") Topic 740, “Income Taxes,”Taxes” (formerly FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)) which established a framework for determining the appropriate level of tax reserves to maintain for “uncertain tax positions”. FASB ASC Topic 740 uses a two-step approach in which a tax benefit is recognized if a position is more likely than not to be sustained. The amount of the benefit is then measured as the highest tax benefit that is greater than 50% likely to be realized upon settlement. FASB ASC Topic 740 also established new disclosure requirements related to tax reserves.
Impairment Assessments of Purchased Intangible Assets and Other Long-Lived Assets
At February 28, 2010,2013, the Company had $5.1$5.7 million in othernet intangible assets and $2.8 million in net property and equipment and improvements on its consolidated balance sheet. The Company believes the estimatevaluation of its valuation of long-lived assets is a “critical"critical accounting estimate”estimate" because if circumstances arose that led to a decrease in the valuation of such assets, it could have a material impact on the Company’sCompany's results of operations.
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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’smanagement'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.value determined by a discounted cash flow analysis. Assumptions and estimates about future values and remaining useful lives are complex and often subjective. They can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in the Company’sCompany's business strategy and its internal forecasts. Although management believes the assumptions and estimates that have been made in the past have been reasonable and appropriate, different assumptions and estimates could materially impact the Company’sCompany's reported financial results. More conservative assumptions of the anticipated future benefits from these businesses could result in impairment charges in the statement of operations, and lower asset values on the balance sheet. Conversely, less conservative assumptions could result in smaller or no impairment charges. The fair values were determined using discounted cash flow (DCF) analyses of financial projections for each reporting unit.
Stock-Based Compensation Expense
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’semployee'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’smanagement's judgment. The Company recognizes the compensation expense on a straight-line basis for its graded-vesting awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. However, the cumulative compensation expense recognized at any point in time 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”"forfeitures" is distinct from “cancellations”"cancellations" or “expirations”"expirations", and refers only to the unvested portion of the surrendered equity awards.
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Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection of the sales price is reasonably assured. In cases where terms of sale include subjective customer acceptance criteria, revenue is deferred until the acceptance criteria are met. Critical judgments made by management related to revenue recognition include the determination of whether or not customer acceptance criteria are perfunctory or inconsequential. The determination of whether or not the customer acceptance terms are perfunctory or inconsequential impacts the amount and timing of revenue recognized. Critical judgments also include estimates of warranty reserves, which are established based on historical experience and knowledge of the product.
The Company defers revenues from products that are sold in connection with service contractsdata communication services because the services are recorded as deferred revenuesessential to the functionality of the products, and accordingly, the associated product costs are recorded as deferred costs. These deferred amounts are recognized over the lifeminimum contractual term of the service contractone year on a straight-line basis.
The Company also undertakes projects that include the design, development and manufacture of communication systems used in the public safety communication systemsand transportation sectors that are specially customized to customers’customers' specifications or that involve fixed site construction. Sales under such contracts are recorded under the percentage-of-completion method. Estimated revenues and costs are recorded as work is performed based on the percentage that incurred costs bear to estimated total costs utilizing the most recent estimates of costs. If the current contract estimate indicates a loss, provision is made for the total anticipated loss in the current period. Critical estimates made by management related to revenue recognition under the percentage-of-completion method include the estimation of costs at completion and the determination of the overall margin rate on the specific project.
completion.
19
The following table sets forth, for the periods indicated, the percentage of revenues represented by items included in the Company’sCompany's consolidated statements of operations:
Year Ended February 28, | |||||||||
2013 | 2012 | 2011 | |||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | |||
Cost of revenues | 68.5 | 69.7 | 74.1 | ||||||
Gross profit | 31.5 | 30.3 | 25.9 | ||||||
Operating expenses: | |||||||||
Research and development | 7.9 | 8.2 | 9.7 | ||||||
Selling | 7.0 | 8.0 | 9.2 | ||||||
General and administrative | 6.7 | 7.9 | 7.7 | ||||||
Intangible asset amortization | 1.0 | 0.9 | 1.0 | ||||||
Operating income (loss) | 8.9 | 5.3 | (1.7 | ) | |||||
Other expense, net | (0.3 | ) | (1.5 | ) | (1.3 | ) | |||
Income (loss) before income taxes | 8.6 | 3.8 | (3.0 | ) | |||||
Income tax benefit | 16.2 | - | 0.2 | ||||||
Net income (loss) | 24.8 | % | 3.8 | % | (2.8 | %) |
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Revenues | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of revenues | 80.0 | 61.3 | 86.9 | |||||||||
Gross profit | 20.0 | 38.7 | 13.1 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 9.8 | 13.1 | 11.1 | |||||||||
Selling | 8.5 | 9.1 | 7.5 | |||||||||
General and administrative | 9.4 | 12.2 | 10.6 | |||||||||
Intangible asset amortization | 1.2 | 4.5 | 4.6 | |||||||||
Write-off of acquired in-process research and development | — | — | 0.2 | |||||||||
Impairment loss | — | 45.5 | 50.6 | |||||||||
Operating loss | (8.9 | ) | (45.7 | ) | (71.5 | ) | ||||||
Other expense, net | (2.0 | ) | (0.9 | ) | (1.8 | ) | ||||||
Loss from continuing operations before income taxes | (10.9 | ) | (46.6 | ) | (73.3 | ) | ||||||
Income tax benefit (provision) | 1.2 | (3.9 | ) | 14.9 | ||||||||
Loss from continuing operations | (9.7 | ) | (50.5 | ) | (58.4 | ) | ||||||
Loss from discontinued operations, net of tax | — | — | (0.4 | ) | ||||||||
Loss on sale of discontinued operations, net of tax | — | — | (0.9 | ) | ||||||||
Net loss | (9.7 | %) | (50.5 | %) | (59.7 | %) | ||||||
The Company’sCompany's revenue, gross profit and operating income (loss) by business segment for the last three years are as follows:
REVENUE BY SEGMENT
Year ended February 28, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
$000s | Total | $000s | Total | $000s | Total | |||||||||||||||||||
Segment | ||||||||||||||||||||||||
Satellite | $ | 54,715 | 48.8 | % | $ | 26,327 | 26.8 | % | $ | 50,490 | 35.8 | % | ||||||||||||
Wireless DataCom | 57,398 | 51.2 | % | 72,043 | 73.2 | % | 90,417 | 64.2 | % | |||||||||||||||
Total | $ | 112,113 | 100.0 | % | $ | 98,370 | 100.0 | % | $ | 140,907 | 100.0 | % | ||||||||||||
Year ended February 28, | |||||||||||||||||||||
2013 | 2012 | 2011 | |||||||||||||||||||
% of | % of | % of | |||||||||||||||||||
$000s | Total | $000s | Total | $000s | Total | ||||||||||||||||
Segment | |||||||||||||||||||||
Wireless DataCom | $ | 139,503 | 77.3 | % | $ | 99,121 | 71.4 | % | $ | 78,434 | 68.6 | % | |||||||||
Satellite | 41,076 | 22.7 | % | 39,607 | 28.6 | % | 35,899 | 31.4 | % | ||||||||||||
Total | $ | 180,579 | 100.0 | % | $ | 138,728 | 100.0 | % | $ | 114,333 | 100.0 | % | |||||||||
GROSS PROFIT BY SEGMENT | |||||||||||||||||||||
Year ended February 28, | |||||||||||||||||||||
2013 | 2012 | 2011 | |||||||||||||||||||
% of | % of | % of | |||||||||||||||||||
$000s | Total | $000s | Total | $000s | Total | ||||||||||||||||
Segment | |||||||||||||||||||||
Wireless DataCom | $ | 50,005 | 87.9 | % | $ | 38,632 | 91.9 | % | $ | 27,922 | 94.5 | % | |||||||||
Satellite | 6,888 | 12.1 | % | 3,387 | 8.1 | % | 1,636 | 5.5 | % | ||||||||||||
Total | $ | 56,893 | 100.0 | % | $ | 42,019 | 100.0 | % | $ | 29,558 | 100.0 | % | |||||||||
OPERATING INCOME (LOSS) BY SEGMENT | |||||||||||||||||||||
Year ended February 28, | |||||||||||||||||||||
2013 | 2012 | 2011 | |||||||||||||||||||
% of | % of | % of | |||||||||||||||||||
Total | Total | Total | |||||||||||||||||||
$000s | Revenue | $000s | Revenue | $000s | Revenue | ||||||||||||||||
Segment | |||||||||||||||||||||
Wireless DataCom | $ | 16,844 | 9.3 | % | $ | 11,564 | 8.3 | % | $ | 4,218 | 3.7 | % | |||||||||
Satellite | 3,111 | 1.7 | % | (292 | ) | (0.2 | %) | (2,903 | ) | (2.5 | %) | ||||||||||
Corporate expenses | (3,975 | ) | (2.2 | %) | (3,902 | ) | (2.8 | %) | (3,375 | ) | (3.0 | %) | |||||||||
Total | $ | 15,980 | 8.8 | % | $ | 7,370 | 5.3 | % | $ | (2,060 | ) | (1.8 | %) |
GROSS PROFIT (LOSS) BY SEGMENT
Year ended February 28, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
$000s | Total | $000s | Total | $000s | Total | |||||||||||||||||||
Segment | ||||||||||||||||||||||||
Satellite | $ | 4,258 | 19.0 | % | $ | 10,254 | 26.9 | % | $ | (14,808 | ) | (80.1 | %) | |||||||||||
Wireless DataCom | 18,132 | 81.0 | % | 27,872 | 73.1 | % | 33,303 | 180.1 | % | |||||||||||||||
Total | $ | 22,390 | 100.0 | % | $ | 38,126 | 100.0 | % | $ | 18,495 | 100.0 | % | ||||||||||||
20
Year ended February 28, | ||||||||||||||||||||||||
2010 | 2009 | 2008 | ||||||||||||||||||||||
% of | % of | % of | ||||||||||||||||||||||
Total | Total | Total | ||||||||||||||||||||||
$000s | Revenue | $000s | Revenue | $000s | Revenue | |||||||||||||||||||
Segment | ||||||||||||||||||||||||
Satellite | $ | (111 | ) | (0.1 | %) | $ | 3,616 | 3.7 | % | $ | (63,924 | ) | (45.4 | %) | ||||||||||
Wireless DataCom | $ | (5,867 | ) | (5.2 | %) | $ | (42,206 | ) | (42.9 | %) | $ | (30,473 | ) | (21.6 | %) | |||||||||
Corporate expenses | (4,007 | ) | (3.6 | %) | (6,394 | ) | (6.5 | %) | (6,421 | ) | (4.6 | %) | ||||||||||||
Total | $ | (9,985 | ) | (8.9 | %) | $ | (44,984 | ) | (45.7 | %) | $ | (100,818 | ) | (71.6 | %) | |||||||||
Revenue
Wireless DataCom revenue increased by $40.4 million, or 41%, to $139.5 million in fiscal 2013 compared to the fiscal 2012. These improvements were due primarily to increased demand for the Company’s MRM products.
Satellite revenue increased $28.4by $1.5 million, or 108%4%, to $54.7$41.1 million in fiscal 20102013 from $26.3$39.6 million in fiscal 2009. 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 $39.1 million higher for fiscal 2010 comparedlast year primarily due to the previous year. However, there were no sales to the Company’s other DBS customer in fiscal 2010 compared to salesintroduction of $10.2 millionnew products in the previous year 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 this customer with target delivery inlatter part of fiscal 2011.2012.
Gross Profit (Loss) and Gross Margins
21
The Satellite segment had gross profit of $6.9 million in fiscal 2013, compared with gross profit of $3.4 million last year. Satellite gross margin was 16.8% for fiscal 2013, compared to 8.6% last year. These increases are due to higher revenue, change in product mix, and the conversion to a variable cost operating model in which substantially all of the satellite products are now manufactured by off-shore subcontractors.
See also Note 13 to the accompanying consolidated financial statements for additional operating data by business segment.
Operating Expenses
Consolidated research and development (“R&D”) expense decreasedincreased by $2.0$3.0 million to $10.9$14.3 million in fiscal 20102013 from $12.9$11.3 million in fiscal 2009. These decreases are2012. This increase is due primarily due to increased salaries expense from additional R&D personnel reductions in the Wireless NetworksMRM business unit of the Wireless DataCom segment.
Consolidated selling expenses increased by $1.6 million to $12.7 million this year from $9.0$11.1 million in fiscal 2009last year. This increase is due primarily to $9.5 million in fiscal 2010, primarily because selling expenses in fiscal 2009 were benefited by bad debt reserve reductionshigher payroll expense as a result of $927,000 related to a Wireless DataCom customer.
Consolidated general and administrative expenses (“("G&A”&A") increased by $1.2 million to $12.2 million this year from $11.0 million last year due to higher stock-based compensation, consulting and outside service expenses. Stock-based compensation expense increased by $389,000 in fiscal 2013 due primarily to the remeasurement and acceleration of expense recognition of the equity awards held by the Company’s former CEO.
Amortization of intangibles increased from $1,277,000 last year to $1,743,000 this year. These increases are attributable to the current year amortization expense related to the intangibles acquired pursuant to the Navman Wireless Asset Purchase Agreement, partially offset by the effect of some intangible assets that became fully amortized in fiscal 2012.
Non-operating Expense, Net
Non-operating expense decreased from $12.1$2.1 million in fiscal 2009last year to $10.5$0.5 million in fiscal 2010 duethis year. This decrease is attributable to cost reduction actions implemented by the Company. Other factors contributing to the decrease were: (i) a $247,000 decrease in legallower interest expense in the current year compareddue to lower debt balances and borrowing rates, and the fact that last year; and (ii) a $303,000 charge for severance costsyear’s non-operating expense included $0.8 million of cumulative foreign currency translation account losses related to the Company’s former Satellite Division presidentinvestment in fiscal 2009. Partially offsetting the effect of these year-over-year expense reductions in G&A was an increase of $552,000 in stock-based compensation expense because the G&A in fiscal 2009 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.
Income Tax Provision
During fiscal 2013 the Company reversed a portion of its deferred tax asset valuation allowance corresponding to the amount of NOLs utilized to offset taxable income. In addition, pursuant to the fiscal 2013 evaluation of the future utilizability of deferred tax assets, the Company reversed substantially all of the remaining valuation allowance at the end of fiscal 2013, resulting in an income tax benefit of $29.2 million for the year. Beginning in fiscal 2014, the Company expects that its effective income tax rate will revert to a more typical level of around 40% based on full federal and state statutory tax rates.
21
Fiscal Year 2012 compared to Fiscal Year 2011
Revenue
Wireless DataCom revenue increased by $20.7 million, or 26%, to $99.1 million in fiscal 2012 compared to fiscal 2011. The MRM business contributed significantly to the increased revenue through the addition of new customers and growth in orders from existing customers. The remaining Wireless DataCom revenue increase was attributable to higher sales of the Wireless Networks business with significant contribution from a Positive Train Control project, which accounted for $3.3 million of the year-over year revenue increase, and revenue of $3.0 million from the sale of patents in the second quarter of fiscal 2012.
Satellite revenue increased by $3.7 million, or 10%, to $39.6 million in fiscal 2012 compared to fiscal 2011. This increase was attributable in part to the launch of a new home video and data networking product that the Company began shipping to its key satellite customer in the fourth quarter of fiscal 2009.
2012.
22
Wireless DataCom gross profit decreasedincreased by $5.4$10.7 million to $38.6 million in fiscal 2012 compared to $27.9 million in fiscal 20092011, and gross margin improved to 39.0% in fiscal 2012 from $33.335.6% in fiscal 2011 due primarily to increased absorption of fixed manufacturing costs on higher revenue and revenue of $3.0 million from the sale of patents in fiscal 2012 for which there was no corresponding cost of revenues.
Satellite gross profit increased by $1.8 million to $3.4 million in fiscal 2008, due mainly2012 compared to the 20% decrease in revenues. Wireless DataCom’s gross margin increased by 1.9% from 36.8%$1.6 million in fiscal 20082011. Gross margin of the Satellite business increased to 38.7%8.6% in fiscal 2009. This margin improvement was due primarily2012 from 4.6% in fiscal 2011 as a result of the Company’s transition in fiscal 2012 to a $1.5 million patent salevariable cost operating model in which substantially all of the first quarter of fiscal 2009 for which the cost of revenues was zero. Excluding the patent sale, Wireless DataCom’s gross margin was 37.4% in fiscal 2009.
Operating Expenses
Consolidated R&D expense decreased by $2.8 millionincreased 2% to $12.9$11.3 million in fiscal 20092012 from $15.7$11.1 million in fiscal 2008. These decreases were primarily2011 due to severance costs arising from personnel reductions in the Wireless NetworksSatellite business ($116,000) and higher 401(k) plan employer contribution expense ($91,000) due to reinstatement of the Wireless DataCom segment.
Consolidated selling expenses decreased by $1.7 millionincreased from $10.7$10.5 million in fiscal 20082011 to $9.0$11.1 million in fiscal 2009,2012 due primarily due to bad debt reserve reductionshigher payroll expense as a result of $927,000 related to a Wireless DataCom customer.
Consolidated G&A expense decreasedincreased by $2.9$2.1 million from $15.0to $11.0 million in fiscal 20082012 due to $12.1higher payroll and legal expenses. Higher G&A payroll expense was primarily due to incentive expenses recorded in fiscal 2012 as a result of the Company’s improving profitability and hiring additional personnel. Legal expense was higher in fiscal 2012 because legal expense in fiscal 2011 was reduced by $230,000 due to an indemnification settlement entered into with another company involving defense costs, and also due to legal expense incurred in fiscal 2012 in connection with the shut-down of the Company’s French subsidiary.
Amortization of intangibles increased from $1.1 million in fiscal 2009.2011 to $1.3 million in fiscal 2012. The decreaseincrease was primarilyattributable to the resultamortization of the Dataradio tradename asset over a reductionperiod of approximatelyseven years commencing in fiscal 2012. Previously this tradename asset was classified as an indefinite-lived asset and accordingly it was not being amortized prior to fiscal 2012.
Non-operating Expense, Net
Non-operating expense increased from $1.4 million in G&A of the Wireless Networks business, which included Smartlink acquisition integration costs of approximately $721,000fiscal 2011 to $2.1 million in fiscal 20082012 due to cumulative foreign currency translation account losses of $0.8 million related to the Company’s investment in its French subsidiary that were not present in fiscal 2009, and lower stock-based compensation expense of $756,000. The reduction in stock-based compensation expense included in G&A was primarily attributable to the forfeiture of unvested stock options upon the resignation of the Company’s former President and Chief Executive Officer in March 2008. Partially offsetting the effect of the lower stock-based compensation expense and the nonrecurring Smartlink integration costs in fiscal 2008 was a $303,000 charge for severance costs of the Company’s former Satellite presidentwritten off in the second quarter of fiscal 2009.
Income Tax Provision
No income tax provision was recorded during fiscal 2012, other than minimum state and federal income taxes, because of the existence of net operating loss carryforwards that offset pretax income. The tax benefit of $172,000 in fiscal 2008 to $4.4 million in fiscal 2009. These decreases were primarily attributable to the contracts backlog intangible assets arising from the May 2006 acquisitions of Dataradio and the Technocom MRM product line that became fully amortized during the first quarter of fiscal 2008.
23
22
Liquidity and Capital Resources
On March 1, 2013, the working capital line of credit withCompany and Square 1 Bank. During fiscal year 2010, cash and cash equivalents decreased by $3,927,000. Cash was used for debt repayments of $22,728,000, debt issue costs of $544,000 and capital expenditures of $1,066,000, partially offset by cash provided by operations of $2,472,000, proceeds from the sale of investment of $992,000, collections on a note receivable of $325,000, borrowings on the bank lines of credit of $7,551,000, proceeds from issuance of subordinated debt of $5,000,000, net proceeds from sale of common stock of $3,967,000, and the effect of exchange rate changes on cash of $139,000.
The Amended Loan Agreement as amended on March 24, 2010, contains a financial covenantcovenants that requiresrequire the Company to maintain a minimum levelslevel of earnings before interest, income taxes, depreciation, amortization and other noncash charges (“EBITDA”("EBITDA"). and a minimum debt coverage ratio, both measured monthly beginning March 2013 on a rolling 12-month basis. At and subsequent to February 28, 2013, the Company was in compliance with its debt covenants under the credit facility.
The Loan Agreement also provides for a numberCompany's primary sources of standard events of default, including a provision that a material adverse change constitutes an event of default that permits the lender, atliquidity are its option, to accelerate the loan. Among other provisions, the Loan Agreement also requires a lock-boxcash and cash collateral account wherebyequivalents and the revolving line of credit with Square 1 Bank. During fiscal 2013, cash remittancesand cash equivalents increased by $57.5 million. During this period, cash was provided by operations in the amount of $14.4 million, net proceeds from the Company’s customers are directed to the cash collateral account and which amounts are applied to reduce the revolving loan principal balance. Borrowings under the Loan Agreement are secured by substantially all of the assets of the Company and its domestic subsidiaries.
On March 4, 2013, the Company completed the acquisition of all outstanding capital stock of Wireless Matrix. Under the terms of the Company.
on hand.
24
The Company has no off-balance sheet arrangements.
Contractual Obligations
Following is a summary of the Company’sCompany's contractual cash obligations as of February 28, 20102013 (in thousands):
Payments Due by Period | ||||||||||||||||||||
More | ||||||||||||||||||||
Less than | than 5 | |||||||||||||||||||
Contractual Obligations | 1 year | 1-3 years | 3-5 years | years | Total | |||||||||||||||
Bank debt | $ | 5,901 | $ | — | $ | — | $ | — | $ | 5,901 | ||||||||||
Subordinated notes | — | 4,170 | — | — | 4,170 | |||||||||||||||
Operating leases | 1,972 | 959 | 5 | — | 2,936 | |||||||||||||||
Purchase obligations | 12,134 | — | — | — | 12,134 | |||||||||||||||
Total contractual obligations | $ | 20,007 | $ | 5,129 | $ | 5 | $ | — | $ | 25,141 | ||||||||||
Payments Due by Period | ||||||||||||||||
More | ||||||||||||||||
Less than | than 5 | |||||||||||||||
Contractual Obligations | 1 year | 1-3 years | 3-5 years | years | Total | |||||||||||
Bank term loan | $ | 917 | $ | 883 | $ | - | - | 1,800 | ||||||||
Note payable to Navman | 1,407 | 2,058 | - | - | 3,465 | |||||||||||
Operating leases | 1,087 | 1,751 | 404 | - | 3,242 | |||||||||||
Purchase obligations | 32,853 | - | - | - | 32,853 | |||||||||||
Total contractual obligations | $ | 36,264 | $ | 4,692 | $ | 404 | $ | - | $ | 41,360 |
Purchase obligations consist primarily of obligations under non-cancelableinventory purchase orders, primarily for inventory purchases of raw materials, components and subassemblies.commitments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
The Company operates internationally,has international operations, giving rise to exposure to market risks from changes in foreign exchange rates. A cumulative foreign currency translation loss of $65,000 related to the Company’sCompany's Canadian and French subsidiaries of $65,000 and $801,000, respectively,subsidiary is included in accumulated other comprehensive loss in the stockholders’stockholders' equity section of the consolidated balance sheet at February 28, 2010.2013. Foreign currency gains (losses) included in the consolidated statements of operations were $(288,000)$(43,000), $177,000,$(45,000) and $(694,000)$40,000 in fiscal 2010, 20092013, 2012 and 2008,2011, respectively.
Interest Rate Risk
The Company has variable-rate bank debt. A fluctuation of one percent in the interest rate on the revolving$15 million credit facility of $12 million with Square 1 Bank would have an annual impact of approximately $70,000 net of tax$150,000 on the Company’sCompany's 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.
25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CalAmp Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of CalAmp Corp. and subsidiaries (collectively, the “Company”) as of February 28, 20102013 and 2009,2012, and the related consolidated statements of operations, stockholders’comprehensive income (loss), stockholders' equity, and comprehensive loss, and cash flows for each of the twothree years in the period ended February 28, 2010.2013. These financial statements are the responsibility of the Company’sCompany's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CalAmp Corp. and subsidiariesthe Company as of February 28, 20102013 and 2009,2012, and the results of theirits operations and theirits cash flows for each of the twothree years in the period ended February 28, 2010,2013, in conformity with U.S. generally accepted accounting principles.
We were not engaged to examine management’s assessmenthave also audited, in accordance with the standards of the effectiveness of CalAmp Corp. and subsidiaries’Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of February 28, 20102013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 25, 2013 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
SingerLewak LLP
Los Angeles, California
April 25, 2013
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
CalAmp Corp. and Subsidiaries
We have audited CalAmp Corp. and subsidiaries' (collectively, the “Company”) internal control over financial reporting as of February 28, 2013, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon.
26
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the financial statements are freerisk that a material weakness exists, and testing and evaluating the design and operating effectiveness of material misstatement. Aninternal control based on the assessed risk. Our audit includes examining, on a test basis, evidence supporting the amounts and disclosuresalso included performing such other procedures as we considered necessary in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly,Company maintained, in all material respects, effective internal control over financial reporting as of February 28, 2013, based on criteria established in Internal Control - Integrated Framework issued by the resultsCommittee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of February 28, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of CalAmp Corp. and subsidiaries for the yearthree years in the period ended February 28, 2008, in conformity with U.S. generally accepted accounting principles.
SingerLewak LLP
Los Angeles, CaliforniaMay 14, 2008April 25, 2013
27
February 28, | ||||||||
2010 | 2009 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 2,986 | $ | 6,913 | ||||
Accounts receivable, less allowance for doubtful accounts of $413 and $552 at February 28, 2010 and 2009, respectively | 16,520 | 13,682 | ||||||
Inventories | 10,608 | 15,139 | ||||||
Deferred income tax assets | 2,656 | 3,479 | ||||||
Prepaid expenses and other current assets | 4,720 | 4,962 | ||||||
Total current assets | 37,490 | 44,175 | ||||||
Property, equipment and improvements, net of accumulated depreciation and amortization | 2,055 | 2,139 | ||||||
Deferred income tax assets, less current portion | 10,017 | 13,111 | ||||||
Intangible assets, net | 5,144 | 6,473 | ||||||
Other assets | 2,247 | 3,749 | ||||||
$ | 56,953 | $ | 69,647 | |||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Current portion of debt | $ | 5,901 | $ | 21,078 | ||||
Accounts payable | 16,186 | 5,422 | ||||||
Accrued payroll and employee benefits | 2,742 | 3,380 | ||||||
Deferred revenue | 4,740 | 3,609 | ||||||
Other current liabilities | 3,526 | 11,969 | ||||||
Total current liabilities | 33,095 | 45,458 | ||||||
Long-term debt | 4,170 | — | ||||||
Other non-current liabilities | 489 | 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; 27,662 and 25,217 shares issued and outstanding at February 28, 2010 and 2009, respectively | 277 | 252 | ||||||
Additional paid-in capital | 151,453 | 144,881 | ||||||
Accumulated deficit | (131,665 | ) | (120,814 | ) | ||||
Accumulated other comprehensive loss | (866 | ) | (1,120 | ) | ||||
Total stockholders’ equity | 19,199 | 23,199 | ||||||
$ | 56,953 | $ | 69,647 | |||||
February 28, 2013 | February 28, | ||||||||||||
Assets | Actual | Pro Forma | (a) | 2012 | |||||||||
(Unaudited) | |||||||||||||
Current assets: | |||||||||||||
Cash and cash equivalents | $ | 63,101 | $ | 19,593 | $ | 5,601 | |||||||
Accounts receivable, less allowance for doubtful accounts of | |||||||||||||
$461 and $254 at February 28, 2013 and 2012, respectively | 19,111 | 24,709 | 14,383 | ||||||||||
Inventories | 13,516 | 13,595 | 10,057 | ||||||||||
Deferred income tax assets | 6,400 | 6,400 | 5,425 | ||||||||||
Prepaid expenses and other current assets | 4,641 | 5,326 | 4,323 | ||||||||||
Total current assets | 106,769 | 69,623 | 39,789 | ||||||||||
Property, equipment and improvements, net of | |||||||||||||
accumulated depreciation and amortization | 2,778 | 4,461 | 1,761 | ||||||||||
Deferred income tax assets, less current portion | 34,616 | 34,616 | 6,412 | ||||||||||
Goodwill | 1,112 | 18,486 | - | ||||||||||
Other intangible assets, net | 4,603 | 30,223 | 2,738 | ||||||||||
Other assets | 893 | 893 | 781 | ||||||||||
$ | 150,771 | $ | 158,302 | $ | 51,481 | ||||||||
Liabilities and Stockholders' Equity | |||||||||||||
Current liabilities: | |||||||||||||
Current portion of long-term debt | $ | 2,261 | $ | 2,261 | $ | 1,100 | |||||||
Accounts payable | 11,871 | 12,512 | 9,523 | ||||||||||
Accrued payroll and employee benefits | 5,298 | 6,474 | 4,405 | ||||||||||
Deferred revenue | 6,410 | 6,410 | 6,305 | ||||||||||
Other current liabilities | 3,109 | 5,623 | 2,268 | ||||||||||
Total current liabilities | 28,949 | 33,280 | 23,601 | ||||||||||
Long-term debt | 2,434 | 5,634 | 1,900 | ||||||||||
Other non-current liabilities | 1,839 | 1,839 | 1,003 | ||||||||||
Commitments and contingencies | |||||||||||||
Stockholders' equity: | |||||||||||||
Preferred stock, $.01 par value; 3,000 shares authorized; | |||||||||||||
no shares issued or outstanding | - | - | - | ||||||||||
Common stock, $.01 par value; 80,000 shares authorized; | |||||||||||||
35,041 and 28,722 shares issued and outstanding | |||||||||||||
at February 28, 2013 and 2012, respectively | 350 | 350 | 287 | ||||||||||
Additional paid-in capital | 202,368 | 202,368 | 154,485 | ||||||||||
Accumulated deficit | (85,104 | ) | (85,104 | ) | (129,730 | ) | |||||||
Accumulated other comprehensive loss | (65 | ) | (65 | ) | (65 | ) | |||||||
Total stockholders' equity | 117,549 | 117,549 | 24,977 | ||||||||||
$ | 150,771 | $ | 158,302 | $ | 51,481 |
(a) | On March 4, 2013, which was just after the end of fiscal 2013, the Company took out a $5 million bank term loan and consummated the acquisition of Wireless Matrix for a cash payment of $52.9 million. The amounts in the Pro Forma column give effect to the $5 million bank term loan and the Wireless Matrix acquisition as if both events had occurred on the last day of fiscal 2013. See Note 16 for details of these subsequent events. |
See accompanying notes to consolidated financial statements.
28
Year Ended February 28, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Revenues | $ | 180,579 | $ | 138,728 | $ | 114,333 | ||||||
Cost of revenues | 123,686 | 96,709 | 84,775 | |||||||||
Gross profit | 56,893 | 42,019 | 29,558 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 14,291 | 11,328 | 11,125 | |||||||||
Selling | 12,725 | 11,060 | 10,503 | |||||||||
General and administrative | 12,154 | 10,984 | 8,858 | |||||||||
Intangible asset amortization | 1,743 | 1,277 | 1,132 | |||||||||
Total operating expenses | 40,913 | 34,649 | 31,618 | |||||||||
Operating income (loss) | 15,980 | 7,370 | (2,060 | ) | ||||||||
Non-operating income (expense): | ||||||||||||
Interest expense, net | (487 | ) | (1,261 | ) | (1,445 | ) | ||||||
Foreign currency translation account write-off | - | (801 | ) | - | ||||||||
Other income (expense), net | (45 | ) | (29 | ) | 50 | |||||||
Total non-operating expense | (532 | ) | (2,091 | ) | (1,395 | ) | ||||||
Income (loss) before income taxes | 15,448 | 5,279 | (3,455 | ) | ||||||||
Income tax benefit (provision) | 29,178 | (61 | ) | 172 | ||||||||
Net income (loss) | $ | 44,626 | $ | 5,218 | $ | (3,283 | ) | |||||
Earnings (loss) per share: | ||||||||||||
Basic | $ | 1.54 | $ | 0.19 | $ | (0.12 | ) | |||||
Diluted | $ | 1.49 | $ | 0.18 | $ | (0.12 | ) | |||||
Shares used in computing basic and | ||||||||||||
diluted earnings (loss) per share: | ||||||||||||
Basic | 28,886 | 27,658 | 27,181 | |||||||||
Diluted | 29,982 | 28,458 | 27,181 |
CALAMP CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)THOUSANDS)
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Revenues | $ | 112,113 | $ | 98,370 | $ | 140,907 | ||||||
Cost of revenues | 89,723 | 60,244 | 122,412 | |||||||||
Gross profit | 22,390 | 38,126 | 18,495 | |||||||||
Operating expenses: | ||||||||||||
Research and development | 10,943 | 12,899 | 15,710 | |||||||||
Selling | 9,542 | 8,959 | 10,633 | |||||||||
General and administrative | 10,523 | 12,087 | 14,966 | |||||||||
Intangible asset amortization | 1,367 | 4,429 | 6,418 | |||||||||
Write-off of acquired in-process research and development | — | — | 310 | |||||||||
Impairment loss | — | 44,736 | 71,276 | |||||||||
Total operating expenses | 32,375 | 83,110 | 119,313 | |||||||||
Operating loss | (9,985 | ) | (44,984 | ) | (100,818 | ) | ||||||
Non-operating income (expense): | ||||||||||||
Interest expense, net | (940 | ) | (1,091 | ) | (1,903 | ) | ||||||
Other income (expense), net | (1,300 | ) | 180 | (569 | ) | |||||||
Total non-operating expense | (2,240 | ) | (911 | ) | (2,472 | ) | ||||||
Loss from continuing operations before income taxes | (12,225 | ) | (45,895 | ) | (103,290 | ) | ||||||
Income tax benefit (provision) | 1,374 | (3,770 | ) | 20,940 | ||||||||
Loss from continuing operations | (10,851 | ) | (49,665 | ) | (82,350 | ) | ||||||
Loss from discontinued operations, net of tax | — | — | (597 | ) | ||||||||
Loss on sale of discontinued operations, net of tax | — | — | (1,202 | ) | ||||||||
Net loss | $ | (10,851 | ) | $ | (49,665 | ) | $ | (84,149 | ) | |||
Basic and diluted loss per share from: | ||||||||||||
Continuing operations | $ | (0.43 | ) | $ | (2.01 | ) | $ | (3.45 | ) | |||
Discontinued operations | — | — | (0.08 | ) | ||||||||
Total basic and diluted loss per share | $ | (0.43 | ) | $ | (2.01 | ) | $ | (3.53 | ) | |||
Shares used in computing basic and diluted loss per share: | ||||||||||||
Basic | 25,309 | 24,765 | 23,881 | |||||||||
Diluted | 25,309 | 24,765 | 23,881 |
Year Ended February 28, | |||||||||
2013 | 2012 | 2011 | |||||||
Net income (loss) | $ | 44,626 | $ | 5,218 | $ | (3,283 | ) | ||
Other comprehensive income, net of tax: | |||||||||
Reclassification adjustment for foreign | |||||||||
currency loss included in net income | - | 801 | - | ||||||
Comprehensive income (loss) | $ | 44,626 | $ | 6,019 | $ | (3,283 | ) |
See accompanying notes to consolidated financial statements.
29
Accumulated | |||||||||||||||||||||||
Additional | Other | Total | |||||||||||||||||||||
Common Stock | Paid-in | Accumulated | Comprehensive | Stockholders' | |||||||||||||||||||
Shares | Amount | Capital | Deficit | Loss | Equity | ||||||||||||||||||
Balances at February 28, 2010 | 27,662 | $ | 277 | $ | 151,453 | $ | (131,665 | ) | $ | (866 | ) | $ | 19,199 | ||||||||||
Net loss | (3,283 | ) | (3,283 | ) | |||||||||||||||||||
Stock-based compensation expense | 2,109 | 2,109 | |||||||||||||||||||||
Issuance of shares for restricted | |||||||||||||||||||||||
stock awards | 655 | 6 | (6 | ) | - | ||||||||||||||||||
Shares retained on net share settlement | |||||||||||||||||||||||
of equity awards | (170 | ) | (2 | ) | (403 | ) | (405 | ) | |||||||||||||||
Other | (18 | ) | (18 | ) | |||||||||||||||||||
Balances at February 28, 2011 | 28,147 | 281 | 153,135 | (134,948 | ) | (866 | ) | 17,602 | |||||||||||||||
Net income | 5,218 | 5,218 | |||||||||||||||||||||
Write-off of currency translation account | 801 | 801 | |||||||||||||||||||||
Stock-based compensation expense | 2,375 | 2,375 | |||||||||||||||||||||
Issuance of shares for restricted | |||||||||||||||||||||||
stock awards | 354 | 4 | (4 | ) | - | ||||||||||||||||||
Shares issued on net share settlement | |||||||||||||||||||||||
of equity awards | 205 | 2 | (1,037 | ) | (1,035 | ) | |||||||||||||||||
Exercise of stock options | 16 | - | 27 | 27 | |||||||||||||||||||
Other | (11 | ) | (11 | ) | |||||||||||||||||||
Balances at February 28, 2012 | 28,722 | 287 | 154,485 | (129,730 | ) | (65 | ) | 24,977 | |||||||||||||||
Net income | 44,626 | 44,626 | |||||||||||||||||||||
Stock-based compensation expense | 2,910 | 2,910 | |||||||||||||||||||||
Sale of common stock | 5,175 | 52 | 44,732 | 44,784 | |||||||||||||||||||
Issuance of shares for restricted | |||||||||||||||||||||||
stock awards | 160 | 2 | (2 | ) | - | ||||||||||||||||||
Shares issued on net share settlement | |||||||||||||||||||||||
of equity awards and warrants | 198 | 2 | (2,562 | ) | (2,560 | ) | |||||||||||||||||
Exercise of stock options and warrants | 786 | 7 | 2,805 | 2,812 | |||||||||||||||||||
Balances at February 28, 2013 | 35,041 | $ | 350 | $ | 202,368 | $ | (85,104 | ) | $ | (65 | ) | $ | 117,549 |
Retained | Accumulated | |||||||||||||||||||||||
Additional | Earnings | Other | Total | |||||||||||||||||||||
Common Stock | Paid-in | (Accumulated | Comprehen- | Stockholders’ | ||||||||||||||||||||
Shares | Amount | Capital | Deficit) | sive Loss | Equity | |||||||||||||||||||
Balances at February 28, 2007 | 23,595 | $ | 236 | $ | 139,175 | $ | 13,000 | $ | (1,160 | ) | $ | 151,251 | ||||||||||||
Net loss | (84,149 | ) | — | (84,149 | ) | |||||||||||||||||||
Change in unrealized gain on available-for-sale investments | (45 | ) | (45 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | 1,206 | 1,206 | ||||||||||||||||||||||
Comprehensive loss | (82,988 | ) | ||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 380 | 4 | (4 | ) | — | |||||||||||||||||||
Stock-based compensation expense | 2,238 | 2,238 | ||||||||||||||||||||||
Exercise of stock options and warrants | 66 | 212 | 212 | |||||||||||||||||||||
Issuance of stock and warrants | 1,000 | 10 | 2,802 | 2,812 | ||||||||||||||||||||
Other | (105 | ) | (105 | ) | ||||||||||||||||||||
Balances at February 28, 2008 | 25,041 | 250 | 144,318 | (71,149 | ) | 1 | 73,420 | |||||||||||||||||
Net loss | (49,665 | ) | (49,665 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | (1,121 | ) | (1,121 | ) | ||||||||||||||||||||
Comprehensive loss | (50,786 | ) | ||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 166 | 2 | (127 | ) | (125 | ) | ||||||||||||||||||
Stock-based compensation expense | 1,268 | 1,268 | ||||||||||||||||||||||
Exercise of stock options and warrants | 10 | (15 | ) | (15 | ) | |||||||||||||||||||
Other | (563 | ) | (563 | ) | ||||||||||||||||||||
Balances at February 28, 2009 | 25,217 | 252 | 144,881 | (120,814 | ) | (1,120 | ) | 23,199 | ||||||||||||||||
Net loss | (10,851 | ) | (10,851 | ) | ||||||||||||||||||||
Foreign currency translation adjustments | 254 | 254 | ||||||||||||||||||||||
Comprehensive loss | (10,597 | ) | ||||||||||||||||||||||
Issuance of restricted stock, net of forfeitures | 512 | 6 | (129 | ) | (123 | ) | ||||||||||||||||||
Stock-based compensation expense | 1,981 | 1,981 | ||||||||||||||||||||||
Exercise of stock options | 1 | 1 | 1 | |||||||||||||||||||||
Sale of stock | 1,932 | 19 | 3,948 | 3,967 | ||||||||||||||||||||
Issuance of warrants | 870 | 870 | ||||||||||||||||||||||
Other | (99 | ) | (99 | ) | ||||||||||||||||||||
Balances at February 28, 2010 | 27,662 | $ | 277 | $ | 151,453 | $ | (131,665 | ) | $ | (866 | ) | $ | 19,199 | |||||||||||
See accompanying notes to consolidated financial statements.
30
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
Net loss | $ | (10,851 | ) | $ | (49,665 | ) | $ | (84,149 | ) | |||
Adjustments to reconcile net loss to net cash provided (used) by operating activities: | ||||||||||||
Depreciation and amortization | 2,522 | 6,549 | 9,681 | |||||||||
Stock-based compensation expense | 1,981 | 1,268 | 2,238 | |||||||||
Write-off of in-process research and development | — | — | 310 | |||||||||
Impairment loss | — | 44,736 | 71,276 | |||||||||
Loss (gain) on sale of investment | 1,008 | — | (331 | ) | ||||||||
Deferred tax assets, net | 39 | 3,373 | (20,784 | ) | ||||||||
Loss on sale of discontinued operations, net of tax | — | — | 1,202 | |||||||||
Other | 104 | — | (6 | ) | ||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (2,780 | ) | 6,288 | 18,700 | ||||||||
Inventories | 4,626 | 9,442 | 1,116 | |||||||||
Prepaid expenses and other assets | 42 | 2,679 | 2,629 | |||||||||
Accounts payable | 10,764 | (5,453 | ) | (16,807 | ) | |||||||
Accrued liabilities | (6,114 | ) | (5,061 | ) | 13,795 | |||||||
Deferred revenue | 1,131 | (396 | ) | (346 | ) | |||||||
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES | 2,472 | 13,760 | (1,476 | ) | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||
Capital expenditures | (1,066 | ) | (831 | ) | (1,359 | ) | ||||||
Proceeds from sale of property and equipment | 2 | — | 7 | |||||||||
Proceeds from sale of investment | 992 | — | 1,045 | |||||||||
Proceeds from sale of discontinued operations | 325 | 465 | 4,420 | |||||||||
Acquisition of Aercept | — | — | (19,318 | ) | ||||||||
Acquisition of Smartlink | — | 296 | (7,845 | ) | ||||||||
Acquisition of TechnoCom product line | — | (1,183 | ) | (985 | ) | |||||||
Other | (38 | ) | (188 | ) | — | |||||||
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES | 215 | (1,441 | ) | (24,035 | ) | |||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
Proceeds from borrowings on lines of credit | 7,551 | — | — | |||||||||
Proceeds from issuance of subordinated debt and warrants | 5,000 | — | — | |||||||||
Net proceeds from sale of common stock | 3,967 | — | — | |||||||||
Debt repayments | (22,728 | ) | (11,452 | ) | (6,728 | ) | ||||||
Payment of debt issue costs | (544 | ) | — | — | ||||||||
Proceeds from exercise of stock options | 1 | — | 213 | |||||||||
NET CASH USED IN FINANCING ACTIVITIES | (6,753 | ) | (11,452 | ) | (6,515 | ) | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 139 | (542 | ) | 1,077 | ||||||||
Net change in cash and cash equivalents | (3,927 | ) | 325 | (30,949 | ) | |||||||
Cash and cash equivalents at beginning of year | 6,913 | 6,588 | 37,537 | |||||||||
Cash and cash equivalents at end of year | $ | 2,986 | $ | 6,913 | $ | 6,588 | ||||||
Year Ended February 28, | |||||||||||
2013 | 2012 | 2011 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
Net income (loss) | $ | 44,626 | $ | 5,218 | $ | (3,283 | ) | ||||
Adjustments to reconcile net income (loss) | |||||||||||
to net cash provided by operating activities: | |||||||||||
Depreciation and amortization | 2,764 | 2,447 | 2,543 | ||||||||
Stock-based compensation expense | 2,910 | 2,375 | 2,109 | ||||||||
Amortization of debt issue costs and discount | 397 | 747 | 536 | ||||||||
Write-off of currency translation account of foreign subsidiary | - | 801 | - | ||||||||
Deferred tax assets, net | (29,231 | ) | - | 807 | |||||||
Other | 14 | 19 | (20 | ) | |||||||
Changes in operating assets and liabilities: | |||||||||||
Accounts receivable | (4,728 | ) | 2,431 | (294 | ) | ||||||
Inventories | (3,459 | ) | (167 | ) | 718 | ||||||
Prepaid expenses and other assets | (887 | ) | 991 | (510 | ) | ||||||
Accounts payable | 2,348 | (4,580 | ) | (2,083 | ) | ||||||
Accrued liabilities | 1,738 | 1,641 | (722 | ) | |||||||
Deferred revenue | 105 | 509 | 1,056 | ||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 16,597 | 12,432 | 857 | ||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
Capital expenditures | (1,852 | ) | (1,076 | ) | (1,245 | ) | |||||
Navman Wireless asset purchase | (1,000 | ) | - | - | |||||||
Collections on note receivable | 462 | 566 | 428 | ||||||||
Other | (8 | ) | - | 32 | |||||||
NET CASH USED IN INVESTING ACTIVITIES | (2,398 | ) | (510 | ) | (785 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
Net proceeds from sale of common stock | 44,784 | - | - | ||||||||
Net proceeds (repayments) of bank line of credit | - | (7,489 | ) | 1,588 | |||||||
Net proceeds (repayments) of bank term loan | (1,200 | ) | 3,000 | - | |||||||
Repayment of notes payable | (535 | ) | (5,000 | ) | - | ||||||
Payment of debt issue costs | - | (65 | ) | - | |||||||
Taxes paid related to net share settlement of equity awards | (2,560 | ) | (1,035 | ) | (405 | ) | |||||
Proceeds from exercise of stock options and warrants | 2,812 | 27 | - | ||||||||
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES | 43,301 | (10,562 | ) | 1,183 | |||||||
Net change in cash and cash equivalents | 57,500 | 1,360 | 1,255 | ||||||||
Cash and cash equivalents at beginning of year | 5,601 | 4,241 | 2,986 | ||||||||
Cash and cash equivalents at end of year | $ | 63,101 | $ | 5,601 | $ | 4,241 |
See accompanying notes to consolidated financial statements.
31
NOTE 1 —– DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CalAmp Corp. (“CalAmp”("CalAmp" or the “Company”"Company") develops and marketsis a leading provider of wireless communications solutions that deliver data, voice and video for critical networked communications and other applications.a broad array of applications to customers globally. The Company’s two business segmentsactivities are organized into our Wireless DataCom which serves utility, governmental and enterprise customers, and Satellite which focuses on the North American Direct Broadcast Satellite market.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company (a Delaware corporation) and its subsidiaries, all of which are wholly-owned. All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Areas where significant judgments are made include, but are not necessarily limited to:to, allowance for doubtful accounts;accounts, inventory valuation;valuation, product warranties;warranties, deferred income tax asset valuation allowances;allowances, valuation of goodwill, purchased intangible assets and other long-lived assets;assets, stock-based compensation;compensation, and revenue recognition.
Fiscal Year
The Company uses a 52-53 week fiscal year ending on the Saturday closest to February 28, which for fiscal years 2010, 20092013, 2012 and 20082011 fell on March 2, 2013, February 27, 2010,25, 2012, and February 28, 2009, and March 1, 2008,26, 2011, respectively. In these consolidated financial statements, the fiscal year end for all years is shown as February 28 for clarity of presentation. Fiscal 2013 consisted of 53 weeks, while fiscal years 2010, 20092012 and 20082011 each consisted of 52 weeks.
Revenue Recognition
The Company recognizes revenue from product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collection of the sales price is reasonably assured. Generally, these criteria are met at the time product is shipped, except for shipments made on the basis of “FOB Destination”"FOB Destination" terms, in which case title transfers to the customer and the revenue is recorded by the Company when the shipment reaches the customer. Products sold in connection with service contracts are recorded as deferred revenues and the associated product costs are recorded as deferred costs. These deferred amounts are recognized over the life of the service contract on a straight-line basis. Customers generally do not have rights of return except for defective products returned during the warranty period.
The Company defers the recognition of revenues for products that are sold with data communication services because the services are essential to the functionality of the products, and accordingly, the associated product costs are recorded as deferred costs. The deferred product revenue and deferred product cost amounts are recognized on a straight-line basis over the minimum contractual service period of one year. Revenues from renewals of data communication services after the initial one year term are recognized as the services are provided. When customers prepay data communication service renewals, such amounts are recorded as deferred revenues and are recognized over the renewal term.
The Company also undertakes projects that include the design, development and manufacture of communication systems used for public safety communication systemsand transportation applications that are specially customizeddesigned to customers’customers' specifications or that involve fixed site construction. Sales under such contracts are recorded under the percentage-of-completion method. Costs and estimated revenues are recorded as work is performed based on the percentage that incurred costs bear to estimated total costs utilizing the most recent estimates of costs. If the current estimate of percentage complete and total estimated costs for a given contract estimate indicates a loss, provision is made in the current period for the total anticipated loss on such contract. Costs and estimated earnings in excess of billings on uncompleted contracts arise when contract revenues have been recognized on the percentage-of-completion method in advance of when the amounts can be invoiced to the customers under the terms of the contracts. Such amounts are billable to the customers upon various measures of performance, including achievement of certain milestones, completion of specified units, or completion of a contract. Costs and estimated earnings in excess of billings on uncompleted contracts are included in prepaid expenses and other current assets in the current period.accompanying consolidated balance sheets.
31
Cash and Cash Equivalents
The Company considers all highly liquid investments with remaining maturities at date of purchase of three months or less to be cash equivalents.
32
At February 28, 2013, the Company’s cash and cash equivalents were maintained in financial institutions that are insured up to the limit determined by the appropriate governmental agency.
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash equivalents and trade receivables. The Company currently invests its excess cash in money market mutual funds and commercial paper. The Company had cash and cash equivalents in one U.S. bank in excess of federally insured amounts.
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 customersCustomers that accounted for 10% or more of consolidated annual revenues in any one of the last three years are as a percentfollows:
Year ended February 28, Customer 2013 2012 2011 A 22.1% 28.3% 31.0%
Customers that accounted for 10% or more of consolidated revenues,net accounts receivable in any one of the last two years are as follows:
Year ended February 28, | ||||||||||||
Customer | 2010 | 2009 | 2008 | |||||||||
A | 48.6 | % | 15.7 | % | 10.9 | % | ||||||
B | — | 10.3 | % | 23.9 | % | |||||||
C | 3.9 | % | 9.0 | % | 14.2 | % |
February 28, | ||||||
Customer | 2013 | 2012 | ||||
A | 18.4% | 33.4% | ||||
B | 6.6% | 11.1% |
Customer A and B are customers of the Company’s Satellite segment while Customer C is a customer of the Company’sCompany's Satellite segment and Customer B is a customer of the Wireless DataCom segment.
A substantial portion of the Company’s inventory is purchased from one supplier, which functions as an independent foreign procurement agent and contract manufacturer. This supplier accounted for 54% and 50% of the Company's total inventory purchases in fiscal year-end from the customers referred to in the table above, expressed as a percent2013 and 2012, respectively. As of consolidated net accounts receivable, are as follows:
February 28, | ||||||||
Customer | 2010 | 2009 | ||||||
A | 47.9 | % | 26.3 | % |
Some of the Company’sCompany'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 51% and 23% of Company’s total inventory purchases in fiscal 2010 and 2009, respectively. As of February 28, 2010, this supplier accounted for 62% of the Company’s total accounts payable.
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 having known andor expected collection problems based on historical experience or due to insolvency, disputes or other collection issues.
Inventories
Inventories include costs of materials, labor and manufacturing overhead. Inventories are stated at the lower of cost or net realizable value, with cost determined principally by the use of the first-in, first-out method.
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Property, equipment and improvements
Property, equipment and improvements are stated at the lower of cost or fair value determined through periodic impairment analyses. The Company follows the policy of capitalizing expenditures that increase asset lives, and expensing ordinary maintenance and repairs as incurred. When assets are sold or disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or lossThe Company has capitalized certain internal use software which is included in generalproperty and administrative expense.
Depreciation and amortization are based upon the estimated useful lives of the related assets using the straight-line method. Plant equipment and office equipment are depreciated over useful lives ranging from two to five years, while tooling is depreciated over 18 months. Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements.
33
Rent expense under operating leases is recognized on a straight-line basis over the lease term. The difference between the rent expense and the rent payment is recorded as an increase or decrease in the deferred rent liability.
The Company accounts for tenant allowances in lease agreements as a deferred rent liability. The liabilitycredit, which is then amortized on a straight-line basis over the lease term as a reduction of rent expense.
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price and related costs over the value assigned to the net tangible assets and identifiable intangible assets of businesses acquired. Goodwill is not amortized. Instead, goodwill is tested for impairment on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
The cost of definite-lived identified intangible assets is amortized over the assets’assets' estimated useful lives ranging from one to seven years on a straight-line basis as no other discernablediscernible pattern of usage is more readily determinable.
Accounting for Long-Lived Assets Other Than Goodwill
The Company reviews property and equipment and other long-lived assets other than goodwill for impairment whenever events or changes in circumstances indicate that the carrying amounts of an asset may not be recoverable. Recoverability is measured by comparison of the asset’sasset's carrying amount to the undiscounted future net cash flows an asset is expected to generate. If a long-lived asset or group of assets is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset or asset group exceeds the discounted future cash flows that are projected to be generated by the asset or asset group.
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 Company’sCompany's bank debt approximates the carrying value of such debt because the interest rate is variable and is market-based. Also, the estimated fair value of the Company’s 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.
Warranty
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 threeone to two years and also considers the impact of the known operational issues that may have a greater impact than historical trends. The warranty reserve is included in Other Current Liabilities in the balance sheets. See Note 10 for a table of annual increases in and reductions of the warranty liabilityreserve for the last three years.
Deferred 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. DuringIn assessing this evaluation,valuation allowance, the Company reviews historical and future expected operating results and other factors, including its forecastsrecent cumulative earnings experience, expectations of future taxable income in conjunction withby taxing jurisdiction and the positive and negative evidence surrounding the realizability of its deferred incomecarryforward periods available for tax assetsreporting purposes, to determine if a valuation allowance is needed.
of $29.2 million for the year.
34
The Company’sCompany's French subsidiary uses the U.S. dollar as its functional currency. As a result of changing the functional currency of the Company’sCompany's French subsidiary from the French franc to the U.S. dollar in 2002, the foreign currency translation loss of $801,000 that iswas included in accumulated other comprehensive income (loss) will remain unchanged until such time asloss in the French subsidiary ceases to be partstockholders’ equity section of the Company’s consolidated financial statements.
The Company’sCompany's Canadian subsidiary changed its functional currency from the Canadian dollar to the U.S. dollar effective at the end of fiscal 2010. The cumulative foreign currency translation loss as of February 28, 2010 of $65,000 that is included in accumulated other comprehensive loss will remain unchanged untilfor such time asthat the Canadian subsidiary ceasescontinues to be part of the Company’sCompany's consolidated financial statements.
The aggregate foreign transaction exchange gains (losses) included in determining income (loss) from continuing operations before income taxes were $(288,000)$(43,000), $177,000,$(45,000) and $(694,000)$40,000 in fiscal 2010, 20092013, 2012 and 2008,2011, respectively.
Earnings 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 options and stock purchase warrants were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.exercised. In computing diluted earnings per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants 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.
Accounting for Stock OptionsStock-Based Compensation
The Company measures stock-based compensation expense at the grant date, based on the fair value of the equity award, and recognizes the expense over the employee’semployee'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 type of equity award, 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’smanagement's judgment. The Company recognizes the compensation expense on a straight-line basis for its graded-vesting awards. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. However, the cumulative compensation expense recognized at any point in time 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”"forfeitures" is distinct from “cancellations”"cancellations" or “expirations”"expirations", and refers only to the unvested portion of the surrendered equity awards.
Recent Authoritative PronouncementsBusiness Combinations
The Company applies the FASB issued an accounting pronouncement related to subsequent events (FASBprovisions of ASC Topic 855), which established general standards of805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and disclosurethe liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of events that occur after the balance sheetacquisition date but beforeis measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the financial statements are issued or availableCompany records adjustments to be issued. This pronouncement requires companiesthe assets acquired and liabilities assumed with the corresponding offset to reflect in their financial statementsgoodwill. Upon the effects of subsequent events that provide additional evidence about conditions at the balance-sheet date. Subsequent events that provide evidence about conditions that arose after the balance-sheet date should be disclosed if the financial statements would otherwise be misleading. Disclosures should include the natureconclusion of the event and eithermeasurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.
Costs to exit or restructure certain activities of an estimate of its financial effectacquired company or a statement that an estimate cannot be made. This pronouncement is effective for interim and annual financial periods ending after June 15, 2009, and should be applied prospectively. As these requirements are consistent with the Company’s previous practice,internal operations are accounted for as one-time termination and exit costs pursuant to ASC 420, Exit or Disposal Cost Obligations, and are accounted for separately from the adoption of this pronouncement had no impact onbusiness combination. A liability for costs associated with an exit or disposal activity is recognized and measured at its consolidated financial statements.
35
Year Ended | ||||
February 28, | ||||
2008 | ||||
Revenues | $ | 1,691 | ||
Operating loss | $ | (996 | ) | |
Loss from discontinued operations, net of tax | $ | (597 | ) | |
Loss on sale of discontinued operations, net of tax | $ | (1,202 | ) |
Uncertain tax positions and tax-related valuation allowances assumed in connection with a business combination are initially estimated as of the acquisition date. The Company reevaluates these items quarterly based upon facts and circumstances that existed as of the acquisition date, with any adjustments to a groupthe preliminary estimates being recorded to goodwill provided that it is within the measurement period. Subsequent to the end of investors not affiliated with the Company. The carryingmeasurement period or the Company’s final determination of the value of this investment at the time of sale was $2.0 million,tax allowance or contingency, whichever comes first, changes to these uncertain tax positions and tax-related valuation allowances will affect the sales price was $1.0 million. The loss of $1.0 million is included in the non-operating expenseprovision for income taxes in the consolidated statement of operations, and could have a material impact on results of operations and financial position.
Recent Accounting Pronouncements
In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”. This guidance requires companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. The Company adopted this pronouncement in the first quarter of fiscal 2013.
NOTE 2 – SUPPLY AGREEMENT AND ACQUISITION
On May 7, 2012, the Company entered into a five-year supply agreement (the “Supply Agreement”) to provide at least $25 million of fleet tracking products to Navman Wireless, a privately held company (“Navman”). In conjunction with the Supply Agreement, the Company also entered into an asset purchase agreement on May 7, 2012 with Navman (the “Asset Purchase Agreement”) and established a research and development center in Auckland, New Zealand with an initial staff of 14 employees who transferred from Navman’s workforce.
The purchase price for the year ended February 28, 2010.
The Company is accounting for this acquisition under FASB ASC Topic 805, “Business Combinations”, which provides guidance on the accounting and interestreporting for transactions that represent business combinations to be accounted for under the acquisition method. This method requires that, among other things, assets acquired and liabilities assumed be recorded at their fair values as of $50,000, with a final principalthe acquisition date. The excess of the consideration transferred over those fair values is recorded as goodwill.
Following is the purchase price allocation for the Navman Asset Purchase Agreement (in thousands):
Purchase Price | $ | 4,902 | |||||
Fair value of net assets acquired: | |||||||
Property and equipment | $ | 200 | |||||
Supply contract | 2,220 | ||||||
Developed/core technology | 500 | ||||||
Customer lists | 710 | ||||||
Covenants not to compete | 170 | ||||||
Assumed liabilities | (10 | ) | |||||
Total fair value of net assets acquired | 3,790 | ||||||
Goodwill | $ | 1,112 |
The goodwill arising from this transaction is deductible for income tax purposes, and interest paymentis assigned to the Company’s Wireless DataCom segment. This goodwill is primarily attributable to the benefit of $1,078,000 due on January 15, 2011.
NOTE 3 —– INVENTORIES
Inventories consist of the following (in thousands):
February 28, | ||||||||
2010 | 2009 | |||||||
Raw materials | $ | 9,483 | $ | 12,036 | ||||
Work in process | 209 | 164 | ||||||
Finished goods | 916 | 2,939 | ||||||
$ | 10,608 | $ | 15,139 | |||||
February 28, | ||||||
2013 | 2012 | |||||
Raw materials | $ | 10,201 | $ | 8,648 | ||
Work in process | 335 | 77 | ||||
Finished goods | 2,980 | 1,332 | ||||
$ | 13,516 | $ | 10,057 |
36
Property, equipment and improvements consist of the following (in thousands):
February 28, | ||||||||
2013 | 2012 | |||||||
Leasehold improvements | $ | 1,830 | $ | 1,725 | ||||
Plant equipment and tooling | 12,436 | 11,179 | ||||||
Office equipment, computers and furniture | 4,576 | 4,319 | ||||||
18,842 | 17,223 | |||||||
Less accumulated depreciation and amortization | (16,064 | ) | (15,462 | ) | ||||
$ | 2,778 | $ | 1,761 |
February 28, | ||||||||
2010 | 2009 | |||||||
Leasehold improvements | $ | 1,498 | $ | 1,369 | ||||
Plant equipment and tooling | 12,380 | 12,091 | ||||||
Office equipment, computers and furniture | 2,083 | 1,775 | ||||||
15,961 | 15,235 | |||||||
Less accumulated depreciation and amortization | (13,906 | ) | (13,096 | ) | ||||
$ | 2,055 | $ | 2,139 | |||||
NOTE 5 — GOODWILL AND– OTHER INTANGIBLE ASSETS
Wireless | ||||||||||||
Satellite | DataCom | Total | ||||||||||
Balance as of February 28, 2008 | $ | 2,255 | $ | 26,265 | $ | 28,520 | ||||||
Impairment writedown | (2,255 | ) | (26,272 | ) | (28,527 | ) | ||||||
Other changes | — | 7 | 7 | |||||||||
Balance as of February 28, 2009 | $ | — | $ | — | $ | — | ||||||
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Year ended February 28, 2010 | Year ended February 28, 2009 | |||||||||||||||||||||||||||
Gross | Accum- | Gross | Accum- | |||||||||||||||||||||||||
Amortization | Carrying | ulated | Carrying | ulated | ||||||||||||||||||||||||
Period | Amount | Amortization | Net | Amount | Amortization | Net | ||||||||||||||||||||||
Developed/core technology | 5-7 years | $ | 3,101 | $ | 1,054 | $ | 2,047 | $ | 3,101 | $ | 155 | $ | 2,946 | |||||||||||||||
Customer lists | 5-7 years | 1,339 | 475 | 864 | 1,339 | 70 | 1,269 | |||||||||||||||||||||
Covenants not to compete | 1 year | 138 | 66 | 72 | 138 | 10 | 128 | |||||||||||||||||||||
Patents | 4-5 years | 39 | 8 | 31 | — | — | — | |||||||||||||||||||||
Tradename | Indefinite | 2,130 | — | 2,130 | 2,130 | — | 2,130 | |||||||||||||||||||||
$ | 6,747 | $ | 1,603 | $ | 5,144 | $ | 6,708 | $ | 235 | $ | 6,473 | |||||||||||||||||
February 28, 2013 | February 28, 2012 | |||||||||||||||||||
Gross | Gross | |||||||||||||||||||
Amortization | Carrying | Accumulated | Carrying | Accumulated | ||||||||||||||||
Period | Amount | Amortization | Net | Amount | Amortization | Net | ||||||||||||||
Supply contract | 5 years | $ | 2,220 | $ | 359 | $ | 1,861 | $ | - | $ | - | $ | - | |||||||
Developed/core technology | 2-7 years | 3,001 | 2,572 | 429 | 2,853 | 2,154 | 699 | |||||||||||||
Tradename | 7 years | 2,130 | 609 | 1,521 | 2,130 | 304 | 1,826 | |||||||||||||
Customer lists | 5-7 years | 1,848 | 1,218 | 630 | 1,268 | 1,075 | 193 | |||||||||||||
Covenants not to compete | 5 years | 262 | 119 | 143 | 115 | 114 | 1 | |||||||||||||
Patents | 5 years | 50 | 31 | 19 | 41 | 22 | 19 | |||||||||||||
$ | 9,511 | $ | 4,908 | $ | 4,603 | $ | 6,407 | $ | 3,669 | $ | 2,738 |
At the beginning of fiscal 2012, the Dataradio tradename, which was originally classified as an indefinite-lived asset at the time of its acquisition in 2006, was determined to have a finite useful life as a result of management’s decision to phase out the use of this tradename in the future. Consequently, in fiscal 2012 the Company began amortizing this asset over a period of seven years.
Amortization expense of intangible assets was $1,367,000, $4,429,000,$1,743,000, $1,277,000, and $6,418,000$1,132,000 for the years ended February 28, 2010, 20092013, 2012 and 2008,2011, respectively. All intangible asset amortization expense is attributable to the Wireless DataCom segment.
2011 | $ | 1,133 | ||
2012 | $ | 990 | ||
2013 | $ | 732 | ||
2014 | $ | 159 |
Fiscal Year | |||
2014 | $ | 1,349 | |
2015 | 977 | ||
2016 | 926 | ||
2017 | 926 | ||
2018 | 425 | ||
$ | 4,603 |
NOTE 6 —– FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
February 28, | ||||||||
2010 | 2009 | |||||||
Bank working capital line of credit | $ | 5,901 | $ | — | ||||
Bank term loan | — | 17,550 | ||||||
Subordinated note payable to a DBS customer | — | 3,528 | ||||||
$ | 5,901 | $ | 21,078 | |||||
Subordinated promissory notes due December 22, 2012 | $ | 5,000 | ||
Less discount | (830 | ) | ||
$ | 4,170 | |||
Subordinated Promissory Notes
On December 22, 2009 and January 15, 2010, the Company raised an aggregate amount of $5,000,000 from the issuance of subordinated promissory notes (the "Subordinated Notes") that bore interest at 12% per annum and had a maturity date of December 22, 2012. On August 15, 2011, in conjunction with entering into the Fourth Amendment with Square 1 Bank, the Company paid in full the $5,000,000 outstanding principal balance of the Subordinated Notes plus accrued interest of approximately $76,000, which included Subordinated Notes totaling $325,000 that were held by two officers and one director of the Company.
Bank Credit Facility
On March 1, 2013, CalAmp Corp. (the “Company” or “CalAmp”) and Square 1 Bank entered into athe Eighth Amendment (the “Eighth Amendment”) to the Loan and Security Agreement dated as of December 22, 2009 (as amended by the Eighth Amendment, the “Amended Loan Agreement”). The Eighth Amendment increased the maximum credit limit of the facility from $12 million to $15 million, lowered the interest rate on outstanding borrowings from prime plus 1.0% to prime, and extended the facility maturity date from August 15, 2014 to March 1, 2017. The Eighth Amendment provided for a new $5 million term loan (the “Loan Agreement”“New Term Loan”) that was fully funded on March 4, 2013, which was just after the end of fiscal 2013. Concurrent with Square 1 Bankfunding the New Term Loan, the pre-existing term loan with an outstanding principal balance of Durham, North Carolina. This revolving credit facility$1.8 million was retired. Principal of the New Term Loan is repayable at the rate of $83,333 per month beginning April 2013, with a $1.1 million principal payment due at maturity. The revolver portion of the Amended Loan Agreement has a two-year term and provides for borrowings upborrowing limit equal to the lesser of $12(a) $15 million minus the term loan principal outstanding at any point in time, or (b) 85% of the Company’s eligible accounts receivable. OutstandingThere were no borrowings under this facility bear interestoutstanding on the revolver at Square 1 Bank’s prime rate plus 2.0%, subject to minimum interestthe end of 6.0% per annumfiscal 2013 or $20,000 per month, whichever is greater.2012. Interest is payable on the last day of each calendar month. The Company paid aagreed to pay loan fee of $120,000fees to Square 1 Bank in connection with this new credit facility.the Eighth Amendment of $7,500 on the first anniversary and $37,500 on each of the next three anniversaries of the New Term Loan.
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Debt
Long-Term Debt
Long-term debt is comprised of the following (in thousands):
February 28, | February 28, | ||||||||
2013 | 2012 | ||||||||
Bank term loan | $ | 1,800 | $ | 3,000 | |||||
Note payable to Navman | 2,895 | - | |||||||
4,695 | 3,000 | ||||||||
Less portion due within one year | (2,261 | ) | (1,100 | ) | |||||
Long-term debt | $ | 2,434 | $ | 1,900 |
The Navman note is payable in the form of a 15% rebate on certain products sold by the Company to Navman under the Loan Agreement are secured by substantially allSupply Agreement. The unpaid balance of the assetsNavman note would become immediately due and payable upon any termination of the Company and its domestic subsidiaries.
Other Non-Current Liabilities
Other non-current liabilities consist of the following (in thousands):
February 28, | February 28, | |||||
2013 | 2012 | |||||
Deferred rent | $ | 251 | $ | 279 | ||
Deferred revenue | 1,285 | 724 | ||||
Contingent royalties consideration payable to Navman | 303 | - | ||||
$ | 1,839 | $ | 1,003 |
The contingent royalties consideration in the aggregate fair value amount of $884,000 at February 28, 2013 is payable to Navman at approximately 15% of the revenue from the sale by CalAmp of certain products acquired from Navman under the Asset Purchase Agreement during the first three years. During the year ended February 28, 2013, the Company made royalty payments of $24,000 to Navman.
February 28, | ||||||||
2010 | 2009 | |||||||
Deferred rent | $ | 88 | $ | 650 | ||||
Deferred revenue | 401 | 340 | ||||||
$ | 489 | $ | 990 | |||||
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Following is a summary of the Company’sCompany's contractual cash obligations as of February 28, 20102013 (in thousands):
Future Cash Payments Due by Fiscal Year | ||||||||||||||||||||||||||||
There- | ||||||||||||||||||||||||||||
Contractual Obligations | 2011 | 2012 | 2013 | 2014 | 2015 | after | Total | |||||||||||||||||||||
Bank debt | $ | 5,901 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 5,901 | ||||||||||||||
Subordinated notes | — | 4,170 | — | — | — | 4,170 | ||||||||||||||||||||||
Operating leases | 1,972 | 895 | 64 | 5 | — | — | 2,936 | |||||||||||||||||||||
Purchase obligations | 12,134 | — | — | — | — | — | 12,134 | |||||||||||||||||||||
Total contractual obligations | $ | 20,007 | $ | 895 | $ | 4,234 | $ | 5 | $ | — | $ | — | $ | 25,141 | ||||||||||||||
Future Cash Payments Due by Fiscal Year | |||||||||||||||||||||
Contractual Obligations | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||
Bank term loan | $ | 917 | $ | 883 | $ | - | $ | - | $ | - | $ | - | $ | 1,800 | |||||||
Note payable to Navman | 1,407 | 901 | 901 | 256 | - | - | $ | 3,465 | |||||||||||||
Operating leases | 1,087 | 902 | 849 | 346 | 58 | - | 3,242 | ||||||||||||||
Purchase obligations | 32,853 | - | - | - | - | - | 32,853 | ||||||||||||||
Total contractual obligations | $ | 36,264 | $ | 2,686 | $ | 1,750 | $ | 602 | $ | 58 | $ | - | $ | 41,360 |
Purchase obligations consist primarily of obligations under non-cancelableinventory purchase orders, primarily for raw materials, components and subassemblies.
NOTE 7 —– INCOME TAXES
The Company’s loss from continuing operationsCompany's income (loss) before income taxes consists of the following (in thousands):
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Domestic | $ | (9,587 | ) | $ | (43,940 | ) | $ | (100,427 | ) | |||
Foreign | (2,638 | ) | (1,955 | ) | (2,863 | ) | ||||||
$ | (12,225 | ) | $ | (45,895 | ) | $ | (103,290 | ) | ||||
Year Ended February 28, | |||||||||||
2013 | 2012 | 2011 | |||||||||
Domestic | $ | 14,811 | $ | 6,047 | $ | (3,314 | ) | ||||
Foreign | 637 | (768 | ) | (141 | ) | ||||||
Income (loss) before income taxes | $ | 15,448 | $ | 5,279 | $ | (3,455 | ) |
The income tax benefit (provision) attributable to loss from continuing operations consists of the following (in thousands):
Year Ended February 28, | |||||||||||
2013 | 2012 | 2011 | |||||||||
Current: | |||||||||||
Federal | $ | - | $ | (52 | ) | $ | - | ||||
State | (9 | ) | (9 | ) | - | ||||||
Foreign | (44 | ) | - | 172 | |||||||
Total current | (53 | ) | (61 | ) | 172 | ||||||
Deferred: | |||||||||||
Federal | 21,465 | - | - | ||||||||
State | 7,766 | - | - | ||||||||
Total deferred | 29,231 | - | - | ||||||||
Income tax benefit (provision) | $ | 29,178 | $ | (61 | ) | $ | 172 |
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Current: | ||||||||||||
Federal | $ | — | $ | — | $ | — | ||||||
State | — | — | — | |||||||||
Foreign | — | (279 | ) | (15 | ) | |||||||
Total current | — | (279 | ) | (15 | ) | |||||||
Deferred: | ||||||||||||
Federal | 1,098 | (2,801 | ) | 15,972 | ||||||||
State | 276 | (690 | ) | 4,983 | ||||||||
Total deferred | 1,374 | (3,491 | ) | 20,955 | ||||||||
$ | 1,374 | $ | (3,770 | ) | $ | 20,940 | ||||||
40
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Continuing operations | $ | 1,374 | $ | (3,770 | ) | $ | 20,940 | |||||
Discontinued operations | — | — | (2,431 | ) | ||||||||
$ | 1,374 | $ | (3,770 | ) | $ | 18,509 | ||||||
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Income tax at U.S. statutory federal rate of 35% | $ | 4,278 | $ | 16,063 | $ | 36,152 | ||||||
State income taxes, net of federal income tax effect | 760 | 1,793 | 2,708 | |||||||||
Foreign taxes | 84 | 64 | (73 | ) | ||||||||
Nondeductible goodwill | — | (4,627 | ) | (17,289 | ) | |||||||
Valuation allowance | (24,074 | ) | (17,424 | ) | (937 | ) | ||||||
Stock basis tax deduction in dissolved subsidiaries | 18,089 | — | — | |||||||||
Other, net | 2,237 | 361 | 379 | |||||||||
$ | 1,374 | $ | (3,770 | ) | $ | 20,940 | ||||||
Year Ended February 28, | ||||||||||||
2013 | 2012 | 2011 | ||||||||||
Income tax benefit (provision) at U.S. statutory federal rate of 35% | $ | (5,407 | ) | $ | (1,848 | ) | $ | 1,209 | ||||
State income tax benefit (provision), net of federal income tax effect | (570 | ) | (245 | ) | 108 | |||||||
Foreign taxes | 178 | (268 | ) | 123 | ||||||||
Valuation allowance reductions (increases) | 35,148 | 1,816 | (1,652 | ) | ||||||||
Other, net | (171 | ) | 484 | 384 | ||||||||
Income tax benefit (provision) | $ | 29,178 | $ | (61 | ) | $ | 172 |
The components of the net deferred income tax assetassets for U.S. income tax purposes are as follows (in thousands):
February 28, | ||||||||
2010 | 2009 | |||||||
Depreciation, amortization and impairments | $ | 13,508 | $ | 14,672 | ||||
Net operating loss carryforwards | 30,056 | 9,477 | ||||||
Research and development credits | 4,277 | 3,572 | ||||||
Other tax credits | 1,875 | 1,875 | ||||||
Warranty reserve | 495 | 1,323 | ||||||
Stock-based compensation | 1,621 | 1,166 | ||||||
Compensation and vacation accruals | 617 | 729 | ||||||
Inventory reserve | 951 | 815 | ||||||
Allowance for doubtful accounts | 163 | 219 | ||||||
Other, net | 407 | 972 | ||||||
53,970 | 34,820 | |||||||
Valuation allowance | (41,297 | ) | (18,230 | ) | ||||
Net deferred tax asset | 12,673 | 16,590 | ||||||
Less current portion | 2,656 | 3,479 | ||||||
Non-current portion | $ | 10,017 | $ | 13,111 | ||||
February 28, | ||||||||
2013 | 2012 | |||||||
Net operating loss carryforwards | $ | 22,977 | $ | 28,214 | ||||
Depreciation, amortization and impairments | 9,585 | 11,123 | ||||||
Research and development credits | 6,089 | 5,344 | ||||||
Stock-based compensation | 1,990 | 2,122 | ||||||
Capital loss carryforward | 831 | 848 | ||||||
Other tax credits | 636 | 1,028 | ||||||
Inventory reserve | 534 | 761 | ||||||
Warranty reserve | 515 | 393 | ||||||
Payroll and employee benefit accruals | 469 | 408 | ||||||
Allowance for doubtful accounts | 179 | 101 | ||||||
Other, net | 1,170 | 549 | ||||||
Gross deferred tax assets | 44,975 | 50,891 | ||||||
Valuation allowance | (3,959 | ) | (39,054 | ) | ||||
Net deferred tax assets | 41,016 | 11,837 | ||||||
Less current portion | 6,400 | 5,425 | ||||||
Non-current portion | $ | 34,616 | $ | 6,412 |
The Company also has deferred tax assets for Canadian income tax purposes amounting to $4.3 million at February 28, 2013 which relate primarily to research and development expenditures pool and non-capital loss carryforwards. The Company has provided a 100% valuation allowance against these Canadian deferred tax assets.
During fiscal 2013, the Company reversed a portion of its deferred tax asset valuation allowance corresponding to the amount of NOLs utilized to offset taxable income. In addition, pursuant to the fiscal 2013 evaluation of the future utilizability of deferred tax assets, the Company reversed substantially all of the remaining valuation allowance at the end of fiscal 2013, resulting in an income tax benefit of $29.2 million for the year and a net deferred tax assets balance of $41.0 million at year-end. The Company believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets above.
At February 28, 2010,2013, the Company had net operating loss carryforwards (“NOLs”("NOLs") of approximately $72.8$64.9 million and $88.6$81.7 million for federal and state purposes, respectively, expiring at various dates through fiscal 2030.
In 2008, the State of California adopted legislation that suspended the use of NOLs for tax years beginning on or after January 1, 2008 and 2009. In 2010, the suspension was extended two years through the end of 2011. Under current California law the use of NOLs was reinstated for tax years beginning on or after January 1, 2012.
As of February 28, 2010,2013, the Company had a foreign tax credit carryforward of $0.2 million expiring in fiscal 2014 and research and development (“R&D”) tax credit carryforwards of $839,000 expiring at various dates through 2019 and research and development tax credit carryforwards of $2.5$4.6 million and $2.8$3.9 million for federal and state income tax purposes, respectively, expiringrespectively. The federal R&D credits expire at various dates through 2030.2033. A substantial portion of the state R&D tax credits have no expiration date.
41
A reconciliation of the beginning and ending amount of unrecognized tax benefits for uncertain tax positionpositions is as follows (in thousands):
Balance at February 28, 2008 | $ | 6,284 | ||
Increase in fiscal 2009 | 165 | |||
Balance at February 28, 2009 | 6,449 | |||
Decrease in fiscal 2010 | (5,184 | ) | ||
Balance at February 28, 2010 | $ | 1,265 | ||
Balance at February 28, 2010 | $ | 1,265 | ||
Decrease in fiscal 2011 | - | |||
Balance at February 28, 2011 | 1,265 | |||
Decrease in fiscal 2012 | (174 | ) | ||
Balance at February 28, 2012 | 1,091 | |||
Decrease in fiscal 2013 | (2 | ) | ||
Balance at February 28, 2013 | $ | 1,089 |
The Company files income tax returns in the U.S. federal jurisdiction, various U.S. states, Canada and foreign jurisdictions.New Zealand. Income tax returns filed for fiscal years 20022008 and earlier are not subject to examination by U.S. federal and state tax authorities. Certain income tax returns for fiscal years 20032009 through 20102013 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 incomeIncome tax returns for fiscal years 20072010 through 20102013 remain open to examination by Canada federal and Quebec provincial tax authorities.authorities in Canada. The Company believes that it has made adequate provision for all income tax uncertainties pertaining to these open tax years.
NOTE 8 — STOCKHOLDERS’– STOCKHOLDERS' EQUITY
Sale of Common Stock
In February 2013, the Company raised cash of $44.8 million, net of underwriter discount and offering costs, from a public offering of 5,175,000 shares of its common stock.
Equity Awards
Under the Company’sCompany's 2004 Incentive Stock Plan (the “2004 Plan”"2004 Plan"), which was adopted on July 30, 2004 and was amended effective July 30, 2009, various types of equity awards can be made, including stock options, stock appreciation rights, restricted stock, restricted stock units (RSUs), phantom stock and bonus stock. To date, only stock options, restricted stock, RSUs and bonus stock have been granted under the 2004 Plan. Options are generally granted with exercise prices equal to market value on the date of grant. Substantially all option grants expire 10 years after the date of grant.
Equity awards to officers and other employees become exercisable on a vesting schedule established by the Compensation Committee of the Board of Directors at the time of grant, generally over a four-year period. Options can no longer be granted under the Company’s 1999 Stock Option Plan.
42
Weighted | ||||||||
Number of | Average | |||||||
Options | Option Price | |||||||
Outstanding at February 28, 2007 | 2,461 | $ | 10.33 | |||||
Granted | 355 | 4.46 | ||||||
Exercised | (66 | ) | 3.24 | |||||
Forfeited or expired | (368 | ) | 11.03 | |||||
Outstanding at February 28, 2008 | 2,382 | 9.54 | ||||||
Granted | 578 | 2.42 | ||||||
Exercised | (50 | ) | 1.75 | |||||
Forfeited or expired | (1,041 | ) | 8.36 | |||||
Outstanding at February 28, 2009 | 1,869 | 8.20 | ||||||
Granted | 320 | 1.48 | ||||||
Exercised | (1 | ) | 1.32 | |||||
Forfeited or expired | (165 | ) | 24.39 | |||||
Outstanding at February 28, 2010 | 2,023 | $ | 5.82 | |||||
Exercisable at February 28, 2010 | 1,144 | $ | 8.06 | |||||
Weighted | ||||||
Number of | Average | |||||
Options | Exercise Price | |||||
Outstanding at February 28, 2010 | 2,023 | $ | 5.82 | |||
Granted | 186 | 2.34 | ||||
Exercised | - | - | ||||
Forfeited or expired | (101 | ) | 19.23 | |||
Outstanding at February 28, 2011 | 2,108 | 4.87 | ||||
Granted | 163 | 3.42 | ||||
Exercised | (16 | ) | 1.68 | |||
Forfeited or expired | (92 | ) | 4.98 | |||
Outstanding at February 28, 2012 | 2,163 | 4.78 | ||||
Granted | 84 | 7.01 | ||||
Exercised | (466 | ) | 2.78 | |||
Forfeited or expired | (125 | ) | 3.90 | |||
Outstanding at February 28, 2013 | 1,656 | $ | 5.53 | |||
Exercisable at February 28, 2013 | 1,377 | $ | 5.82 |
In July 2012, upon the 50,000 stocknet share settlement exercise of 168,000 options exercised during the fiscal 2009, 39,498 shares underlying such exercised options were retainedheld by a former executive officer of the Company, in a “net-share” settlementthe Company retained 93,691 shares to cover the aggregateoption exercise price and theminimum required statutory amount of employee withholding taxes.
Changes in the Company’s nonvestedCompany's outstanding restricted stock shares and RSUs during fiscal years 2010, 20092013, 2012 and 20082011 were as follows (shares and RSUs in thousands):
Weighted | ||||||||
Number of | Average Grant | |||||||
Shares | Date Fair | |||||||
and RSUs | Value | |||||||
Outstanding at February 28, 2007 | 20 | $ | 6.51 | |||||
Granted | 542 | 3.71 | ||||||
Vested | (80 | ) | 4.84 | |||||
Forfeited | (8 | ) | 4.28 | |||||
Outstanding at February 28, 2008 | 474 | 3.63 | ||||||
Granted | 633 | 2.06 | ||||||
Vested | (149 | ) | 3.76 | |||||
Forfeited | (51 | ) | 3.87 | |||||
Outstanding at February 28, 2009 | 907 | 2.50 | ||||||
Granted | 1,147 | 1.81 | ||||||
Vested | (231 | ) | 2.49 | |||||
Forfeited | (39 | ) | 2.26 | |||||
Outstanding at February 28, 2010 | 1,784 | $ | 2.06 | |||||
Weighted | ||||||
Number of | Average Grant | |||||
Shares | Date Fair | |||||
and RSUs | Value | |||||
Outstanding at February 28, 2010 | 1,784 | $ | 2.06 | |||
Granted | 863 | 2.34 | ||||
Vested | (544 | ) | 2.15 | |||
Forfeited | (58 | ) | 1.78 | |||
Outstanding at February 28, 2011 | 2,045 | 2.16 | ||||
Granted | 762 | 3.59 | ||||
Vested | (819 | ) | 2.21 | |||
Forfeited | (59 | ) | 1.99 | |||
Outstanding at February 28, 2012 | 1,929 | 2.71 | ||||
Granted | 440 | 7.50 | ||||
Vested | (916 | ) | 2.53 | |||
Forfeited | (115 | ) | 2.85 | |||
Outstanding at February 28, 2013 | 1,338 | $ | 4.40 |
The Company retained 71,293308,998, 279,764 and 43,430169,854 shares of the vested restricted stock shares and RSUs to cover the minimum required statutory amount of employee withholding taxes in fiscal 20102013, 2012 and 2009,2011, respectively. In addition, the Company issued 36,000 bonus stock shares in fiscal 2009, of which 13,242 shares were retained by the Company to cover the required amount of employee withholding taxes.
As of February 28, 2010,2013, there were 2,047,173738,479 award units in the 2004 Plan that were available for grant.
43
The fair value of options at the grant date of grant was estimateddetermined using the Black-Scholes option pricing model with the following assumptions:
Year Ended February 28, | ||||||
Black-Scholes Valuation Assumptions | 2010 | 2009 | 2008 | |||
Expected life (years) (1) | 6 | 6 | 6 | |||
Expected volatility (2) | 74%-79% | 63%-64% | 61%-64% | |||
Risk-free interest rates (3) | 2.0%-3.0% | 2.7%-3.5% | 4.5%-4.6% | |||
Expected dividend yield | 0% | 0% | 0% |
Year Ended February 28, | |||||||
Black-Scholes Valuation Assumptions | 2013 | 2012 | 2011 | ||||
Expected life (years) (1) | 6 | 6 | 6 | ||||
Expected volatility (2) | 63% | 73% | 74% | ||||
Risk-free interest rates (3) | 0.8% | 1.9% | 2.1% | ||||
Expected dividend yield | 0% | 0% | 0% |
(1) | The expected life of stock options is estimated based on historical experience. | |
(2) | The expected volatility is estimated based on historical volatility of the | |
(3) | Based on the U.S. Treasury constant maturity interest rate whose term is consistent with the expected life of the stock options. |
The weighted average fair value for stock options granted in fiscal years 2010, 20092013, 2012 and 20082011 was $1.02, $1.45,$4.41, $2.22, and $2.71,$1.54, respectively.
The weighted average remaining contractual term and the aggregate intrinsic value of outstanding options outstanding as of February 28, 20102013 was 4.84.9 years and $634,000,$9.6 million, respectively. The weighted average remaining contractual term and the aggregate intrinsic value of exercisable options exercisable as of February 28, 20102013 was 4.84.2 years and $52,000,$7.7 million, respectively. The total intrinsic value for stock options exercised during the year ended February 28, 2010 was $2,130. Net cash proceeds from the exercise of stock options for the years ended February 28, 2010, 2009 and 2008 were $1,000, $0 and $213,000, respectively.
Stock-based compensation expense for the years ended February 28, 2010, 20092013, 2012 and 20082011 is included in the following captions of the consolidated statements of operations (in thousands):
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Cost of revenues | $ | 164 | $ | 75 | $ | 64 | ||||||
Research and development | 298 | 257 | 205 | |||||||||
Selling | 133 | 102 | 294 | |||||||||
General and administrative | 1,386 | 834 | 1,590 | |||||||||
$ | 1,981 | $ | 1,268 | $ | 2,153 | |||||||
Year Ended February 28, | |||||||||
2013 | 2012 | 2011 | |||||||
Cost of revenues | $ | 136 | $ | 100 | $ | 151 | |||
Research and development | 450 | 388 | 339 | ||||||
Selling | 252 | 204 | 209 | ||||||
General and administrative | 2,072 | 1,683 | 1,410 | ||||||
$ | 2,910 | $ | 2,375 | $ | 2,109 |
As of February 28, 2010,2013, there was $3.8$5.1 million of total unrecognized stock-based compensation cost related to nonvested equity awards. That cost is expected to be recognized over a weighted-average remaining vesting period of 2.7 years.
Tax Benefits from Exercise of Stock WarrantsOptions and Vesting of Restricted Stock and RSU Awards
Total cash received as a result of option exercises in fiscal 2013 was $912,000. The aggregate fair value of options exercised and vested restricted stock-based awards as of the exercise date or vesting date was $8,795,000 for fiscal 2013. In December 2007,connection with these option exercises and vested restricted stock-based awards, the excess tax benefits were $2,217,000 for fiscal 2013. The Company had elected a policy of applying the “with-and-without” approach to determine realized tax benefits. Under this policy, none of the current year excess deductions would have been deemed to reduce regular taxes payable because the Company’s NOL carryforwards would be deemed to reduce taxes payable prior to the utilization of any excess tax deductions from the exercise of stock options and vesting of restricted stock-based awards. The excess tax benefits when realized by the Company issued to a DBS customer a fully vested warrant to purchase 350,000 sharesunder the with-and-without approach will be recorded as an increase in additional paid-in capital in the consolidated balance sheet and will be classified as cash flows from financing activities rather than cash flows from operating activities in the consolidated cash flow statement. The cumulative amount of common stock at an exercise priceunrecognized excess tax benefits for all years through the end of $3.72 per share, exercisable for three years.
Stock Warrants
In December 2009 and Januaryfiscal 2010, the Company issued a total of 500,000 common stock purchase warrants to the Subordinated Note holders at an exercise price of $4.02 per share, which representsrepresented a 20% premium to the average closing price of the Company’sCompany's common stock for the 20 consecutive trading days prior to December 22, 2009. These warrants arewere exercisable until December 22, 2012. During fiscal 2013, the Company received cash of $1,879,000 from the exercise of 467,500 common stock purchase warrants that were held by non-affiliates of the Company. In addition, the Company retained 15,850 shares to pay for the exercise price of 32,500 warrants held directly or beneficially by two officers and one director of the Company that were exercised on a net share settlement basis.
44
NOTE 9 – EARNINGS PER SHARE
Following is a share of Series A Participating Junior Preferred Stock at a purchase price of $50 per right, subject to adjustment. The rights may be exercised only after commencement or public announcement that a person (other than a person receiving prior approval from the Company) has acquired or obtained the right to acquire 20% or moresummary of the Company’s outstanding common stock. The rights, which do not have voting rights, may be redeemed by the Company at a pricecalculation of $.01 per right within ten days after the announcement that a person has acquired 20% or more of the outstanding common stock of the Company. In the event that the Company is acquired in a merger or other business combination transaction, provision shall be made so that each holder of a right shall have the right to receive that number of shares of common stock of the surviving company which at the time of the transaction would have a market value of two times the exercise price of the right. 750,000 shares of Series A Junior Participating Cumulative Preferred Stock, $.01 par value, are authorized.
Year Ended February 28, | ||||||
2013 | 2012 | 2011 | ||||
Basic weighted average number of common | ||||||
shares outstanding | 28,886 | 27,658 | 27,181 | |||
Effect of stock options, restricted stock, | ||||||
RSUs and warrants computed on | ||||||
treasury stock method | 1,096 | 800 | - | |||
Diluted weighted average number of common | ||||||
shares outstanding | 29,982 | 28,458 | 27,181 |
Shares underlying stock options amounting to 322,000 at February 28, 2013 were excluded from the calculations of diluted earnings per share for all periods presented. Potentially dilutivefiscal 2013 because based on the exercise prices of these derivative securities (options,their inclusion would have been anti-dilutive under the treasury stock method.
Shares underlying stock options and warrants nonvested restricted stock and RSUs) outstanding amounting to 4,677,000, 3,126,000 and 3,206,000907,000 at February 28, 2010, 20092012 were excluded from the calculations of diluted earnings per share for fiscal 2012 because based on the exercise prices of these derivative securities their inclusion would have been anti-dilutive under the treasury stock method.
Shares underlying stock awards and 2008, respectively,warrants amounting to 4,673,000 at February 28, 2011 were excluded from the computation of diluted earnings per share for fiscal 2011 because the Company reported a net loss during that year and hence the effect of inclusion would be antidilutivehave been anti-dilutive (i.e., including such securities would resulthave resulted in a lower loss per share).
NOTE 10 —– OTHER FINANCIAL INFORMATION
Other Current Liabilities
February 28, | ||||||||
2010 | 2009 | |||||||
Income taxes payable | $ | 9 | $ | 5,218 | ||||
Accrued warranty costs | 1,231 | 3,286 | ||||||
Other | 2,286 | 3,465 | ||||||
$ | 3,526 | $ | 11,969 | |||||
"Net cash provided (used) by operating activities”activities" in the consolidated statements of cash flows includes cash payments for interest expense and income taxes as follows (in thousands):
Year Ended February 28, | |||||||||||
2013 | 2012 | 2011 | |||||||||
Interest expense paid | $ | 127 | $ | 756 | $ | 1,076 | |||||
Income tax paid (net refunds received) | $ | 156 | $ | (64 | ) | $ | (803 | ) |
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Interest paid | $ | 942 | $ | 1,615 | $ | 2,322 | ||||||
Income taxes refunded | $ | (6 | ) | $ | (792 | ) | $ | (1,645 | ) |
45
Year Ended February 28, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Non-cash consideration issued in partial satisfaction of product performance claim by key customer: | ||||||||||||
Common stock | $ | — | $ | — | $ | 2,560 | ||||||
Warrants | $ | — | $ | — | $ | 252 | ||||||
Subordinated note payable | $ | — | $ | — | $ | 5,000 | ||||||
Non-cash consideration received from the sale of the Solutions Division’s TelAlert software business: | ||||||||||||
Note receivable, net of payments received | $ | — | $ | — | $ | 1,970 | ||||||
Fair value of preferred stock | $ | — | $ | — | $ | 3,137 | ||||||
Earn-out amount for TechnoCom acquistion, net of payments | $ | — | $ | — | $ | 1,284 |
Year Ended | ||||||
February 28, | ||||||
2013 | 2012 | |||||
Acquisition of Navman Wireless product lines on May 7, 2012: | ||||||
Non-interest bearing $4,000 promissory note issued | ||||||
to Navman Wireless, less discount of $920 | $ | 3,080 | $ | - | ||
Accrued liability for earn-out consideration payable | ||||||
to Navman Wireless | $ | 822 | $ | - |
Valuation and Qualifying Accounts
Following is the Company’sCompany's schedule of valuation and qualifying accounts for the last three years (in thousands):
Charged | ||||||||||||||
Balance at | (credited) | Balance at | ||||||||||||
beginning | to costs and | end of | ||||||||||||
of period | expenses | Deductions | period | |||||||||||
Allowance for doubtful accounts: | ||||||||||||||
Fiscal 2011 | $ | 413 | $ | 386 | $ | (509 | ) | $ | 290 | |||||
Fiscal 2012 | $ | 290 | $ | 114 | $ | (150 | ) | $ | 254 | |||||
Fiscal 2013 | $ | 254 | $ | 241 | $ | (34 | ) | $ | 461 | |||||
Warranty reserve: | ||||||||||||||
Fiscal 2011 | $ | 1,231 | $ | 647 | $ | (1,178 | ) | $ | 700 | |||||
Fiscal 2012 | $ | 700 | $ | 635 | $ | (341 | ) | $ | 994 | |||||
Fiscal 2013 | $ | 994 | $ | 910 | $ | (576 | ) | $ | 1,328 | |||||
Deferred tax assets valuation allowance: | ||||||||||||||
Fiscal 2011 | $ | 41,297 | $ | 1,652 | $ | (1,767 | ) | $ | 41,182 | |||||
Fiscal 2012 | $ | 41,182 | $ | 1,816 | $ | (3,944 | ) | $ | 39,054 | |||||
Fiscal 2013 | $ | 39,054 | $ | (35,095 | ) | $ | - | $ | 3,959 |
Charged | ||||||||||||||||||||
Balance | (credited) | |||||||||||||||||||
at | to costs | Balance | ||||||||||||||||||
beginning | and | at end of | ||||||||||||||||||
Allowance for doubtful accounts: | of period | expenses | Deductions | Other | period | |||||||||||||||
Fiscal 2008 | $ | 347 | $ | 1,398 | $ | (1,111 | ) | $ | 637 | (1) | $ | 1,271 | ||||||||
Fiscal 2009 | 1,271 | (507 | ) | (212 | ) | — | 552 | |||||||||||||
Fiscal 2010 | 552 | 486 | (625 | ) | — | 413 |
Charged | ||||||||||||||||||||
Balance | (credited) | |||||||||||||||||||
at | to costs | Balance | ||||||||||||||||||
beginning | and | at end of | ||||||||||||||||||
Warranty reserve: | of period | expenses | Deductions | Other | period | |||||||||||||||
Fiscal 2008 | $ | 1,295 | $ | 13,435 | $ | (1,049 | ) | $ | (8,812 | )(2) | $ | 4,869 | ||||||||
Fiscal 2009 | 4,869 | 353 | (1,936 | ) | — | 3,286 | ||||||||||||||
Fiscal 2010 | 3,286 | 305 | (2,360 | ) | — | 1,231 |
46
Operating Lease Commitments
The Company leases thea building in Oxnard, California that houses its corporate office Satellite segment offices and U.S. manufacturing plant in Oxnard, Californiafacilities under an operating lease that expires on June 30, 2011.2016. The lease agreement requires the Company to pay all maintenance, property taxes and insurance premiums associated with the building. The Wireless DataCom segmentIn addition, the Company leases other facilities in California, Minnesota, Georgia, Canada and Canada.New Zealand. The Company also leases certain manufacturing equipment and office equipment under operating lease arrangements. A summary of future operating lease commitments is included in the contractual cash obligations table in Note 6.
DBS Product Field Performance IssuesSupplier Guarantee
The Company has guaranteed the debt of a supplier to a third party. The Company received notification from one of its DBS customers of field performance issues with a DBS producthas recourse against the supplier in the event that the Company began shipping in 2004. 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 ofis required to make 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, which is included in cost of revenues.
guaranty.
4745
From time to time isas a party, either as plaintiffnormal consequence of doing business, various claims and litigation may be asserted or defendant, to various legal proceedings and claims that arisecommenced against the Company. In particular, the Company in the ordinary course of business.business may receive claims concerning contract performance, or claims that its products or services infringe the intellectual property of third parties. While the outcome of theseany such claims or litigation cannot be predicted with certainty, management does not believe that the outcome of any of these legalsuch matters willexisting at the present time would have a material adverse effect on the Company’sCompany's consolidated financial position or results of operations.
NOTE 13 —– SEGMENT AND GEOGRAPHIC DATA
Information by business segment is as follows:
Year ended February 28, 2010 | Year ended February 28, 2009 | |||||||||||||||||||||||||||||||
Operating Segments | Operating Segments | |||||||||||||||||||||||||||||||
Wireless | Wireless | |||||||||||||||||||||||||||||||
Satellite | DataCom | Corporate | Total | Satellite | DataCom | Corporate | Total | |||||||||||||||||||||||||
Revenues | $ | 54,715 | $ | 57,398 | $ | 112,113 | $ | 26,327 | $ | 72,043 | $ | 98,370 | ||||||||||||||||||||
Gross profit | $ | 4,258 | $ | 18,132 | $ | 22,390 | $ | 10,254 | $ | 27,872 | $ | 38,126 | ||||||||||||||||||||
Gross margin | 7.8 | % | 31.6 | % | 20.0 | % | 38.9 | % | 38.7 | % | 38.8 | % | ||||||||||||||||||||
Operating income (loss) | $ | (111 | ) | $ | (5,867 | ) | $ | (4,007 | ) | $ | (9,985 | ) | $ | 3,616 | $ | (42,206 | ) | $ | (6,394 | ) | $ | (44,984 | ) |
Year ended February 28, 2013 | Year ended February 28, 2012 | |||||||||||||||||||||||||||||||
Operating Segments | Operating Segments | |||||||||||||||||||||||||||||||
Wireless | Corporate | Wireless | Corporate | |||||||||||||||||||||||||||||
DataCom | Satellite | Expenses | Total | DataCom | Satellite | Expenses | Total | |||||||||||||||||||||||||
Revenues | $ | 139,503 | $ | 41,076 | $ | 180,579 | $ | 99,121 | $ | 39,607 | $ | 138,728 | ||||||||||||||||||||
Gross profit | $ | 50,005 | $ | 6,888 | $ | 56,893 | $ | 38,632 | $ | 3,387 | $ | 42,019 | ||||||||||||||||||||
Gross margin | 35.8 | % | 16.8 | % | 31.5 | % | 39.0 | % | 8.6 | % | 30.3 | % | ||||||||||||||||||||
Operating income (loss) | $ | 16,844 | $ | 3,111 | $ | (3,975 | ) | $ | 15,980 | $ | 11,564 | $ | (292 | ) | $ | (3,902 | ) | $ | 7,370 |
Year ended February 28, 2011 | ||||||||||||||||
Operating Segments | ||||||||||||||||
Wireless | Corporate | |||||||||||||||
DataCom | Satellite | Expenses | Total | |||||||||||||
Revenues | $ | 78,434 | $ | 35,899 | $ | 114,333 | ||||||||||
Gross profit | $ | 27,922 | $ | 1,636 | $ | 29,558 | ||||||||||
Gross margin | 35.6 | % | 4.6 | % | 25.9 | % | ||||||||||
Operating income (loss) | $ | 4,218 | $ | (2,903 | ) | $ | (3,375 | ) | $ | (2,060 | ) |
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Year ended February 28, 2008 | ||||||||||||||||
Operating Segments | ||||||||||||||||
Wireless | ||||||||||||||||
Satellite | DataCom | Corporate | Total | |||||||||||||
Revenues | $ | 50,490 | $ | 90,417 | $ | 140,907 | ||||||||||
Gross profit (loss) | $ | (14,808 | ) | $ | 33,303 | $ | 18,495 | |||||||||
Gross margin | (29.3 | %) | 36.8 | % | 13.1 | % | ||||||||||
Operating loss | $ | (63,924 | ) | $ | (30,473 | ) | $ | (6,421 | ) | $ | (100,818 | ) |
It is not practicable for the Company to report identifiable assets by segment because these businesses share resources, functions and facilities.
The Company’sCompany's revenues were derived mainly from customers in the United States, which represented 93%82%, 89% and 94%91% of consolidated revenues in fiscal 2010, 20092013, 2012 and 2008,2011, respectively. No single foreign country accounted for more than 10%5% of the Company’sCompany's revenue in fiscal 2009.2013, 2012 or 2011.
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NOTE 14 —– EMPLOYEE SAVINGS PLAN
The Company maintains a 401(k) Employee Savings Plan in the U.S. and retirement savings plans in Canada and New Zealand in which all employees of these respective countries are eligible to participate. The Company may make matching contributions to the savings plans as authorized by the Board of Directors. The Company reinstated the matching contributions to the U.S. and Canadian savings plans effective at the beginning of calendar 2011 equal to one-half of the first 4% of participants’ compensation contributed to the plans. The New Zealand savings plan provides for matching contributions equal to the first 2% of participants’ compensation contributed to the plan. The Company recorded expense for the matching contributions of $355,000, $312,000 and $58,000 in fiscal years 2013, 2012 and 2011, respectively.
NOTE 15 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following summarizes certain quarterly statement of operations data for each of the quarters in fiscal years 20102013 and 20092012 (in thousands, except percentages and per share data):
Fiscal 2013 | ||||||||||||||||||||
First | Second | Third | Fourth | |||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Total | ||||||||||||||||
Revenues | $ | 43,861 | $ | 43,987 | $ | 44,340 | $ | 48,391 | $ | 180,579 | ||||||||||
Gross profit | $ | 13,676 | $ | 14,135 | $ | 14,032 | $ | 15,050 | $ | 56,893 | ||||||||||
Gross margin | 31.2 | % | 32.1 | % | 31.6 | % | 31.1 | % | 31.5 | % | ||||||||||
Net income | $ | 4,182 | $ | 3,659 | $ | 4,155 | $ | 32,630 | $ | 44,626 | ||||||||||
Earnings per diluted share | $ | 0.14 | $ | 0.12 | $ | 0.14 | $ | 1.06 | $ | 1.49 |
Fiscal 2012 | ||||||||||||||||||||
First | Second | Third | Fourth | |||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Total | ||||||||||||||||
Revenues | $ | 34,554 | $ | 33,801 | $ | 32,752 | $ | 37,621 | $ | 138,728 | ||||||||||
Gross profit | $ | 9,432 | $ | 11,825 | $ | 10,169 | $ | 10,593 | $ | 42,019 | ||||||||||
Gross margin | 27.3 | % | 35.0 | % | 31.0 | % | 28.2 | % | 30.3 | % | ||||||||||
Net income | $ | 520 | $ | 1,356 | $ | 1,700 | $ | 1,642 | $ | 5,218 | ||||||||||
Earnings per diluted share | $ | 0.02 | $ | 0.05 | $ | 0.06 | $ | 0.06 | $ | 0.18 |
NOTE 16 – SUBSEQUENT EVENTS
New Bank Term Loan
On March 4, 2013, the Company entered into a new term loan with Square 1 Bank and paid off an existing term loan that had an outstanding principal balance of $1.8 million. See Note 6 for additional details.
Wireless Matrix Acquisition
On March 4, 2013, the Company completed the acquisition of all outstanding capital stock of Wireless Matrix USA, Inc. (“Wireless Matrix”). Under the terms of the agreement, the Company acquired Wireless Matrix for a cash payment of $52.9 million, subject to adjustment. The assets acquired by the Company included cash of approximately $6 million. The Company funded the purchase price from the net proceeds of its recently completed equity offering of $44.8 million, the net proceeds from the new bank term loan described above, and cash on hand.
Fiscal 2010 | ||||||||||||||||||||
First | Second | Third | Fourth | |||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Total | ||||||||||||||||
Revenues | $ | 23,000 | $ | 23,940 | $ | 30,692 | $ | 34,481 | $ | 112,113 | ||||||||||
Gross profit | 4,707 | 4,804 | 5,897 | 6,982 | 22,390 | |||||||||||||||
Gross margin | 20.5 | % | 20.1 | % | 19.2 | % | 20.2 | % | 20.0 | % | ||||||||||
Net loss | (3,957 | ) | (4,243 | ) | (1,319 | ) | (1,332 | ) | (10,851 | ) | ||||||||||
Net loss per diluted share | (0.16 | ) | (0.17 | ) | (0.05 | ) | (0.05 | ) | (0.43 | ) |
Fiscal 2009 | ||||||||||||||||||||
First | Second | Third | Fourth | |||||||||||||||||
Quarter | Quarter | Quarter | Quarter | Total | ||||||||||||||||
Revenues | $ | 27,901 | $ | 23,308 | $ | 25,834 | $ | 21,327 | $ | 98,370 | ||||||||||
Gross profit | 9,429 | 7,468 | 7,641 | 13,588 | 38,126 | |||||||||||||||
Gross margin | 33.8 | % | 32.0 | % | 29.6 | % | 63.7 | % | 38.8 | % | ||||||||||
Net loss | (497 | ) | (1,498 | ) | (1,838 | ) | (45,832 | ) | (49,665 | ) | ||||||||||
Net loss per diluted share | (0.02 | ) | (0.06 | ) | (0.07 | ) | (1.85 | ) | (2.01 | ) |
The Company has not yet obtained all information required to complete the purchase price allocation related to this acquisition. The final allocation will be completed in fiscal 2014. Following is the unaudited preliminary purchase price allocation (in thousands):
Purchase Price | $ | 52,857 | ||||||
Less Cash acquired | (6,149 | ) | ||||||
Net cash paid | 46,708 | |||||||
Fair value of net assets acquired: | ||||||||
Current assets other than cash | 6,362 | |||||||
Property and equipment | 1,683 | |||||||
Customer lists | 14,440 | |||||||
Developed/core technology | 11,180 | |||||||
Current liabilities | (4,331 | ) | ||||||
Total fair value of net assets acquired | 29,334 | |||||||
Goodwill | $ | 17,374 |
The Company paid a premium (i.e., goodwill) over the fair value of the net tangible and identified intangible assets acquired. The Company expects to leverage Wireless Matrix’s mobile workforce management and asset tracking applications to build upon its current product offerings for its customers in the Energy, Government and Transportation markets. It also believes an opportunity exists to expand its turnkey offerings to global enterprise customers in new vertical markets such as Construction, Agriculture and Mining, among others. The Company believes that this acquisition will accelerate its development roadmap, enable it to offer higher margin turnkey solutions for new and existing customers, and further increase its relevance with mobile network operators and key channel partners in the global M2M marketplace.
The goodwill arising from the Wireless Matrix acquisition is not deductible for income tax purposes.
Following is unaudited supplemental pro forma information presented as if the acquisition had occurred on March 1, 2011. The pro forma financial information is not necessarily indicative of what the Company's actual results of operations would have been had Wireless Matrix been included in the Company's historical consolidated financial statements for years ended February 28, 2013 and 2012. In addition, the pro forma financial information does not attempt to project the future results of operations of the combined company.
(in thousands) | |||||||
Pro Forma Year Ended | |||||||
February 28, | |||||||
2013 | 2012 | ||||||
Revenue | $ | 208,219 | $ | 164,927 | |||
Net Income (loss) | $ | 37,467 | $ | (296 | ) |
The pro forma adjustments for the year ended February 28, 2013 and 2012 consist of adding Wireless Matrix's results of operations for the 12-month periods ended January 31, 2013 and April 30, 2012, respectively. Wireless Matrix’s three-month period ended April 30, 2012 is included in the pro forma revenue and net income (loss) for both 12-month periods. Wireless Matrix had revenues and a net loss of $8,883,000 and $(187,000), respectively, in the fiscal 2009 fourth quarter included impairment charges of $44.7 million andthis duplicated three-month period.
The pro forma net income tax(loss) above includes additional amortization expense of $6.0 million, partially offset by$4,751,000 in both of these 12-month periods related to the $9 million reductionestimated fair value of cost of revenues as a result ofidentifiable intangible assets arising from the legal settlement with Rogers.
preliminary purchase price allocation.
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ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Not applicable.
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ITEM 9A(T).9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’sCompany'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) of the Securities Exchange Act of 1934),1934, as amended (the “Exchange Act”"Exchange Act")) as of February 28, 2010,2013, that the Company’sCompany's disclosure controls and procedures are effective, at the reasonable assurance level, 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 thatto allow such information isto be recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission.
Management’sManagement's Report on Internal Control over Financial Reporting
The Company’s management of CalAmp Corp. is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
The Company’s management of CalAmp Corp. has assessed the effectiveness of the Company’sCompany's internal control over financial reporting as of February 28, 2010.2013. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal"Internal Control —- Integrated Framework”Framework". Based on its assessment, management of CalAmp Corp.the Company has concluded that as of February 28, 2010,2013 the Company’sCompany's internal control over financial reporting is effective based on those criteria.
The effectiveness of the Company’s internal control over financial reporting as of February 28, 2013 has been audited by SingerLewak LLP, an independent registered public accounting firm, regarding internal control over financial reporting. Management’sas stated in their report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary ruleswhich is included in Part II, Item 8 of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’sCompany's internal control over financial reporting during the fourth quarter of fiscal 20102013 that have materially affected, or are reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Compensatory Arrangements of Executive Officers
On February 18, 2010,April 22, 2013, the Board of Directors of the Company, upon the recommendation of the Compensation Committee, established the target and maximum bonuses and performance goals under the fiscal 20112013 executive officer incentive compensation plan. The individuals covered by the fiscal 20112013 executive officer incentive compensation plan are:
President and Chief Executive Officer
Executive Vice President, CFO and Secretary/Treasurer
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information about executive officers is included in Part I, Item 1 of this Annual Report on Form 10-K.
The following information required by this Item will be included in the Company’sCompany's definitive proxy statement for the Annual Meeting of Stockholders to be held on July 29, 201025, 2013 and is incorporated herein by reference in response to this item:
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under the caption “Executive Compensation”"Executive Compensation" in the Company’sCompany's definitive proxy statement for the Annual Meeting of Stockholders to be held on July 29, 201025, 2013 is incorporated herein by reference in response to this item.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The information required by this Item will be set forth under the caption “Stock Ownership”"Stock Ownership" in the Company’sCompany's definitive proxy statement for the Annual Meeting of Stockholders to be held on July 29, 201025, 2013 and is incorporated herein by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information contained under the captions “Certain"Certain Relationships and Related Transactions”Transactions" and “Director Independence”"Director Independence" in the Company’sCompany's definitive proxy statement for the Annual Meeting of Stockholders to be held on July 29, 201025, 2013 is incorporated herein by reference in response to this item.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information containedrequired by this Item will be set forth under the caption “Independent"Independent Public Accountants”Accountants" in the Company’sCompany's definitive proxy statement for the Annual Meeting of Stockholders to be held on July 29, 201025, 2013 and is incorporated herein by reference in response to this item.
reference.
5150
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Report:
1. | The following consolidated financial statements of CalAmp Corp. and subsidiaries are filed as part of this report under Item 8 |
Form 10-K | ||||
Page No. | ||||
Reports of Independent Registered Public Accounting | 25-26 | |||
Consolidated Balance Sheets | 27 | |||
Consolidated Statements of Operations | ||||
and Comprehensive Income (Loss) | 28 | |||
Consolidated Statements of | 29 | |||
Consolidated Statements of Cash Flows | 30 | |||
Notes to Consolidated Financial Statements | 31 |
2.Financial Statements Schedules:
Schedule II —– Valuation and Qualifying Accounts is included in the consolidated financial statements which are filed as part of this report under Item 8 —– Financial Statements and Supplementary Data.
All other financial statement schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.
3.Exhibits
Exhibits required to be filed as part of this report are:
Exhibit | |||||||
Number | Description | ||||||
3.1 | Amended and Restated Certificate of Incorporation reflecting the | ||||||
3.2 | Bylaws of the Company (incorporated by reference to Exhibit 3.2 of the | ||||||
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10. | Material Contracts: | ||||||
(i) Other than Compensatory Plan or Arrangements: | |||||||
10.1 | Building lease dated June 10, 2003 between the Company and Sunbelt Enterprises for |
10.2 | First Amendment to building lease dated December 20, 2010 between the Company and Sunbelt Enterprises for facility in Oxnard, California (incorporated by reference to Exhibit 10.2 of the Company's Report on Form 10-K for the year ended February 28, 2011). | ||||||
10.3 | Form of Directors and Officers Indemnity Agreement (incorporated by reference to Exhibit 10.3 of the | ||||||
10.4 | Loan and Security Agreement dated December 22, 2009 between Square 1 Bank, CalAmp Corp. and | ||||||
10.5 | |||||||
10.6 | Amendment dated December 22, 2010 to Loan | ||||||
10.7 | Amendment dated August 15, 2011 to Loan and Security Agreement between Square 1 Bank, CalAmp Corp. and CalAmp’s domestic subsidiaries (incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K dated August 15, 2011). | ||||||
10.8 | Amendment dated March 1, 2013 to Loan and Security Agreement between Square 1 Bank, CalAmp Corp. and CalAmp’s principal domestic subsidiary (incorporated by reference to Exhibit 10.1 of the Company's Report on Form 8-K dated March 1, 2013). | ||||||
(ii) | Compensatory Plans or Arrangements required to be filed as Exhibits to this Report pursuant to Item 15 (b) of this Report: | ||||||
10.9 | Share Purchase Agreement by and among CalAmp Corp, Wireless Matrix Corporation and Wireless Matrix USA, Inc. dated December 20, 2012 (incorporated by reference to Exhibit 2.1 of the Company's Current Report on Form 8-K dated December 20, 2012). | ||||||
10.10 | The 1999 Stock Option Plan (incorporated by reference to Exhibit 4.1 of the | ||||||
10.11 | CalAmp Corp. 2004 Stock Incentive Plan as amended and Restated (incorporated by reference to Exhibit | ||||||
10.12 | Employment Agreement between the Company and Richard Vitelle dated May 31, 2002 (incorporated by reference to Exhibit 10.9 | ||||||
10.13 | Employment Agreement between the Company and Michael Burdiek | ||||||
10.14 | Employment Agreement between the Company and Garo Sarkissian dated July 2, 2007 (incorporated by reference to Exhibit 10.2 of the | ||||||
10.15 | Form of Amendment to Executive Officer Employment Agreement | ||||||
53
21 | Subsidiaries of the Registrant. | ||||||
23.1 | Consent of Independent Registered Public Accounting Firm. | ||||||
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||||||
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
SIGNATURES
54
CALAMP CORP. | |||||
By: | /s/ | ||||
Michael Burdiek | |||||
Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | |||
/s/ Frank Perna, Jr. | Chairman of the Board of Directors | April 25, 2013 | |||
Frank Perna, Jr. | |||||
/s/ Kimberly Alexy | Director | April 25, 2013 | |||
Kimberly Alexy | |||||
/s/ Richard Gold | Director | April 25, 2013 | |||
Richard Gold | |||||
/s/ A.J. Moyer | Director | April 25, 2013 | |||
A.J. Moyer | |||||
/s/ Thomas Pardun | Director | April 25, 2013 | |||
Thomas Pardun | |||||
/s/ Larry Wolfe | Director | April 25, 2013 | |||
Larry Wolfe | |||||
/s/ Michael Burdiek | President, Chief Executive Officer and | ||||
Michael Burdiek | Director | ||||
/s/ Richard Vitelle | Executive Vice President, CFO and Secretary/ | ||||
Richard Vitelle | Treasurer (principal accounting and | ||||
financial officer) |
53
55