UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

For the transition period from           to

COMMISSION FILE NUMBER: 0-12182
_________________________________

CALAMP CORP.
(Exact name of Registrant as specified in its Charter)

(949) 600-5600
(Registrant’s telephone number, including area code)
_____________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes☒No☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐ No☒

The number of shares outstanding of the registrant’s common stock as of June 23,September 25, 2017 was 35,396,641.35,601,360.

CALAMP CORP.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED AUGUST 31, 2017

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAMP CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited; amountsAmounts in thousands, except par value)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSSINCOME (LOSS)
(Unaudited; inIn thousands, except per share amounts)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; amountsAmounts in thousands)
(Unaudited)

See accompanying notes to condensed consolidated financial statements.

CALAMP CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED MAYAUGUST 31, 2017 AND 2016

NOTE 1 –- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

CalAmp Corp. (“CalAmp”(referred to herein as “CalAmp”, “the Company”, “we”, “our”, or the “Company”“us”) isa telematics pioneer leadinga transformation in a leading providerglobal connected economy. We help reinvent businesses and improve lives around the globe with technology solutions that streamline complex Internet of Things (“IoT”) enablement solutions fordeployments and bring intelligence to the edge. Our software applications, scalable cloud services, and intelligent devices collect and assess business-critical data from mobile assets, in-transit cargo, companies, state and local governments and people. CalAmp is a broad array of mobile and fixed applications serving multiple vertical markets worldwide.global organization that is headquartered in Irvine, California. In March 2016, the Companywe acquired LoJack Corporation (“LoJack”), which brought the Companyprovides us a vast U.S. auto dealer channel as well as an established international licensee network.

Historically, our business activities were organized into two reportable segments – Wireless DataCom and Satellite. Effective August 31, 2016, we ceased operations of the Satellite business and up through the first quarter of fiscal 2018 reported under one reportable segment: Wireless DataCom. In the quarter ended August 31, 2017, in order to streamline our operations and product line development resources, we realigned our operations and we now operate under two reportable segments: Telematics Systems and Software & Subscription Services.

Certain notes and other information included in the audited financial statements in the Company'sour Annual Report on Form 10-K for the year ended February 28, 2017 are condensed or omitted from the interim financial statements presented in this Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company’sour 2017 Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission on May 15, 2017.

In the opinion of the Company’sour management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary to present fairly the Company’sour financial position at MayAugust 31, 2017 and itsour results of operations for the three and six months ended MayAugust 31, 2017 and 2016. The results of operations for such periods are not necessarily indicative of results to be expected for the full fiscal year.

All significant intercompany transactions and accounts have been eliminated in consolidation.

Revenue Recognition

The Company recognizesWe recognize 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. For product sales that are not bundled with an application service theseor for which we have no continuing service obligations, the revenue recognition criteria are generally met at the time product is shipped except foror installed by the end customer. For product shipments made on the basis of “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. Customers generally do not have a right of return except for defective products returned during the warranty period. The Company recordsWe record estimated commitments related to customer incentive programs as reductions of revenues.

In addition to product sales, the Company provides Software as a Servicewe provide Software-as-a-Service (“SaaS”) and Platform-as-a-Service (“PaaS”) subscriptions for itsour fleet management, vehicle finance and certain other applications through which customers are provided with the ability to wirelessly communicate with monitoring devices installed in vehicles and other mobile or remote assets via software applications hosted by the Company.us. We also enter into arrangements which combine various hardware devices as well as installation and notification services that are provided over a stipulated service period. These arrangements represent multiple element arrangements under ASC 605 Subtopic 25 entitledRevenue Recognition: Multiple-Element Arrangements. Generally, the Company deferswe defer the recognition of revenue for the products that are sold with application subscriptions and other services because the products are not functional without the application services.services, and they do not represent a separate basis of accounting under the applicable accounting guidance. In such circumstances, the associated product costs are recorded as deferred costs in the balance sheet. The deferred product revenue and deferred product cost amounts are amortized to application subscriptions revenue and cost of revenue, respectively, on a straight-line basis over minimum contractual subscription or service periods of one to five years. Revenues from renewals of data communication services after the initial contract term are recognized as application subscriptions revenue over the period the services are provided. When customers prepay application subscription renewals, such amounts are recorded as deferred revenues and are recognized ratably over the renewal term.

In the United States, the Company generally recognizes revenue on LoJack product sales that have no associated continuing service obligations on the part of the Company upon installation of the products. Revenue relating to sales made to the Company’s third party installation partners, who purchase the Company’s products and perform installations themselves, is recognized upon shipment, which is prior to the installation of the related products in the end user’s vehicle. Revenue from the sales of products to international licensees is recognized when shipment of the products to the licensee has occurred and collection is reasonably assured.

In the United States, sales of a combined LoJack Stolen Vehicle Recovery (“LoJack SVR”) unit and Early Warning unit constitute a multiple element arrangement under ASC 605 Subtopic 25. The combined LoJack SVR and Early Warning product includes LoJack SVR hardware, Early Warning hardware, installation service, and an Early Warning ongoing automated notification service, which is provided over the period of vehicle ownership.

The delivered elements of a multiple element arrangement (LoJack SVR hardware and Early Warning hardware and installation service) must meet certain criteria to qualify each component of the combined LoJack SVR and Early Warning product for separate accounting. The Company performed an analysis and determined that each of the delivered elements in the arrangement qualify for separate accounting based on the applicable guidance.

The LoJack SVR and Early Warning hardware and installation service components of each sale are considered to have met delivery requirements for revenue recognition upon installation of the LoJack SVR and Early Warning product; however, revenue from the ongoing notification service, as well as the tracking and recovery service in Canada, are deferred and recognized over an estimated life of new vehicle ownership.

In Italy, the purchase of an initial vehicle monitoring service contract is a requirement at the time the consumer purchases a LoJack SVR product. Revenue for these contracts is recognized over the life of the contract. These contracts, which are sold separately from the LoJack SVR hardware, are offered for terms ranging from 8 to 96 months and are generally payable in full upon activation of the related unit or renewal of a previous contract. Customers are also offered a month-to-month option for service contracts.

The Company offers several types ofWe offer extended warranty contracts in the United States related to its LoJack products. For those contractscertain products for which an independent third party insurer and not the Company, is the primary obligor. Although we are not the primary obligor, we have reviewed the Company recognizescriteria in ASC 605Revenue Recognition(“ASC 605”): and have determined that gross revenue recognition is appropriate in these transactions. Accordingly, we recognize gross revenue at the time of the sale of the extended warranty. For those warranty contracts for which the Company is the primary obligor, revenue is deferred and is recognized over five years, which is the estimated life of new vehicle ownership. For the majority of extended warranty contracts originated after 2011, the Company sells the contract to an independent third party insurer and accordingly recognizes revenue at the time of sale.

For those warranties for which an independent third party insurer, and not the Company, is the primary obligor, the Company records revenue on a gross basis, with related costs being included in cost of goods sold. The Company considered the factors associated with gross revenue as compared to net revenue recording and determined that despite not being the primary obligor for these arrangements, gross revenue reporting was deemed appropriate based on the relevant accounting guidance. Specifically, the Company has latitude in establishing price; it can change the product offering; it has discretion in supplier selection; it is involved in the determination of product or service specifications; it bears the credit risk; and the amount that it earns on each contract is not fixed.

Cash and Cash Equivalents

The Company considersWe consider all highly liquid investments with remaining maturities at date of purchase of three months or less to be cash equivalents.

Accounts receivable, net

Accounts receivable, net, consists of trade receivables and other receivables offset by allowance for doubtful accounts. We reserve for the estimated accounts receivable that will not be collected based on an analysis of historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customers’ payment terms and their economic condition. Collection of accounts receivable may be affected by changes in economic or other industry conditions and may, accordingly, impact our overall credit risk. The allowance for doubtful accounts totaled $0.9 million and $1.0 million as of August 31, 2017 and February 28, 2017, respectively.

Fair Value Measurements

The Company appliesWe apply fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the financial statements. The Company definesWe define fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly manner in an arms-length transaction between market participants at the measurement date. Fair value is estimated by applyingusing the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:hierarchy:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

In accordance with the fair value accounting requirements, companies may choose to measure eligible financial instruments and certain other items at fair value. The Company hasWe have elected the fair value option for its investmentour investments in marketable securities on a contract-by-contract basis at the time each contract is initially recognized in the financial statements or upon an event that gives rise to a new basis of accounting for the items.

Recently AdoptedIssued Accounting Standards

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 2016-09,Compensation – Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). This update was intended to simplify the accounting for share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The CompanyWe adopted this standard during the quarter ended May 31, 2017. Accordingly,2017 and effective March 1, 2017, the Companywe recorded a cumulative adjustment benefit of $11.7 million for the excess tax benefit from the exercise of stock options and vesting of restricted stock awards and restricted stock units that occurred in prior fiscal years as an increase in deferred income tax assets and a reduction of the accumulated deficit. For the six months ended August 31, 2017, werecorded $241,000 of excess tax benefits on vested and exercised equity awards. The excess tax benefits recognized on stock-based compensation expense are classified as an operating activity in the Company'sour consolidated statements of cash flows. Finally, the CompanyUpon adoption of ASU 2016-09, we also elected to account for forfeitures as they occur, rather than estimating expected forfeitures over the course of a vesting period.

Recently Issued Accounting Standards

In May 2017, the FASB issued Accounting Standards Update 2017-09,Compensation – Stock Compensation: Scope of Modification Accounting (“ASU 2017-09”). The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.ASC 718Compensation – Stock Compensation. The adoption of ASU 2017-09, which will become effective for annual periods beginning after December 15, 2017, is not expected to have a material impact on the Company’sour consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update 2017-04,Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). The new guidance eliminates Step 2 from the goodwill impairment test and instead requires that an entity measure the impairment of goodwill assigned to a reporting unit if the carrying value of assets and liabilities assigned to the reporting unit, including goodwill, exceed the reporting unit's fair value. The new guidance must be adopted for annual and interim goodwill tests in fiscal years beginning after December 15, 2019. After the adoption of this standard, which will be applied prospectively, the Companywe will follow a one-step model for goodwill impairment. The Company doesWe do not anticipate this pronouncement will have a significant impact on itsour consolidated financial statements upon adoption.

In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses. This update amends the FASB’s guidance on the impairment of financial instruments. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. This update is effective for fiscal years beginning after December 15, 2019, and early adoption is permitted. The Company does not anticipate a significant impact on its consolidated financial statements upon adoption.

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases.Leases. The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with the classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements at the time of adoption, with certain practical expedients available. Early adoption is permitted. The Company hasWe have not completed the assessment of the impact on itsour consolidated financial statements, but expectswe do expect to record a ROUan asset and lease liability.liability upon adoption.

In January 2016, the FASB issued Accounting Standards Update 2016-01,Financial Instruments–Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“(“ASU 2016-01”). This standard revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for a new practicality exception. ASU 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company isWe are currently evaluating the impact of this standard on itsour consolidated financial statements.

In May 2014, the FASB issued Accounting Standards Update 2014-09,Revenue from Contracts with Customers (“ASU 2014-09”). The new revenue recognition standard (“ASC 606”) provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method in which the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown, or the modified retrospective method, in which the cumulative effect of applying the standard would be recognized at the date of initial application. In August 2015, the FASB approved the deferral of the new standard's effective date by one year.method. The new standard is effective for annual reporting periods beginning after December 15, 2017, and accordingly the Company iswe are required to adopt this standard effective March 1, 2018, the beginning of itsour fiscal 2019. In addition,We havedeveloped our plan for the FASB issued ASU 2016-08, ASU 2016-10implementationof ASC 606 and ASU 2016-12 in March 2016, April 2016have reviewed it with, and May 2016, respectively,willperiodically report the status against that planto our Audit Committee. We have established a cross functional project steering committee and implementation team to provide interpretive clarificationsidentify potential differences that would result from applying the requirements of the new standard to our revenue contracts and related expense line items. We have identified the various revenue streams, including product revenues, service revenues, installation and training, that could be impacted by ASC 606 and have started to review individual customer contracts related to these revenue streams to determine if any material differences exist between the current revenue standard, ASC 605, and ASC 606. We also began reviewing the additional disclosure requirements of the new standard and the potential impact onour internal control structure and revenue recognition policy. We have not completed our assessment of the new revenue recognition accounting standard. The Company is currently developing an implementation roadmapstandard and action plan forhave not yet determined the adoption impactof this standard.adoption on our consolidated financial statements. We anticipate that we will complete our assessment of the new standard and our potential financial impact by the end of fiscal year 2018.

NOTE 2 – CASH, CASH EQUIVALENTS AND INVESTMENTS

The following tables summarize the Company’sour financial instrument assets as of May 31, 2017 and February 28, 2017 using the hierarchy described in Note 1 under the heading “Fair Value Measurements” (in thousands):

NOTE 3 –- INVENTORIES

Inventories consist of the following (in thousands):

NOTE 4 – OTHER INTANGIBLE ASSETS

Other intangible assets are comprised as follows (in thousands):

Estimated future amortization expense for the fiscal years ending February 28as of August 31, 2017 is as follows (in thousands):

NOTE 5 – OTHER ASSETS

Other assets consist of the following (in thousands):

The Company has a non-qualified deferred compensation plan in which certain members of management and all non-employee directors are eligible to participate. Participants may defer a portion of their compensation until retirement or a date specified by the participant in accordance with the plan. The Company informally funds the deferred compensation plan obligations by making cash deposits to a Rabbi Trust that are invested in various equity, bond and money market mutual funds in generally the same proportion as investment elections made by the participants for their compensation deferrals. The deferred compensation plan liability is included in Other Non-current Liabilities in the accompanying consolidated balance sheets.

TheOur investment in international licensees of $2,351,000 as of Mayat August 31, 2017 consists principally of a 12.5% equity interest in LoJack’sa Mexican licensee of $1,700,000, a 17.5% equity interest $1.7 million as well as other smaller interestsin LoJack’s Benelux licensee of $340,000, and a 5.5% interestFrench licensees. The investment in LoJack’s French licensee of $311,000. The investments in the Mexican and Beneluxthese licensees over which the Company does not exercise significant influence, are accounted for using the cost method of accounting and are carried at cost which represents their fair value as measured on the date of the Company’s acquisition of LoJack. The investment in LoJack’s French licensee, in the form of a marketable equity security, is accounted for as an available-for-sale security and is valued at the quoted closing price on its market exchange as of the reporting date.we do not exercise significant influence over these investees.

In September 2015, the Companywe invested £1,400,000 or approximately $2,156,000 for a 49% minority ownership interest in Smart Driver Club Limited (“Smart Driver Club”), a technology and insurance startup company located in the United Kingdom. This investment is accounted for under the equity method since the Company haswe have significant influence over the investee. The Company’sOur equity in the net loss of Smart Driver Club amounted to $337,000$713,000 and $312,000$684,000 in the threesix months ended MayAugust 31, 2017 and 2016, respectively. The CompanyTo date we have made loans aggregating $2,636,000 denominated£2,500,000, of which £500,000 was made in British poundsJuly 2017, to Smart Driver Club bearing interest at an annual interest rate of 8%, with all principal of £2,000,000 and all unpaid interest due in 2020. The foreign currency translation adjustment for this equity investment and loans amounted to $220,000$108,000 as of MayAugust 31, 2017 and is included as a component of Accumulated Other Comprehensive Loss in the consolidated balance sheet as of that date.

Effective August 24, 2017, we acquired an ownership interest valued at $1.4 million in ThinxNet GmbH, a company headquartered in Munich, Germany (“ThinxNet”). ThinxNet is an early stage company focused on commercializing cloud-based mobile device and applications in the automotive sector throughout Europe. This represents a cost basis investment as we cannot exercise significant influence over the business. Contemporaneously, we executed an unsecured convertible note receivable for $1.27 million with an interest rate of 6% which has a fixed term of 12 months, after which the loan can be converted to equity in ThinxNet or a loan payable on demand at our option. The equity investment and note receivable were consideration we receivedin exchange forour outstanding accounts receivablefrom ThinxNet. No gain or loss was recorded on this exchange. The assets received in this exchange are included in Other Assets in the consolidated balance sheet as of August 31, 2017.

Our investments in the aforementioned licensees are included in other assets on our condensed consolidated balance sheet and are carried at cost, which represents their fair value as measured on the date of the acquisition of LoJack, and adjusted only for other-than-temporary declines in fair value. We have concluded that there are no indicators of impairment to the fair value of these investments for all periods presented.

NOTE 6 – CONVERTIBLE SENIOR UNSECURED NOTES

As of MayAugust 31, 2017, the Companywe had outstanding $172.5 million aggregate principal amount of convertible senior unsecured notes (the “Notes”(“Notes”) outstanding.. The Notes are senior unsecured obligations of the Company and bear interest at a rate of 1.625% per year payable in cash on May 15 and November 15 of each year. The Notes will mature on May 15, 2020 unless earlier converted or repurchased in accordance with their terms. The CompanyWe may not redeem the Notes prior to their stated maturity date. The Notesdate and they will be convertible into cash, shares of the Company’sour common stock or a combination of cash and shares of common stock, at the Company’sour election, based on an initial conversion rate of 36.2398 shares of common stock per $1,000 principal amount of Notes, whichamount. This ratio is equivalent to an initial conversion price of $27.594 per share of common stock, subject to customary adjustments. Holders may convert their Notes at their option at any time prior to November 15, 2019 upon the occurrence of certain events in the future, as defined in the indenture agreement dated May 6, 2015 (the “Indenture”). During the period from November 15, 2019 to May 13, 2020, holders may convert all or any portion of their Notes regardless of the foregoing conditions. The Company’sOur intent is to settle the principal amount of the Notes in cash upon conversion. If the conversion value exceeds the Note principal amount, the Companywe would deliver shares of its common stock in respect to the remainder of itsthe conversion obligation in excess of the aggregate principal amount (the “conversion spread”). The shares associated with the conversion spread, if any, would be included in the denominator for the computation of diluted earnings per share, with such shares calculated using the average closing price of the Company’sour common stock during each period. As of MayAugust 31, 2017, none of the conditions allowing holders of the Notes to convert have not been met.

If the Company undergoeswe undergo a fundamental change (as defined in the Indenture), holders of the Notes may require the Companyus to repurchase their Notes at a repurchase price of 100% of the principal amount, of the Notes, plus any accrued and unpaid interest, if any, up to but not including the fundamental change repurchase date.

In addition, following certain corporate events that occur prior to maturity, the Companywe will increase the conversion rate for a holder who elects to convert its Notes in connection with such a corporate event in certain circumstances. In such event, an aggregate of up to 2.5 million additional shares of common stock could be issued upon conversions in connection with such corporate events, subject to adjustment in the same manner as the conversion rate.

Balances attributable to the Notes consist of the following (in thousands):

The Notes are carried at their principal amount, net of unamortized debt discount and issuance costs, and are not adjusted to fair value each period. The issuance date fair value of the liability component of the Notes in the amount of $138.9 million was determined using a discounted cash flow analysis, in which the projected interest and principal payments were discounted back to the issuance date of the Notes at a market interest rate for nonconvertible debt of 6.2%, which represents a Level 3 fair value measurement. The debt discount of $33.6 million is being amortized to interest expense using the effective interest method with an effective interest rate of 6.2% over the period from the issuance date through the contractual maturity date of the Notes of May 15, 2020. The approximate fair value of the Notes as of MayAugust 31, 2017 was $172.8$169.5 million, which was estimated on the basis of inputs that are observable in the market and which is considered a Level 2 measurement method in the fair value hierarchy.

NOTE 7 –- 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. The Company evaluatesWe evaluate the realizabilityrealizable nature of itsour deferred income tax assets and the need for a valuation allowance, is provided, as we deem necessary. In assessing this valuation allowance, the Company reviewswe review historical and future expected operating results and other factors, including its recent cumulative earnings experience, expectations of future taxable income by taxing jurisdiction and the carryforward periods available for tax reporting purposes, to determine whether it is more likely than not that deferred tax assets are realizable.

The Company filesWe file income tax returns in the U.S. federal jurisdiction, various U.S. states and Puerto Rico, Canada, Ireland, Italy, the United Kingdom, the Netherlands, Brazil and New Zealand. Certain income tax returns for fiscal years 20132012 through 2016 remain open to examination by U.S. federal and state tax authorities. LoJack’s U.S. income tax returns for 2012 through 2015 remain open to examination by U.S. federal and state tax authorities. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods in which net operating losses or tax credits were generated and carried forward, and to make adjustments up to the net operating loss or tax credit carryforward amount. CalAmp’s Canadian subsidiaries’ income tax returns for fiscal years 2013 through 2016 remain open to examination by tax authorities in Canada. Most of the Company’sour foreign subsidiaries’ tax returns for 20122013 to present remain open for examination by the tax authorities in the countries in which they are filed, except infiled. In Italy and the Netherlands, where the tax returns filed from 2011 to present remain open for examination. In Ireland, tax returns filed from 2010 to the present remain open.

As previously described, on June 9, 2017, we entered into a settlement agreement with EVE and its controlling shareholder EVE Holdings Limited to resolvean arbitration tribunal damage award. Pursuant to this settlement agreement, EVE Holdings Limitedagreed to make payments to us in the aggregateapproximate amount of $46 million, which is net of attorneys’ fees and insurance subrogation payment. Thesettlement amount is scheduled to be received in four installments, the first of which was received in June 2017, and is split between the US and foreign subsidiaries pursuant to IRC code section 482 and is subject to taxation in multiple jurisdictions.

The effective income tax rate was 20.3% in the six months ended August 31, 2017 compared to14.9% in the same period prior year. This increase in the effective tax rate is primarily attributable to the aforementioned settlement for which over half was apportioned to the US. The effective tax rate is lower than the statutory U.S. federal income tax rate of 35% due primarily to certain undistributed foreign earnings, a substantial portion of which was generated by our Ireland subsidiary, for which no U.S. taxes are provided because such earnings are intended to be indefinitely reinvested outside the U.S.

NOTE 8 –- EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of outstanding stock options and restricted stock-based awards using the treasury stock method.

The calculation of the basic and diluted income (loss) per share of common stock is as follows (in thousands, except per share value):

All outstanding options and restricted stock units at Mayfor the six months ended August 31, 2017 and 2016 were excluded from the computation of diluted earnings per share because the Companywe reported a net loss for all periodsthis period presented and the effect of inclusion would be antidilutive.

As described in Note 6, the Company haswe have the option to pay cash, issue shares of common stock or any combination thereof for the aggregate amount due upon conversion of the Notes. The Company’sOur intent is to settle the principal amount of the Notes in cash upon conversion. As a result, only the shares issuable for the conversion value, if any, in excess of the principal amountsamount of the Notes would be included in diluted earnings per share. From the time of the issuance of Notes, the average market price of the Company’sour common stock has been less than the $27.594 initial conversion price, of the Notes, and consequently no shares have been included in diluted earnings per share for the conversion value of the Notes.

NOTE 9 – STOCK-BASED COMPENSATION

Stock-based compensation expense is included in the following captions of the unauditedcondensed consolidated statements of comprehensive lossincome (loss) (in thousands):

Changes in the Company’sour outstanding stock options during the threesix months ended MayAugust 31, 2017 were as follows (options in thousands):

The weighted average remaining contractual term and the aggregate intrinsic value of outstanding options as of August 31, 2017 was 4.0 years and $8.8 million, respectively.

Changes in the Company’sour outstanding restricted stock shares, performance stock units (“PSUs”) and restricted stock units (“RSUs”) during the threesix months ended MayAugust 31, 2017 were as follows (restricted shares, PSUs and RSUs in thousands):

During the threesix months ended MayAugust 31, 2017 the Companyand 2016, we retained 9,602156,731 and 97,267 shares of the vestedrestricted shares, RSUs and PSUs, respectively, to satisfy the minimum required statutory amount of employee withholding taxes.

As of MayAugust 31, 2017, there was $15.0$26.4 million of total unrecognized stock-based compensation cost related to outstanding nonvested equity awards that is expected to be recognized as expense over a weighted-average remaining vesting period of 2.73.1 years.

NOTE 10 –- CONCENTRATION OF RISK

One customer in the heavy equipment industry accounted for 12% and 11% of our consolidated revenue for the three and six months ended MayAugust 31, 2017, and 13%16% and 12% of our consolidated accounts receivable at MayAugust 31, 2017 and February 28, 2017, respectively.

The Company hasWe have contract manufacturing arrangements with electronic manufacturing service providers for Mobile Resource Management (“MRM”), network and devices, LoJack SVRStolen Vehicle Recovery (“SVR”) products, certain other products, transmission towers and certain components and subassemblies. One supplier accounted for 28%32% and 47%31% of the Company’sour total inventory purchases in the three and six months ended MayAugust 31, 2017 and 37% and 41% in the three and six months ended August 31, 2016, respectively. As of MayAugust 31, 2017, this supplier accounted for 36%41% of the Company’sour total accounts payable. Another supplier accounted for 14% and 16% and 9% of the Company’sour total inventory purchases in the three and six months ended MayAugust 31 2017 and 13% and 11% in the three and six months ended August 31, 2016, respectively, and 19%14% of the Company’sour total accounts payable as of MayAugust 31, 2017. A third supplier accounted for 13% and 11% of our total inventory purchases in the three and six months ended August 31, 2017 and 11% and 10% in the three and six months ended August 31, 2016, respectively. This supplier accounted for 10% of our total accounts payable as of August 31, 2017. Some of the Company’sour products and subassemblies are purchased from sole source suppliers.

NOTE 11 –- PRODUCT WARRANTIES

The CompanyWe generally warrants itsprovide awarranty for our products against defects over periods ranging from 12 to 24 months, depending upon the product. 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 fiscal quarter, the Company adjusts itswe adjust our liability for warranty claims based on its actual warranty claims experience as a percentage of revenues for the preceding one to two years, and we also considersconsider the impact of the known operational issues that may have a greater or lesser impact than historical trends. The warranty reserve is included in Other Current Liabilities in the unaudited consolidated balance sheets. Activity in the accrued warranty costs liability for the three months ended May 31, 2017 and 2016 is as follows (in thousands):

NOTE 12 – OTHER FINANCIAL INFORMATION

Supplemental Balance Sheet Information

Other current liabilities consist of the following (in thousands):

Other non-current liabilities consist of the following (in thousands):

Supplemental Statement of Operations Information

Investment income consists of the following (in thousands):

Interest expense consists of the following (in thousands):

Supplemental Cash Flow Information

“Net cash provided by operating activities” includes cash payments for interest expense and income taxes as follows (in thousands):

The following is the supplemental schedule of non-cash investing and financing activities (in thousands):

NOTE 13 –- SEGMENT INFORMATION AND GEOGRAPHIC DATA

Historically, our business activities were organized into two reportable segments – Wireless DataCom and Satellite. Effective August 31, 2016, we ceased operations of the Satellite business and reported through the first quarter of fiscal 2018 under one reportable segment: Wireless DataCom. In the quarter ended August 31, 2017, we realigned our operations and now operate under two reportable segments: Telematics Systems and Software & Subscription Services. Our organizational structure is based on a number of factors that our CEO, the Chief Operating Decision Maker (“CODM”), uses to evaluate and operate the business, which include, but are not limited to, customer base, homogeneity of products, and technology. We have recast the first quarter of our current fiscal year and certain prior period amounts to conform to the way we internally manage and monitor segment performance.

The Telematics Systems segment offers a portfolio of wireless data communications products which includes asset tracking units, mobile telematics devices, fixed and mobile wireless gateways and routers. These wireless networking devices underpin a wide range of our own and third party software and service solutions worldwide and are critical for applications demanding secure, reliable and business-critical communications.

The Software & Subscription Services segment offers cloud-based, application enablement and telematics service platforms that facilitate integration of our own applications, as well as those of third parties, through open Applications Programing Interfaces (“APIs”) to deliver full-featured IoT solutions to a wide range of customers and markets. Our scalable proprietary SaaS offerings enable rapid and cost-effective deployment of high-value solutions for customers all around the globe.

Segment information for the three and six months ended August 31, 2017 and 2016 is as follows (in thousands):

The amount shown for each period in the “Corporate Expenses” column above consists of expenses that are not allocated to the business segments. These non-allocated corporate expenses include salaries and benefits of certain corporate staff and expenses such as audit fees, investor relations, stock listing fees, director and officer liability insurance, and director fees and expenses.

The Company’s CODM evaluates each segment based on Adjusted EBITDA, and we therefore consider Adjusted EBITDA to be a primary measure of operating performance of our operating segments. We define Adjusted EBITDA as earnings before investment income, interest expense, taxes, depreciation, amortization and stock-based compensation, gain on legal settlement and other adjustments as identified below. The adjustments to our results prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) to calculate Adjusted EBITDA are itemized below (in thousands):

It is not practicable for the Company managesto report identifiable assets by segment because these businesses share resources, functions and operates its business through one operating segment. facilities.

Revenues by geographic area are as follows:follows (in thousands):

Revenues by geographic area are based upon the country of billing. The geographic location of distributors and OEM customers may be different from the geographic location of the ultimate end users of the products and services provided by the Company. No single foreignnon-U.S. country accounted for more than 10% of the Company’s revenue in the three and six months ended MayAugust 31, 2017 and 2016.

NOTE 14 – LEGAL PROCEEDINGS

Omega patent infringement claim

In December 2013, a patent infringement lawsuit was filed against the Company by Omega Patents, LLC (“Omega”), a non-practicing entity. Omega alleged that certain of the Company’s vehicle tracking products infringed on certain patents owned by Omega. On February 24, 2016, a jury in the U.S. District Court for the Middle District of Florida awarded Omega damages of $2.975 million, for which CalAmp recorded a reserve of $2.9 million in the fiscal 2016 fourth quarter. Following trial, Omega brought a motion seeking an injunction and requesting the court to exercise its discretion to treble damages and assess attorneys’ fees. On April 5, 2017, the court denied the request for an injunction, but granted the request for treble damages. In addition, on April 24, 2017 the court awarded attorneys’ fees, costs, and prejudgment interest in the aggregate amount of $1.2 million, and directed the payment of royalties by CalAmp to Omega for any infringing sales after February 24, 2016 at a royalty rate to be determined. As a result of these April 2017 court rulings, the Company increased its reserve by $7.2 million in the fourth quarter of fiscal 2017.

On May 23, 2017, the Company and Omega stipulated, subject to the agreement of the court, to supplemental damages for sales of products found to infringe Omega’s patents from February 25, 2016 through April 5, 2017, plus an ongoing royalty for sales of the products deemed to infringe after April 5, 2017. The Company is discontinuing the products that would be subject to this royalty and therefore does not believe that any future royalty amounts will be material. In the stipulation, the Company preserved its rights to assert all of its challenges that have been or will be made by the Company to the jury verdict and the court’s April 2017 rulings. As a result of the stipulation, the Company recorded an additional reserve of $6.1 million in the quarter ended May 31, 2017.

The Company has filed a motion with the court seeking judgment as a matter of law in its favor and, alternatively, a new trial. The Company also filed a motion to vacate the judgment and dismiss the case for lack of venue, or in the alternative, to vacate the judgment and transfer the case to the Central District of California for a new trial. If, following resolution of these motions, the judgment against the Company remains wholly or substantially intact, then the Company intends to pursue an appeal at the Court of Appeals for the Federal Circuit. The Company is also seeking to invalidate a number of Omega’s patents in proceedings filed with the U.S. Patent and Trademark Office. Notwithstanding the adverse jury verdict, the April 2017 court rulings and the May 23, 2017 stipulation, the Company continues to believe that its products do not infringe any valid claims of Omega’s patents. While it is not feasible to predict with certainty the outcome of this litigation, its ultimate resolution could be material to the Company’s cash flows or results of operations.

EVE battery claim

On October 27, 2014, LoJack and LoJack Equipment Ireland DAC (“LJEI”), a wholly owned subsidiary of LoJack, commenced arbitration proceedings against EVE Energy Co., Ltd. (“EVE”) by filing a notice of arbitration with a tribunal before the Hong Kong International Arbitration Centre (the “Tribunal”). The filingLoJack and LJEI alleged that EVE breached representations and warranties made in supply agreements with LoJack relating to the quality and performance of battery packs supplied by EVE. On June 2, 2017, the Company waswe were notified that the TribunalHong Kong International Arbitration Centre rendered a decision and awarded damages to LoJackus (the “Damage Award”) for EVE’s breach of contract.

On June 9, 2017, LoJackwe entered into a settlement agreement with EVE and its controlling shareholder EVE Holdings Limited to resolve the Damage Award by having EVE Holdings Limited, the parent company of EVE, make payments to LoJackus in the aggregate amount of approximately $46 million, which amount is net of LoJack’s attorneys’ fees and insurance subrogation payment (the “Settlement”). LoJack received approximately $12 million as of June 27, 2017 and another $3 million is scheduled to be received by June 30, 2017, which amounts are net of LoJack’s attorneys’ fees and the insurance subrogation payment. These amounts are expected to be reported as other non-operating income in our consolidated statement of income upon receipt. In June 2017, we received approximately $15 million of the Company's$46 million net amount, which is reported as other non-operating income in our consolidated statement of income for the quarter endingthree and six month periods ended August 31, 2017. TherePursuant to the Settlement, there are three remaining settlement installments due to be received by LoJackus on October 31, 2017, February 28, 2018 and June 7, 2018 of approximately $13 million, $13 million and $5 million, respectively, all such amounts net of attorneys' fees. The Company has not yet determined the income tax effects of the Settlement, as it will depend in part on how the award is ultimately apportioned between LoJack’s domestic and international operations. The amounts to be realized by the Company pursuant to the Settlement are expected to berespectively.

There have been no material to the Company's consolidated financial position and results of operationsdevelopments in the periodsclaims by Omega and Tracker, each as reported in whichour Quarterly Report on Form 10-Q for the Settlement installments are received and recorded.

Tracker South Africa claim

On December 9, 2016, Tracker Connect (Pty) LTD (“Tracker”), LoJack’s international licensee in South Africa, commenced arbitration proceedings against LoJack’s Irish subsidiary by filing a notice of arbitrationquarter ended May 31, 2017 that was filed with the International Centre for Dispute Resolution. The filing alleges breaches of the parties’ license agreement, misrepresentations,U.S. Securities and violation of Massachusetts General Laws chapter 93A. Tracker seeks monetary damages and recovery of attorneys’ fees. On March 3, 2017, LoJack’s Irish subsidiary filed its response to Tracker’s notice, denying Tracker’s allegations against LoJack, and filing counterclaims against Tracker for Tracker’s material breaches of the parties’ license agreement and bad faith conduct. The arbitral tribunal has been selected and the hearing is scheduled for March 2018. The Company has estimated the potential losses from this arbitration proceeding and accrued a reserve in that amount during fiscalExchange Commission on June 27, 2017.

In addition to the foregoing matters, from time to time as a normal consequence of doing business, various claims and litigation may be asserted or commenced against the Company.us. In particular, the Company in the ordinary course of business, we may receive claims concerning contract performance, or claims that itsour products or services infringe the intellectual property of third parties. While the outcome of any such claims or litigation cannot be predicted with certainty, management does not believe that the outcome of any of such matters existing at the present time would have a material adverse effect on the Company’sour consolidated results of operations, financial condition and cash flows.

The Company’sITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussion and analysis of its financial condition and results of operations are based upon the Company’sour 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 may affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues, costs and expenses during the reporting periods. Actual results could differ materially from these estimates. The critical accounting policies listed below involve the Company’sour more significant accounting judgments and estimates that are used in the preparation of the consolidated financial statements. These policies are described in greater detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) under Part II, Item 7 of the Company’sour Annual Report on Form 10-K for the year ended February 29,28, 2017, as filed with the U.S. Securities and Exchange Commission on May 15, 2017, and include the following areas:

There have been no significant changes to these accounting policies as of August 31, 2017.

RESULTS OF OPERATIONS

OUR COMPANY

The Company isWe are a telematics pioneer leading provider ofa transformation in a global connected economy. We help reinvent businesses and improve lives around the globe with technology solutions that streamline complex Internet of Things (“IoT”) deployments and bring intelligence to the edge. Our software applications, scalable cloud services, and intelligent devices collect and assess business-critical data from mobile assets, in-transit cargo, companies, state and local governments and people. Prior to fiscal 2018, our business was organized into two reportable segments – Wireless Datacom and Satellite. The Satellite business ceased operations in August 2016 at which time we began reporting under one reportable segment: Wireless DataCom.

In the quarter ended August 31, 2017, we realigned our operations and now we operate under two reportable segments for financial reporting purposes – Telematics Systems and Software & Subscription Services. Our organizational structure is based on a number of factors that our CEO, the Chief Operating Decision Maker, uses to evaluate and operate the business, which include, but are not limited to, customer base, homogeneity of products, and technology within these two segments. A description of the reportable business segments as follows:

TELEMATICS SYSTEMS

Our Telematics Systems reportable segment offers a series of Mobile Resource Management (MRM) telematics products and applications for the broader IoT market, which enable customers to optimize their operations by collecting, monitoring and effectively reporting business-critical information and desired intelligence from high-value remote and mobile assets. Our telematics products include asset tracking units, mobile telematics devices, fixed and mobile wireless gateways and multi-mode wireless routers. These wireless networking devices underpin a wide range of our own and third party solutions worldwide, and are ideal for applications demanding secure, reliable and business-critical communications.

SOFTWARE & SUBSCRIPTION SERVICES

Our Software & Subscription Services reportable segment offers cloud-based, application enablement and telematics service platforms that facilitate integration of our own applications, as well as those of third parties, through open Applications Programming Interfaces (“APIs”) to deliver full-featured IoT solutions to a wide range of customers and markets. Our scalable proprietary SaaS offerings enable rapid and cost-effective development of high-value solutions for a broad array of mobile and fixed applications serving multiple vertical markets worldwide.customers all around the globe.

RevenueOPERATING RESULTS

Three months ended August 31, 2017 compared to three months ended August 31, 2016

Revenue decreased by $3.1Segment

Telematics Systems revenue increased by $5.2 million, or 3%7.6%, to $88.1 million infor the first quarter of fiscal 2018three months ended August 31, 2017 compared to the same period last year. The increase was due to an increase in sales volume for our MRM telematics product as demand from our top customers increased due to more favorable conditions in the fleet management and asset tracking markets.

Software & Subscription Services revenue increased by $0.7 million or 5.0% for the three months ended August 31, 2017 compared to the same period last year. The increase was primarily driven by an increase in subscriber base, especially in Italy, along with a favorable Euro to U.S. Dollar exchange rate compared to the same prior fiscal period.

The Satellite business, which generated $6.7 million in revenues for the three months ended August 31, 2016, ceased operations effective on that date.

Cost of Revenues and Gross Profit

Consolidated gross profit decreased by $0.8 million or 2.1% for the three months ended August 31, 2017 first quarter,compared to the same period prior year. The decrease was primarily as a result of the termination of operationsshutdown of the Company's former Satellite business. Excluding last year’s revenue of $8.4 million from the Satellite business which ceased operations effective August 31, 2016, revenuewhich generated $1.4 million of gross profit for the three months ended August 31, 2016. Excluding the Satellite business, our gross profit increased $0.6 million or 1.7% for the three months ended August 31, 2017 compared to the same period in the latest quarter was up 6% from $82.7 million in the first quarter of fiscal 2017. Thisprior year. The increase was due primarily to higher MRM and LoJack SVR product revenue, which grew 10% year-over-year.