UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 28, 2006
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____.
COMMISSION FILE NUMBER: 0-12182
________________
CALAMP CORP.
(Exact name of Registrant as specified in its Charter)
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) 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:
$.01 par value Common Stock Nasdaq National Market
___________________________ ______________________
(Title of Class) (Name of each exchange on which registered)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
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]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark 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'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 [X]
Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. (Check one): Large
accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of voting and non-voting common stock held by non-
affiliates of the registrant as of August 27, 2005 was approximately
$188,854,000. As of May 1, 2006, there were 23,246,724 shares of the
Company's common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement for the Annual Meeting
of Stockholders to be held on July 26, 2006 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.
<page>
PART I
ITEM 1. BUSINESS
THE COMPANY
CalAmp Corp. ("CalAmp" or the "Company"), formerly known as California
Amplifier, Inc., is a provider of wireless products, engineering services and
software that enable anytime/anywhere access to critical information, data
and entertainment content. CalAmp is the leading supplier of direct
broadcast satellite (DBS) outdoor customer premise equipment to the U.S.
satellite television market. The Company also provides wireless connectivity
solutions for the telemetry and asset tracking markets, public safety
communications, the healthcare industry and digital multimedia delivery
applications.
On April 12, 2004, the Company completed the acquisition of Vytek
Corporation ("Vytek"), a privately held company. The acquisition of Vytek
was motivated primarily by the strategic goal of increasing the Company's
presence in markets which offer higher growth and profit margin potential,
and diversifying the Company's business and customer base. Concurrent with
the acquisition of Vytek, the Company realigned its operations into a
divisional structure. The legacy operations of CalAmp, previously segregated
into the Satellite and Wireless Access business units, were combined together
with Vytek's products manufacturing business to form the new Products
Division. The operations of Vytek, which are principally service oriented,
comprise the Company's Solutions Division.
On April 18, 2005, the Company acquired the business and certain assets
of Skybility, a privately held company located in Carlsbad, California,
pursuant to an Asset Purchase Agreement dated April 18, 2005. Skybility is a
developer and supplier of embedded cellular transceivers used in telemetry
and asset tracking applications that operate on the Advanced Mobile Phone
Service (AMPS) analog network using Global Positioning Satellite (GPS)
technology. The Skybility business operates as the Machine-to-Machine
("M2M") product line of the Company's Products Division.
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal years 2006, 2005 and 2004 fell on February
25, 2006, February 26, 2005 and February 28, 2004, respectively. In this
Annual Report on Form 10-K, the fiscal year end for all years is shown as
February 28 for clarity of presentation. Fiscal years 2006, 2005 and 2004
each consisted of 52 weeks.
RECENT DEVELOPMENT
On May 9, 2006, the Company signed a definitive agreement to acquire
Dataradio, Inc. ("Dataradio"), a privately held Canadian company, for a cash
payment of Canadian $60.1 million or approximately U.S. $54.6 million at the
current Canadian Dollar to U.S. Dollar exchange rate of 1.10. The Company
plans to finance the transaction using a combination of cash on hand and new
bank debt of approximately $33 million. Dataradio is currently focused in
three primary business lines: wireless data systems for public safety and
first response applications; wireless data modems for fixed location critical
infrastructure and industrial applications; and design and manufacture of
radio frequency modules. Dataradio has approximately 175 employees at
facilities located in Montreal, Minnesota and Georgia. For the 12 month
period ended April 30, 2006, Dataradio had unaudited revenues of
approximately U.S. $32 million. During this same period, Dataradio generated
gross margins in excess of 50%. The transaction is expected to close in the
next several weeks.
PRODUCTS DIVISION
The Products Division develops, manufactures and sells devices and
systems utilizing wireless technology that receive television programming
transmitted from satellites and terrestrial transmission towers or that
provide connectivity for access to critical information, data and
entertainment content.
The Products Division currently generates most of its revenue from the
sale of DBS outdoor reception equipment, with such sales accounting for
approximately 86%, 95% and 93% of total Products Division revenues in fiscal
years 2006, 2005 and 2004, respectively. Sales of the Company's Products
Division amounted to $196.9 million, $194.8 million and $128.6 million in
fiscal years 2006, 2005 and 2004, respectively. The Company believes that
DBS reception equipment will continue to be a significant portion of its
overall Products Division revenue for the foreseeable future.
The Company's DBS reception products are installed at subscribers'
premises to receive subscription television programming signals that are
transmitted from orbiting satellites. These DBS reception products consist
principally of reflector dish antennae, feedhorns, and electronics which
receive, process and amplify satellite television signals for distribution
over coaxial cable into the building. The dish antenna reflects the
satellite microwave signal back to a focal point where a feedhorn collects
the microwaves and transfers the signals into an integrated
amplifier/downconverter that is referred to in the satellite industry as a
Low Noise Block Feed ("LNBF"). The microwave amplifier boosts the signal
millions of times for further processing. The downconverter changes the
signal from a microwave frequency into a lower intermediate frequency that
can be easily transmitted over coaxial cable and that a satellite television
receiver can acquire, recognize and process to create a picture.
The M2M product line of the Company's Products Division operates in the
Machine-to-Machine industry that focuses on connecting machines to other
machines, which can range from simple sensors to complex machines
and computer servers. The connectivity is achieved using wired and wireless
networks, including, but not limited to, cellular wide area networks,
wireless local area networks, satellite, ethernet, telephone, and the
Internet. Control and monitoring of remote devices are typically the purpose
of M2M applications. Controlling thermostats for demand-side energy
management, monitoring fuel/liquid storage tanks, locating or tracking a car
or other mobile asset, utility meter reading and control, and monitoring of
an alarm panel are all examples of M2M applications. M2M applications
typically increase efficiency and lower costs for their owners by providing
critical data in real or near real time. By leveraging the Internet and
cellular infrastructure, M2M applications can typically be monitored globally
from anywhere an Internet connection can be made. With the continued growth
in wireless network deployments, the Company believes that wireless M2M
applications will be increasingly desired for their relative ease of
deployment and geographic accessibility. CalAmp's M2M product line includes
wireless modules compatible with cellular wide area networks that enables
network connectivity for machines. CalAmp also provides design, system
integration and manufacturing services for M2M products.
SOLUTIONS DIVISION
The Company's Solutions Division provides technology integration
solutions consisting of a mix of professional services and proprietary
software and hardware to enterprise customers and original equipment
manufacturers. These solutions primarily involve customization services to
adapt technology and applications to a customer's specific needs under either
"time and material" or fixed price contracts.
The Solutions Division's offerings include mobile computing, urgent
messaging, enterprise and media content delivery. Its mobile computing
expertise extends enterprise business processes to mobile workers by
establishing connectivity between enterprise applications and a wide range of
mobile and telephony devices. Its messaging offerings include an urgent
messaging software platform known as TelAlert, which provides mission-
critical communication applications for network monitoring, enterprise
management, help desk, dispatch and call center systems.
For additional information regarding the Company's sales by business
segment and geographical area, see Note 13 to the accompanying consolidated
financial statements.
MANUFACTURING
Electronic devices, components and made-to-order assemblies used in the
Company's 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's 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 could have an adverse
effect on the Company's operations.
Over the past several years, printed circuit board assembly has been
outsourced to contract manufacturers in the Pacific Rim. The Company
performs final assembly and test of most its satellite LNBF and other
wireless access products at its facilities in Oxnard, California. Printed
circuit assemblies are mounted in various aluminum and plastic housings,
electronically tested, and subjected to additional environmental tests on a
sampled basis prior to packaging and shipping.
Satellite dish antennas are manufactured on a subcontract basis by a
non-affiliated metal fabrication company in the U.S. In addition, some of
the Company's satellite LNBF products are manufactured on a subcontract basis
by a company located in Taiwan and China.
A substantial portion of the Company's components, and substantially all
printed circuit board assemblies and housings, are procured from foreign
suppliers and contract manufacturers located primarily in 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
The Company became registered to ISO 9001:1994 in 1995, and upgraded its
registration to ISO9001:2000 in 2003. ISO 9001:2000 is the widely recognized
international standard for quality management in product design,
manufacturing, quality assurance and marketing. The Company believes that
ISO certification is important to its business because most of the Company's
key customers expect their suppliers to have and maintain ISO certification.
The registration assessment was performed by Underwriter's Laboratory, Inc.
according to the ISO 9001:2000 International Standard. Continuous
assessments to maintain certification are performed semi-annually, and the
Company has maintained its certification through each audit evaluation, most
recently in October 2005. In addition, the Company conducts internal audits
of processes and procedures on a quarterly basis. The Company believes that
the loss of its ISO certification could have a material adverse effect on its
operations, and the Company can provide no assurance that it will be
successful in continuing to maintain such certification.
RESEARCH AND DEVELOPMENT
Each of the markets the Company competes in is characterized by rapid
technological change, evolving industry standards, and new product features
to meet market requirements. During the last three years, the Company has
focused its research and development resources primarily on satellite DBS
products, M2M applications and public safety radio modules. In addition,
development resources were allocated to broaden existing product lines,
reduce product costs and improve performance by product redesign efforts.
Research and development expenses in fiscal years 2006, 2005 and 2004
were $9,109,000, $8,320,000 and $5,363,000, respectively. During this three
year period the Company's research and development expenses have ranged
between 3.8% and 4.2% of annual sales.
SALES AND MARKETING
The Company's revenues were derived mainly from customers in the United
States, which represented 95%, 97% and 96% of consolidated revenues in fiscal
2006, 2005 and 2004, respectively.
The Products Division sells its satellite reception products primarily
to the two DBS system operators in the U.S. for incorporation into complete
subscription satellite television systems. Other wireless access products
are sold directly to system operators as well as through distributors and
system integrators.
The sales and marketing functions for the Products Division are located
primarily at the Company's corporate headquarters location in Oxnard,
California. In addition, the Products Division has a small sales office in
Paris, France. The M2M product line of the Products Division has an office
in Carlsbad, California. The sales and marketing functions for the Solutions
Division are located at several offices in California and on the East Coast.
Sales to 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 2006 2005 2004
-------- --------- ------ ------ ------
Echostar Products 55.5% 43.4% 39.4%
DirecTV Products 13.7% 17.1% 22.9%
Echostar Communications Corporation owns and operates the DISH satellite
television service in the U.S. DirecTV Group Inc. is the largest satellite
television service provider in the U.S. The Company believes that the loss
of either Echostar or DirecTV as a customer could have a material adverse
effect on the Company's financial position and results of operations.
COMPETITION
The Company's markets are highly competitive. In addition, if the
markets for the Company's products grow, the Company anticipates 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 believes that competition in its markets is based
primarily on performance, reputation, product reliability, technical support
and price. The Company's continued success in these markets will depend in
part upon its ability to continue to design and manufacture quality products
at competitive prices.
Products Division:
The Company believes that its existing principal competitors for its DBS
products business include Sharp, Wistron NeWeb Corporation, Winegard
Company, Andrew Corporation, Microelectronics Technology, Inc., Funai and Pro
Brand, and that the principal competitors for its non-DBS wireless access
products include WaveCom Electronics, Tran System, Inc. and Niigata Seimitsu.
Based on information announced quarterly by the U.S. DBS system operators as
to the total number of subscribers and the subscriber turnover rate, the
Company believes that it is the leading supplier of outdoor subscriber
premise equipment to the U.S. DBS television industry. In the U.S. DBS
television market, the Company believes its reputation for performance and
quality allows the Company a competitive advantage if pricing of its products
is comparable to its competitors. Because the Company's satellite products
are not proprietary, it is possible that they may be duplicated by low-cost
producers, resulting in price and margin pressures.
Solutions Division:
The engineering solutions market in which the Solutions Division
operates includes a large number of companies, is intensely competitive and
faces rapid technological change. The Solutions Division expects the
competition to continue and intensify, which could result in price
reductions, reduced profitability and loss of current or future customers.
The Solutions Division's competitors fall into the following categories:
internal information technology or engineering departments of current and
potential customers; large information technology consulting services
providers such as Accenture, Electronic Data Systems Corporation and
International Business Machines Corporation; traditional information
technology services providers such as Sapient Corporation; Internet
professional services firms and emerging offshore software developers such as
Cognizant, Satyam, Infosys and HCL. In addition, the Solutions Division
faces competition from software and hardware companies such as Wind River
Systems, BSQUARE Corporation, Applied Data Systems, Inc., Intrinsyc Software,
Inc. and Logic Product Development.
The principal competitive factors in the Solutions Division's business
market are leading edge technical knowledge, the reputation and experience of
professionals delivering services, customer value and service; the success
and reliability of the delivered system; the ability to attract and retain
highly skilled, specialized, experienced engineering/consulting
professionals; and price. A number of the Solutions Division's competitors
and potential competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, greater name
recognition and a larger installed base of customers.
BACKLOG
The Company's products are sold to customers that do not usually enter
into long-term purchase agreements, and as a result, the Company's backlog at
any date is not significant in relation to its annual sales. In addition,
because of customer order modifications, cancellations, or orders requiring
wire transfers or letters of credit from international customers, the
Company's backlog as of any particular date may not be indicative of sales
for any future period.
INTELLECTUAL PROPERTY
Products Division:
The Company's timely application of its technology and its design,
development and marketing capabilities have been of substantially greater
importance to its business than patents or licenses.
The Products Division currently has 19 patents ranging from design
features for downconverter and antenna products to its MultiCipher broadband
scrambling system. Those that relate to its downconverter products do not
give the Company any significant advantage since other manufacturers using
different design approaches can offer similar microwave products in the
marketplace. In addition to its awarded patents, the Products Division
currently has 8 patent applications pending.
Solutions Division:
The Solutions Division relies on a combination of trademark, copyright,
service mark, trade secret laws and contractual restrictions to establish and
protect proprietary rights in the Solutions Division's products and services.
Use by customers of the Solutions Division's software is governed by
executed license agreements. The Solutions Division also enters into written
agreements with each of its resellers for the distribution of its software.
In addition, the Solutions Division seeks to avoid disclosure of trade
secrets by requiring each of its employees and others with access to
proprietary information to execute confidentiality agreements. The Solutions
Division protects its software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection.
CalAmp(R) is a federally registered trademark of the Company.
EMPLOYEES
At February 28, 2006, the Company had approximately 350 employees and
approximately 130 contracted production workers. None of the Company's
employees 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
- -------------------------- --- --------------------------
Fred Sturm 48 Director, President and
Chief Executive Officer
Patrick Hutchins 42 President, Products Division
Steven L'Heureux 50 President, Solutions Division
Richard Vitelle 52 Vice President, Finance,
Chief Financial Officer
and Corporate Secretary
FRED STURM was appointed Chief Executive Officer, President and
Director in August 1997. Prior to joining the Company from 1990 to 1997,
Mr. Sturm was President of Chloride Power Systems (USA), and Managing
Director of Chloride Safety, Security, and Power Conversion (UK), both of
which are part of Chloride Group, PLC (LSE: CHLD). From 1979 to 1990, he
held a variety of general management positions with M/A-Com and TRW
Electronics, which served RF and microwave markets.
PATRICK HUTCHINS joined the Company as Vice President, Operations in
August 2001, and was appointed President of the Company's Products Division
effective April 12, 2004. From March 1997 until joining the Company,
Mr. Hutchins served in general management capacities with several units of
Chloride Group PLC and Genlyte Thomas LLC, most recently serving as the
President and General Manager of Chloride Systems, a division of Genlyte
Thomas.
STEVEN L'HEUREUX was appointed as President of the Company's Solutions
Division in December 2004. From 2003 to 2004, Mr. L'Heureux was the
President of the Automation Solutions Group at Encoda Systems, Inc., an
enterprise software solutions provider to the media industry. From 1999 to
2003, Mr. L'Heureux served as President of Odetics Broadcast, a subsidiary of
Odetics, Inc., a supplier of equipment for the television broadcast, video
security, telecommunications, and transportation safety industries.
RICHARD VITELLE joined the Company as Vice President, Finance, Chief
Financial Officer and Corporate Secretary in July 2001. 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.
Officers are appointed by and serve at the discretion of the Board of
Directors.
AVAILABLE INFORMATION
The Company's primary Internet address is www.calamp.com. The Company
makes its Securities and Exchange Commission ("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 the Company files with the SEC may be read and copied at the
SEC's Public Reference Room at 450 Fifth Street, N.W., 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 unique to
our Company:
The Company is dependent on its significant customers, the loss of any of
which could have a material adverse effect on the Company's future sales and
its ability to sustain its growth.
The Company's top two customers, Echostar and DirecTV, accounted for
55.5% and 13.7%, respectively, of the Company's total net sales for fiscal
2006. Echostar and DirecTV in the aggregate accounted for 60.5% of CalAmp's
total net sales for fiscal 2005 and 62.3% of its total net sales for fiscal
2004. The loss of either Echostar or DirecTV as a customer, a deterioration
in the overall business of either of them, or a decrease in the volume of
sales by either of them, could result in decreased sales and could have a
material adverse impact on CalAmp's ability to sustain its growth. A
substantial decrease or interruption in business from any of the Company's
significant customers 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.
Because the markets in which we compete are highly competitive and many of
our competitors have greater resources than us, we cannot be certain that our
products will continue to be accepted in the marketplace or capture increased
market share.
The market for DBS products and other wireless 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 would 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".
Multiple factors beyond the Company's control may cause fluctuations in our
operating results and may cause our business to suffer.
The revenues and results of our operations may fluctuate significantly,
depending on a variety of factors, including the following:
* our dependence on a few major customers in our satellite products
business that currently account for a substantial majority of our overall
sales;
* the introduction of new products and services by competitors; and
* seasonality in the equipment market for the U.S. DBS subscription
television industry.
We will not be able to control many of these factors. In addition, if
our revenues in a particular period do not meet expectations, we may not be
able to adjust our expenditures in that period, which could cause our
business to suffer.
Our business is subject to many factors that could cause the Company's
quarterly or annual operating results to fluctuate and its stock price 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:
* the timing and amount of, or cancellation or rescheduling of, orders
for our products;
* our ability to develop, introduce, ship and support new products and
product enhancements and manage product transitions;
* announcements, new product introductions and reductions in price of
products offered by our competitors;
* our ability to achieve cost reductions;
* our ability to obtain sufficient supplies of sole or limited source
components for our products;
* our ability to achieve and maintain production volumes and quality
levels for our products;
* our ability to maintain the volume of products sold and the mix of
distribution channels through which they are sold;
* the loss of any one of our major customers or a significant reduction
in orders from those customers;
* increased competition, particularly from larger, better capitalized
competitors;
* fluctuations in demand for our products and services; and
* telecommunications and wireless market conditions specifically and
economic conditions generally.
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 at 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 dish antennas, LNB housings, subassemblies and some of
our electronic components are purchased from sole source vendors for which
alternative sources are not readily available. In the event of a reduction
or interruption of supply, or a degradation in quality, as many as six months
could be required before we would 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.
Our lack of product diversification means that any decline in price or demand
for our company's products would adversely affect our business.
Our satellite and wireless access products will account for a
substantial portion of our revenue and are expected to do so for the
foreseeable future. Consequently, a decline in the price of, or demand for,
our satellite or wireless access products, or their failure to achieve or
maintain broad market acceptance, could adversely affect our business.
If we do not meet product introduction deadlines, our business could be
adversely affected.
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. In the past, CalAmp has
experienced design and manufacturing difficulties that have delayed the
development, introduction or marketing of new products and enhancements and
which caused them to incur unexpected expenses. In addition, some of our
existing customers have conditioned their future purchases of our products on
the addition of product features. In the past we have experienced delays in
introducing new 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.
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 will be 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 as 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 global 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 intend to sell some of our products in countries other than the
United States, subjecting us to different regulatory schemes, and we will
have a significant foreign supply base, we may not be able to develop
products that work with the different standards resulting in our inability to
sell our products, and, further, we may be subject to political, economic,
and other conditions affecting such countries that 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 forced 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 5%, 3% and 4% of
CalAmp's total sales for the fiscal years ended February 28, 2006, 2005 and
2004, respectively. Assuming that we continue to sell our products to such
customers, we will be subject to the political, economic and other conditions
affecting countries or jurisdictions other than the U.S., including 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,
change 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 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.
We may not be able to adequately protect our intellectual property, and our
competitors may be able to offer similar products and services that would
harm our competitive position.
Other than in our DBS products business, which currently does not depend
upon patented technology, our ability to succeed in the wireless access
business may depend, in large part, upon our intellectual property for some
of our wireless products as well as software applications marketed by our
Solutions Division. We currently rely primarily on patents, trademark and
trade secret laws, confidentiality procedures and contractual provisions to
establish and protect our intellectual property. These mechanisms provide us
with only limited protection. We currently hold 19 patents and have 8 patent
applications pending. As part of our confidentiality procedures, we enter
into non-disclosure agreements with all of our executive officers, managers
and supervisory employees. 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 may be subject to infringement claims which may disrupt the conduct of our
business and affect our profitability.
We may be subject to legal proceedings and claims from time to time
relating to the intellectual property of others, even though we take steps to
assure that neither our employees nor our contractors knowingly incorporate
unlicensed copyrights or trade secrets into our products. It is possible
that third parties may claim that our products and services may infringe upon
their trademark, patent, copyright, or trade secret rights. Any 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 require us to stop using the challenged
intellectual property. Successful infringement claims against us may
materially disrupt the conduct of our business and affect profitability.
We may engage in future acquisitions that have adverse consequences for our
business.
In April 2002 we completed the acquisition of the assets and business of
Kaul-Tronics, Inc., in April 2004 we completed the acquisition of Vytek, and
in April 2005 we acquired the Skybility business. We may make additional
acquisitions of businesses, products or technologies in the future in order
to complement our existing product offerings, augment our market coverage or
enhance our technological capabilities. However, we cannot be sure that we
will be able to locate suitable acquisition opportunities. The acquisitions
that we have completed and that we may complete in the future could result in
the following, any of which could seriously harm our results of operations or
the price of our stock: (1) issuances of our equity securities that would
dilute the percentage ownership of our current stockholders; (2) large one-
time write-offs; (3) the incurrence of debt and contingent liabilities; (4)
difficulties in the assimilation and integration of the acquired companies;
(5) diversion of management's attention from other business concerns; (6)
contractual disputes; (7) risks of entering geographic and business markets
in which we have no or only limited prior experience; and (8) potential loss
of key employees or customers of acquired organizations.
Cost of licenses to use radio frequencies may restrict the growth of the
wireless communications industry and demand for our products.
Radio frequencies are required to provide wireless services. The
allocation of frequencies is regulated in the United States and other
countries throughout the world and limited spectrum space is allocated to
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.
Industry growth has been and may continue to be affected by the cost of
new licenses required to use frequencies and the related frequency relocation
costs. Typically, governments sell these licenses at auctions. Over the
last several years, the costs of these licenses and the related frequency
relocation costs have increased significantly. The significant cost for
licenses and related frequency relocation costs have slowed and may continue
to slow the growth of the industry. Growth is slowed because some operators
have funding constraints limiting their ability to purchase new licenses, pay
the relocation costs or technology to upgrade systems and the financial
results for a number of businesses have been affected by the industry's rate
of growth. Slowed growth among operators may restrict the demand for our
products.
A failure to rapidly transition or to transition at all to newer digital
technologies could adversely affect our business.
Our success, in part, will be affected by the ability of our wireless
businesses to continue its transition to newer digital technologies, and
successfully compete in that business and gain market share. We face intense
competition in these markets from both established companies and new
entrants. Product life cycles can be short and new products are expensive to
develop and bring to market.
We will depend upon wireless networks owned and controlled by others,
unproven business models and emerging wireless carrier models to deliver
existing services and to grow.
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. All of our services will be
delivered using airtime purchased from third parties. We will depend on
these companies to provide uninterrupted service free from errors or defects
and would not be able to satisfy our customers' needs if they 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 increase the prices of their services.
Our existing agreements with the wireless carriers generally have one-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 their
services.
Our software may contain defects or errors, and its sales could decrease if
this injures our reputation or delays shipments of our software.
Our current software products and platforms are complex and must meet
the stringent technical requirements of customers. Therefore, we must develop
services quickly to keep pace with the rapidly changing software and
telecommunications markets. Software as complex as that which will be offered
by us is likely to contain undetected errors or defects, especially when
first introduced or when new versions are released. Some existing contracts
related to software contain provisions that require us to repair or replace
products that fail to work. To the extent that such products are repaired or
replaced in the future, our expenses may increase, resulting in a decline in
our gross margins. In addition, our software may not be free from errors or
defects after delivery to customers has begun, which could result in the
rejection of our software or services, damage to our reputation, lost
revenue, diverted development resources and increased service and warranty
costs.
New laws and regulations that impact the industry could increase costs or
reduce opportunities for us to earn revenue.
We are not currently subject to direct regulation by the Federal
Communications Commission or any other governmental agency, other than
regulations applicable to Delaware corporations 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 airtime and certain hardware suppliers are subject to
regulation by the FCC and regulations that affect them could increase our
costs or reduce our ability to continue selling and supporting our services.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The Company's principal facilities, all leased, are as follows:
Square
Location Footage Use
- ---------------------- ------- ---------------------------------
Oxnard, California 98,000 Corporate office, Products Division
offices and manufacturing plant
San Diego, California 22,000 Solutions Division offices
Carlsbad, California 6,000 Products Division's M2M offices
Oakland, California 5,000 Administrative and sales office
Chanhassen, Minnesota 4,000 Product design facility
Parsippany, New Jersey 2,500 Sales office and service center
Paris, France 150 Sales office
ITEM 3. LEGAL PROCEEDINGS
The Company from time to time is a party, either as plaintiff or
defendant, to various legal proceedings and claims which arise in the
ordinary course of business. While the outcome of these claims cannot be
predicted with certainty, management does not believe that the outcome of any
of these legal matters will have a material adverse effect on the Company's
consolidated financial position or results of operations.
Investigation by the Securities and Exchange Commission:
In May 2001, the Securities and Exchange Commission ("SEC") commenced an
investigation into the circumstances surrounding the misstatements in the
Company's consolidated financial statements for its 2000 and 2001 fiscal
years caused by its former controller. In April 2004, the SEC concluded its
investigation and issued a cease and desist order directing the Company to
not violate federal securities laws in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 2006.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock trades on The Nasdaq Stock 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's Common Stock, as
reported by Nasdaq:
LOW HIGH
Fiscal Year Ended February 28, 2006:
1st Quarter $ 7.21 $ 7.62
2nd Quarter 8.48 8.83
3rd Quarter 11.91 12.26
4th Quarter 12.00 12.59
Fiscal Year Ended February 28, 2005:
1st Quarter $ 6.63 $17.20
2nd Quarter 5.12 8.20
3rd Quarter 5.57 10.00
4th Quarter 6.76 10.18
At May 1, 2006 the Company had approximately 1,750 stockholders of
record. The number of stockholders of record does not include the number of
persons having beneficial ownership held in "street name" which are estimated
to approximate 9,000. The Company has never paid a cash dividend and has no
current plans to pay cash dividends on its Common Stock. The Company's bank
credit agreement prohibits payment of dividends without the prior written
consent of the bank.
During fiscal 2006, the Company received 26,500 shares of the Company's
common stock as partial consideration for the sale of assets. These shares
were canceled and returned to the status of authorized, unissued shares.
ITEM 6. SELECTED FINANCIAL DATA
Year ended February 28,
-----------------------------------------------
2006 2005 2004 2003 2002
-------- -------- -------- -------- -------
(In thousands except per share amounts)
OPERATING DATA
Revenues $217,493 $220,027 $128,616 $100,044 $100,715
Cost of revenues 164,747 178,649 110,950 79,511 78,342
-------- -------- ------- ------- -------
Gross profit 52,746 41,378 17,666 20,533 22,373
-------- -------- ------- ------- -------
Operating expenses:
Research and development 9,109 8,320 5,363 5,982 7,337
Selling 6,963 6,397 2,336 2,560 3,456
General and administrative 10,700 11,499 3,880 3,685 6,051
Amortization of intangibles 1,771 1,643 104 96 270
In-process research and
development write-off 310 471 - - -
-------- -------- ------- ------- -------
Total operating expenses 28,853 28,330 11,683 12,323 17,114
-------- -------- ------- ------- -------
Operating income 23,893 13,048 5,983 8,210 5,259
-------- -------- ------- ------- -------
Non-operating income (exp.):
Settlement of litigation - - - (1,125)
Other income (expense), net 536 (120) (243) (215) 47
-------- -------- ------- ------- -------
Total non-operating
income (expense) 536 (120) (243) (215) (1,078)
-------- -------- ------- ------- -------
Income from continuing
operations before income tax 24,429 12,928 5,740 7,995 4,181
Income tax provision (9,867) (4,852) (26) (2,835) (1,307)
-------- -------- ------- ------- -------
Income from continuing
operations 14,562 8,076 5,714 5,160 2,874
Loss from discontinued
operations, net of tax - - - - (25)
Gain on sale of discontinued
operations, net of tax - - - - 1,615
-------- -------- ------- ------- -------
Net income $ 14,562 $ 8,076 $ 5,714 $ 5,160 $ 4,464
======= ======= ======= ====== =======
Basic earnings per share:
Income from
continuing operations $ 0.64 $ 0.38 $ 0.39 $ 0.35 $ 0.21
Gain on sale of disc. ops. - - - - 0.12
------- ------- ------- ------- --------
$ 0.64 $ 0.38 $ 0.39 $ 0.35 $ 0.33
======= ======= ======= ====== =======
Diluted earnings per share:
Income from
continuing operations $ 0.62 $ 0.36 $ 0.37 $ 0.35 $ 0.21
Gain on sale of disc. ops. - - - - 0.11
------- ------- ------- ------ -------
$ 0.62 $ 0.36 $ 0.37 $ 0.35 $ 0.32
======= ======= ======= ====== =======
ITEM 6. SELECTED FINANCIAL DATA (continued)
February 28,
-----------------------------------------------
(In thousands)
2006 2005 2004 2003 2002
------- ------- ------- ------- -------
BALANCE SHEET DATA
Current assets $ 99,236 $ 88,534 $67,365 $53,092 $45,739
Current liabilities $ 21,873 $ 29,662 $24,722 $18,405 $15,480
Working capital $ 77,363 $ 58,872 $42,643 $34,687 $30,259
Current ratio 4.5 3.0 2.7 2.9 3.0
Total assets $204,346 $196,755 $98,619 $89,597 $56,688
Long-term debt $ 5,511 $ 7,679 $ 7,690 $12,569 $ 3,628
Stockholders' equity $176,109 $158,288 $65,363 $58,623 $37,580
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
CalAmp is a provider of wireless products, engineering services and
software that enable anytime/anywhere access to critical information, data
and entertainment content. CalAmp is the leading supplier of direct
broadcast satellite (DBS) outdoor customer premise equipment to the U.S.
satellite television market. The Company also provides wireless connectivity
solutions for the telemetry and asset tracking markets, public safety
communications, the healthcare industry and digital multimedia delivery
applications.
The Company's DBS reception products are sold primarily to the two U.S.
DBS system operators, Echostar Communications Corporation and DirecTV Group
Inc., for incorporation into complete subscription satellite television
systems. The Company sells its other wireless access products directly to
system operators as well as through distributors and system integrators.
On April 12, 2004, the Company completed the acquisition of Vytek
Corporation ("Vytek"), a privately held company. The acquisition of Vytek
was motivated primarily by the strategic goal of increasing the Company's
presence in markets which offer higher growth and profit margin potential,
and diversifying the Company's business and customer base. Concurrent with
the acquisition of Vytek, the Company realigned its operations into a
divisional structure. The legacy operations of CalAmp, previously segregated
into the Satellite and Wireless Access business units, were combined together
with Vytek's products manufacturing business to form the new Products
Division. The operations of Vytek, which are principally service oriented,
comprise the Company's Solutions Division.
On April 18, 2005, the Company acquired the business and certain assets
of Skybility, a privately held company located in Carlsbad, California,
pursuant to an Asset Purchase Agreement dated April 18, 2005. Skybility is a
developer and supplier of embedded cellular transceivers used in telemetry
and asset tracking applications that operate on the Global System for Mobile
Communications (GSM) network and the Advanced Mobile Phone Service (AMPS)
network. The Skybility business operates as the Machine-to-Machine (M2M)
product line of the Company's Products Division.
Revenue consists principally of sales of satellite television outdoor
reception equipment for the U.S. DBS industry, which accounted for 78% of
consolidated revenue in the fiscal year ended February 28, 2006. The DBS
system operators have approximately 27% share of the total subscription
television market in the U.S. In calendar 2005, the size of the U.S. DBS
market is estimated by industry analysts to have grown by 9% from 24.8
million subscribers to approximately 27.1 million subscribers at December 31,
2005.
The demand for the Company's products has been affected in the past, and
may continue to be affected in the future, by various factors, including, but
not limited to, the following:
* the timing, rescheduling or cancellation of orders from one of
CalAmp's key customers in CalAmp's satellite products business and the
Company's ability, as well as the ability of its customers, to manage
inventory;
* the rate of growth in the overall subscriber base in the U.S. DBS
Market;
* the economic and market conditions in the wireless communications
markets;
* CalAmp's ability to specify, develop or acquire, complete, introduce,
market and transition to volume production new products and
technologies in a timely manner;
* the rate at which CalAmp's present and future customers and end-users
adopt the Company's products and technologies in its target markets; and
* the qualification, availability and pricing of competing products and
technologies and the resulting effects on sales and pricing of the
Company's products.
For these and other reasons, the Company's net revenue in fiscal 2006
may not necessarily be indicative of future years' revenue amounts. From
time to time, the Company's key customers significantly reduce their product
orders, or may place significantly larger orders, either of which can cause
the Company's quarterly revenues to fluctuate significantly. The Company
expects these fluctuations to continue in the future.
Significant opportunities for the Company include increasing the
Company's market share for outdoor reception equipment in the U.S. DBS
market, expanding its presence in wireless industry market segments for both
fixed and mobile wireless applications, and leveraging CalAmp's high volume
manufacturing capabilities to gain production contracts with customers of the
Solutions Division's product design and consulting engineering services. The
Company's principal challenges include maintaining and improving Products
Division gross margin and eliminating operating losses in the Solutions
Division.
Basis of Presentation
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal years 2006, 2005 and 2004 fell on February
25, 2006, February 26, 2005 and February 28, 2004, respectively. In these
consolidated financial statements, the fiscal year end for all years is shown
as February 28 for clarity of presentation. Fiscal years 2006, 2005 and 2004
each consisted of 52 weeks.
Critical Accounting Policies
The Company's discussion and analysis of its financial condition and
results of operations are based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of sales and expenses during the reporting periods.
Areas where significant judgments are made include, but are not limited to:
allowance for doubtful accounts, inventory valuation, product warranties, the
deferred tax asset valuation allowance, and the valuation of long-lived
assets and goodwill. 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, due to
insolvency, disputes or other collection issues. As further described in
Note 1 to the accompanying consolidated financial statements, the Company's
customer base is quite concentrated, with two customers accounting for 69.2%
of the Company's fiscal 2006 sales. Changes in either a key customer's
financial position, or the economy as a whole, could cause actual write-offs
to be materially different from the recorded allowance amount.
Inventories
The Company evaluates the carrying value of inventory on a quarterly
basis to determine if the carrying value is recoverable at estimated selling
prices. To the extent that estimated selling prices do not exceed the
associated carrying values, inventory carrying amounts are written down. In
addition, the Company generally treats inventory on hand or committed with
suppliers, which is not expected to be sold within the next 12 months, as
excess and thus appropriate write-downs of the inventory carrying amounts are
established through a charge to cost of sales. Estimated usage in the next
12 months is based on firm demand represented by orders in backlog at the end
of the quarter and management's estimate of sales beyond existing backlog,
giving consideration to customers' forecasted demand, ordering patterns and
product life cycles. Significant reductions in product pricing, or changes
in technology and/or demand may necessitate additional write-downs of
inventory carrying value in the future.
Product Warranties
The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While it engages in extensive product quality
programs and processes, including actively monitoring and evaluating the
quality of its component suppliers, the Company'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's estimates, revisions to the estimated warranty liability would
be required.
Deferred Income Tax Asset Valuation Allowance
The deferred income tax asset reflects 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's forecast of future operating
performance. The Company evaluates the realizability of its deferred income
tax asset on a quarterly basis, and a valuation allowance is provided, as
necessary. During this evaluation, the Company reviews its forecasts of
income in conjunction with the positive and negative evidence surrounding the
realizability of its deferred income tax asset to determine if a valuation
allowance is needed.
During fiscal years 2004 and 2005, the deferred tax asset valuation
allowance was reduced by $1,405,000 and $630,000, respectively, which had the
effect of reducing income tax expense by corresponding amounts in these
respective years.
Vytek, which was acquired by the Company in April 2004, has tax loss
carryforwards and other tax assets that the Company believes will be
utilizable to some extent in the future, subject to change of ownership
limitations pursuant to Section 382 of the Internal Revenue Code and to the
ability of the combined post-merger company to generate sufficient taxable
income to utilize the benefits before the expiration of the applicable
carryforward periods. In the purchase price allocation described in Note 2
to the accompanying consolidated financial statements, $8,783,000 was the
value assigned to Vytek's deferred tax assets, which is net of a valuation
allowance of $1,892,000.
At February 28, 2006 the Company's net deferred income tax asset was
$6,386,000 which amount is net of a valuation allowance of $1,841,000. The
valuation allowance at February 28, 2006 relates to the tax assets acquired
in the Vytek purchase. If in the future a portion or all of the $1,841,000
valuation allowance is no longer deemed to be necessary, reductions of the
valuation allowance will decrease the goodwill balance associated with the
Vytek acquisition. Conversely, if in the future the Company were to change
its realization probability assessment to less than 50%, the Company would
provide an additional valuation allowance for all or a portion of the net
deferred income tax asset, which would increase the income tax provision.
Valuation of Long-lived Assets and Goodwill
The Company accounts for long-lived assets other than goodwill in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS)No. 144, "Accounting for the Impairment and Disposal of Long Lived
Assets" ("SFAS No. 144"), which supersedes SFAS No. 121 and certain sections
of Accounting Principles Board Opinion No. 30 specific to discontinued
operations. SFAS No.144 classifies long-lived assets as either: (1) to be
held and used; (2) to be disposed of by other than sale; or (3) to be
disposed of by sale. This standard introduces a probability-weighted cash
flow estimation approach to address situations where alternative courses of
action to recover the carrying amount of a long-lived asset are under
consideration or a range is estimated for the amount of possible future cash
flows. SFAS No. 144 requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever
changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. During fiscal years 2005 and 2004, the Company
recorded impairment writedowns of $241,000 and $739,000, respectively, on
property and equipment which had become underutilized due to increased
outsourcing to contract manufacturers. There were no impairment charges in
fiscal 2006.
Pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets",
goodwill is tested for impairment on an annual basis, or more frequently as
impairment indicators arise. The test for impairment involves the use of
estimates related to the fair values of the business operations with which
goodwill is associated and is usually based on projected cash flows or a
market value approach.
The goodwill of $71,896,000 that resulted from the Vytek acquisition
was apportioned on the basis of a valuation analysis between the Company's
Products Division and Solutions Division because both of these reporting
units were expected to benefit from the synergies of this business
combination. This valuation analysis resulted in an apportionment of the
Vytek acquisition goodwill to the Products Division and the Solutions
Division in the amounts of $36,847,000 and $35,049,000, respectively.
As further described in Note 5 to the accompanying consolidated
financial statements, the Company tested its Products Division goodwill for
impairment as of December 31, 2005, which indicated that there was no
impairment as of that date. The initial annual impairment test of the
Solutions Division goodwill was performed during the first quarter of fiscal
2006 using a testing date of April 30, 2005, which indicated that there was
no impairment of Solutions Division goodwill.
The Company believes the estimate of its valuation of long-lived assets
and goodwill is a "critical accounting estimate" because if circumstances
arose that led to a decrease in the valuation it could have a material impact
on the Company's results of operations.
Results of Operations, Fiscal Years 2004 Through 2006
The following table sets forth, for the periods indicated, the
percentage of sales represented by items included in the Company's
Consolidated Statements of Income:
Year Ended February 28,
----------------------------
2006 2005 2004
------ ------ ------
Sales 100.0% 100.0% 100.0%
Cost of goods sold 75.7 81.2 86.3
----- ----- -----
Gross profit 24.3 18.8 13.7
----- ----- -----
Operating expenses:
Research and development 4.2 3.8 4.2
Selling 3.2 2.9 1.8
General and administrative 4.9 5.2 3.1
Amortization of intangibles 0.8 0.8 -
In-process research and
development write-off 0.2 0.2 -
----- ----- -----
Operating income 11.0 5.9 4.6
Other income (expense), net 0.2 - (0.2)
----- ----- -----
Income before income taxes 11.2 5.9 4.4
Income tax provision (4.5) (2.2) -
----- ----- -----
Net income 6.7% 3.7% 4.4%
===== ===== =====
The Company's sales and gross profit by business segment for the last
three years are as follows:
REVENUE BY SEGMENT
Year Ended February 28,
--------------------------------------------------------
2006 2005 2004
--------------- --------------- ---------------
Segment % of % of % of
(Division) $000s Total $000s Total $000s Total
----------- ------- ----- ------- ----- ------- -----
Products $196,908 90.5% $194,835 88.6% $128,616 100.0%
Solutions 20,585 9.5% 25,192 11.4% - -
------- ----- ------- ----- ------- -----
Total $217,493 100.0% $220,027 100.0% $128,616 100.0%
======= ===== ======= ===== ======= =====
GROSS PROFIT BY SEGMENT
Year Ended February 28,
--------------------------------------------------------
2006 2005 2004
--------------- --------------- ---------------
Segment % of % of % of
(Division) $000s Total $000s Total $000s Total
----------- ------- ----- ------- ----- ------- -----
Products $ 45,589 86.4% $ 35,765 86.4% $17,666 100.0%
Solutions 7,157 13.6% 5,613 13.6% - -
------- ----- ------- ----- ------ -----
Total $ 52,746 100.0% $ 41,378 100.0% $17,666 100.0%
======= ===== ======= ===== ====== =====
The Products Division generates a substantial portion of its revenue
from the sale of outdoor reception equipment for use with subscription
satellite television programming services. Such products accounted for
approximately 86%, 95% and 93% of total Products Division revenues in fiscal
years 2006, 2005 and 2004, respectively.
Fiscal Year 2006 compared to Fiscal Year 2005
Revenue
Products Division revenue increased $2,073,000, or 1%, to $196,908,000
in fiscal 2006 from $194,835,000 in fiscal 2005. Sales of wireless products,
primarily radio modules to a legacy customer of Vytek, increased $9.1 million
over the prior year. Sales of M2M products, the product line acquired from
Skybility in fiscal 2006, contributed a revenue increase of $7.4 million in
fiscal 2006. These increases were substantially offset by a decline in DBS
product revenue of $14.4 million from fiscal 2005 to 2006. The decline in
DBS revenue was attributable to a significant shift in product mix. There
was a 55% decline in unit sales of older generation DBS products that have
low average selling prices (less than $25 per unit) which represented an
aggregate $39 million decline in DBS revenue, and a 44% increase in unit
sales of higher complexity new generation products with higher average
selling prices (more than $50 per unit) which represented an aggregate $17
million increase in DBS revenue. Increased sales of DBS products with medium
average selling prices (between $25 and $50 per unit) and DBS mounting
hardware products accounted for the remainder of the net change in year-over-
year DBS revenue.
Revenue of the Solutions Division decreased $4,607,000, or 18%, to
$20,585,000 in fiscal 2006 from $25,192,000 in fiscal 2005. The revenue
decrease is primarily the result of the Company's actions to eliminate lower
margin business in the current year in order to reduce operating losses in
this division.
Gross Profit and Gross Margins
Products Division gross profit increased by $9,824,000, or 28%, in
fiscal 2006 compared to fiscal 2005. The Products Division gross margin
improved from 18.4% in fiscal 2005 to 23.2% in fiscal 2006. The gross profit
and margin improvement were mainly due to increased sales of higher-margin
products, primarily M2M products, radio modules and latest generation DBS
products.
Solutions Division gross profit increased $1,544,000, or 28%, and gross
margin improved from 22.3% in fiscal 2005 to 34.8% in fiscal 2006. A
revenue mix favoring higher margin software products resulted in
significantly improved gross margin in fiscal 2006.
See also Note 13 to the accompanying unaudited consolidated financial
statements for additional operating data by business segment.
Operating Expenses
Consolidated research and development expense ("R&D") increased by
$789,000 to $9,109,000 in fiscal 2006 from $8,320,000 in fiscal 2005. The
Products Division increased its R&D spending by $1.9 million primarily in
connection with product development costs relating to the M2M product line
that was acquired in April 2005. The Solutions Division reduced its R&D
spending by approximately $1 million. The Solutions Division's R&D spending
is primarily in the development of software products.
Consolidated selling expenses increased by $566,000 from $6,397,000 last
year to $6,963,000 this year, primarily attributable to the Products
Division. The inclusion of M2M selling expenses in the current year as a
result of the acquisition of the Skybility business in the fiscal 2006 first
quarter accounted for substantially all of this increase.
Consolidated general and administrative expenses ("G&A") decreased by
$799,000 to $10,700,000 in fiscal 2006 from $11,499,000 last year. The
decrease is attributable to a reduction of Solutions Division G&A of $1.8
million as a result of actions taken to improve the cost structure of this
Division, partially offset by an increase in Products Division G&A of $1
million, mainly from higher payroll related expenses.
Amortization expense of intangible assets was $1,771,000 in fiscal 2006
compared to $1,643,000 in fiscal 2005. The increase is attributable to
amortization expense related to the intangible assets arising from the April
2005 acquisition of the M2M product line.
The in-process research and development ("IPR&D") write-off decreased by
$161,000 to $310,000 in fiscal 2006 from $471,000 in fiscal 2005. Last
year's IPR&D write-off was related to the acquisition of Vytek and this
year's IPR&D write-off was related to the acquisition of the M2M product
line. See also Note 2 to the accompanying unaudited consolidated financial
statements for additional information on the M2M product line.
Operating Income
Operating income increased by $10,845,000 to $23,893,000 in fiscal 2006
from $13,048,000 in fiscal 2005. These results were driven by improved gross
margins in both the Products and Solutions Divisions. The Products
Division's higher gross profit, as discussed above under the headings
"Revenue" and "Gross Profit and Gross Margins", partially offset by the
Products Division's higher operating expenses, contributed to the increase in
operating income. The Solutions Division also showed an improvement in its
operating results in fiscal 2006, reducing its operating loss by about 60%
compared to fiscal 2005, which is the result of this Division focusing its
efforts on attracting higher margin business and changing its cost structure
primarily through workforce reductions. Management is closely monitoring the
performance of this business unit with the objective of achieving profitable
results for the Solutions Division as soon as possible.
Income Tax Provision
The effective income tax rate was 40.4% and 37.5% in fiscal years 2006
and 2005, respectively. During fiscal year 2005, the deferred tax asset
valuation allowance was reduced by $630,000 which had the effect of reducing
income tax expense in fiscal 2005. In fiscal 2006, the deferred tax asset
valuation allowance was reduced by $51,000. Because this valuation allowance
relates to tax assets acquired in the Vytek purchase, this $51,000 was
recorded as a reduction of goodwill and did not impact fiscal 2006 income tax
expense.
Fiscal Year 2005 compared to Fiscal Year 2004
Revenue
Products Division revenue in fiscal 2005 increased $66,219,000, or 51%,
over fiscal 2004, primarily as the result of increased unit sales of DBS
reception equipment, specifically LNBFs. Sales of DBS products increased
during fiscal 2005 in part because the Company began volume shipments of two
new products in the fiscal 2005 third quarter in support of customers' multi-
satellite and digital video recorder service offerings. The increasing
availability of high-definition television programming and the introduction
of set-top boxes with integrated digital video recorders drove demand for
increasingly complex DBS outdoor reception equipment that the Company
supplies. These latest generation satellite products typically have higher
average selling prices than earlier generation DBS outdoor reception
products.
The Solutions Division revenue in fiscal 2005 represented the service
operations of Vytek which was acquired effective April 12, 2004. The
products manufacturing business of Vytek is included in the Products
Division.
Gross Profit and Gross Margins
Products Division gross profit increased by $18,099,000, or 102%, in
fiscal 2005 compared to fiscal 2004. Approximately one-half of the gross
profit increase was attributable to the $66,219,000 increase in revenue in
fiscal 2005, and the remaining gross profit increase was attributable to the
year-over-year improvement in the gross margin percentage. The Products
Division gross margin improved from 13.7% in fiscal 2004 to 18.4% in fiscal
2005.
The gross margin improvement in fiscal 2005 was due mainly to the fact
that the Products Division gross margin during fiscal 2004 was adversely
affected by quarter-to-quarter volatility in ordering patterns from the
Company's two key customers. This demand volatility required the Company to
make a rapid contraction in production capability in the fiscal 2004 first
quarter, and a rapid expansion of production capability in the fiscal 2004
third quarter, all of which adversely affected manufacturing efficiencies and
gross margins during fiscal 2004.
Fiscal 2005 gross profit and gross margin of the Solutions Division were
$5,613,000 and 22.3%, respectively. During fiscal 2005 the Company took
action to improve the cost structure and gross margins of the Solutions
Division.
See also Note 13 to the accompanying unaudited consolidated financial
statements for additional operating data by business segment.
Operating Expenses
Consolidated research and development ("R&D") expense increased by
$2,957,000 to $8,320,000 in fiscal 2005 from $5,363,000 in fiscal 2004. This
increase in R&D expense was primarily due to the inclusion of the operations
of the Solutions Division in fiscal 2005, which accounted for $2,133,000 or
72% of the increase. The remaining increase was primarily attributable to
increased salaries and temporary labor expense ($522,000), increased
incentive compensation expense ($99,000), and increased workers compensation
insurance expense ($155,000).
Consolidated sales and marketing expenses increased by $4,061,000 in
fiscal 2005 compared to fiscal 2004. Substantially all of this increase was
attributable to the inclusion of the Solution Division's operations in fiscal
2005.
Consolidated general and administrative expense increased from
$3,880,000 last year to $11,499,000 this year. The $7,619,000 increase was
primarily explained by the inclusion of the Solutions Division's operations
in fiscal 2005, which accounted for $5,848,000 of the increase. The
remaining increase was attributable primarily to increased auditing and
accounting fees ($584,000), increased incentive compensation expense
($272,000), increased legal expense ($260,000), increased salaries and wages
expense ($176,000), increased recruiting fees ($106,000), increased
consulting fees ($78,000), and the fact that the gain on sales of property
and equipment, which is netted against G&A expense, was $115,000 less in
fiscal 2005 compared to fiscal 2004.
Amortization expense of intangible assets in fiscal 2005 was $1,643,000,
compared to $104,000 in fiscal 2004. This increase was attributable to the
intangible assets arising from the acquisition of Vytek in April 2004. The
write-off of in-process R&D of $471,000 in fiscal 2005 was also attributable
to the Vytek acquisition.
Operating Income
Operating income was $13,048,000 and $5,983,000 during fiscal years 2005
and 2004, respectively. The increased profitability was attributable to the
improvement in the satellite products portion of the Company's Products
Division, as discussed above under the headings "Revenue" and "Gross Profit
and Gross Margins".
Fiscal 2005 operating income of $13,048,000 was comprised of operating
income of the Products Division of $25,316,000, an operating loss of the
Solutions Division of $8,051,000, and unallocated corporate expenses of
$4,217,000. The Company had taken steps to reduce the losses of the
Solutions Division by strengthening the sales and marketing organization, by
reducing overhead costs, and by making a leadership change.
Income Tax Provision
During fiscal years 2005 and 2004, the deferred tax asset valuation
allowance was reduced by $630,000 and $1,405,000, respectively, which had the
effect of reducing income tax expense by corresponding amounts in these
respective years. The effective income tax rate was 37.5% and 0.5% in fiscal
years 2005 and 2004, respectively. The increase in effective tax rate in
fiscal 2005 was attributable primarily to the fact that the reduction in the
valuation allowance in fiscal 2004 as a percentage of fiscal 2004 pretax
income was significantly greater than the reduction in the valuation
allowance in fiscal 2005 as a percentage of fiscal 2005 pretax income. In
addition, the Company was able to utilize a greater amount of tax credits in
fiscal 2004 compared to fiscal 2005.
Liquidity and Capital Resources
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $45,783,000 at February 28, 2006, and its $14
million working capital line of credit with a bank. During fiscal year 2006,
cash and cash equivalents increased by $14,735,000. This net increase
consisted of cash provided by operating activities of $22,380,000, proceeds
from stock option exercises of $2,290,000 and proceeds from sale of property
and equipment of $146,000, less cash used in the acquisition of Skybility
business of $4,897,000, repayments of debt of $2,888,000 and cash used for
capital expenditures of $2,296,000.
Cash was used by an increase in operating working capital during fiscal
2006 in the aggregate amount of $4,301,000, comprised of a $1,704,000
increase in accounts receivable, a $6,377,000 decrease in accounts payable,
and a decrease of $913,000 in accrued liabilities, partially offset by a
$4,266,000 decrease in inventories and a $427,000 decrease in prepaid
expenses and other assets.
The Company believes that inflation and foreign currency exchange rates
did not have a material effect on its operations in fiscal 2006.
At February 28, 2006 the Company had a $14 million working capital line
of credit with a commercial bank that matures on August 3, 2007. Borrowings
under this line of credit bear interest at LIBOR plus 1.50% or the bank's
prime rate, and are secured by substantially all of the Company's assets. At
February 28, 2006, $3 million was outstanding on this line of credit which is
classified as long-term at that date. Also at that date, $2,875,000 was
reserved under the line of credit for outstanding irrevocable stand-by
letters of credit. The Company also has two term loans with this bank that
had an aggregate outstanding principal balance of $4,642,000 at February 28,
2006, as further described in Note 6 to the consolidated financial
statements.
The bank credit agreement that encompasses the working capital line of
credit and the two bank term loans contains certain financial covenants and
ratios that the Company is required to maintain, including a fixed charge
coverage ratio of not less than 1.25, a current ratio of not less than 2.0, a
leverage ratio of not more than 2.25, tangible net worth of at least
$22,050,000 and net income of at least $1.00 in each fiscal year. The
Company's bank credit agreement also prohibits payment of dividends without
the prior written consent of the bank. At February 28, 2006 and 2005, the
Company was in compliance with all such covenants. The bank credit agreement
contains a subjective acceleration clause that enables the bank to call the
loans in the event of a material adverse change (as defined in the credit
agreement) in the Company's business. Based on the Company's history of
profitable operations and positive operating cash flow over the past five
years, and based on the Company's internal financial forecasts for the next
year, the Company does not believe it is probable that the bank will assert
the material adverse change clause in the next 12 months.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Contractual Obligations
Following is a summary of the Company's contractual cash obligations as
of February 28, 2006 (in thousands):
Payments Due by Period
-------------------------------
Less
Contractual Than 1-3 3-5
Obligations 1 year years years Total
- --------------- ------ ------- ------ -------
Debt $ 2,139 $ 5,503 $ - $ 7,642
Capital leases 29 8 - 37
Operating leases 1,651 4,356 1,696 7,703
Purchase
obligations 23,697 - - 23,697
------- ------- ------ -------
Total contractual
cash obligations $27,516 $ 9,867 $1,696 $39,079
======= ======= ====== =======
Purchase obligations consist of obligations under non-cancelable
purchase orders, primarily for inventory purchases of raw materials,
components and subassemblies.
The Company believes that its cash on hand, its cash generated from
operations and the amount available under its working capital line of credit,
are collectively sufficient to support operations, fund capital equipment
requirements and discharge contractual cash obligations.
New Authoritative Pronouncements
See Note 1 of the accompanying consolidated financial statements for a
description of new authoritative accounting pronouncements either recently
adopted or which had not yet been adopted by the Company as of the end of
fiscal 2006
Forward Looking Statements
Forward looking statements in this Form 10-K which include, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, projections and other information
regarding future performance, are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The words "may",
"will", "could", "plans", "intends", "seeks", "believes", "anticipates",
"expects", "estimates", "judgment", "goal", and variations of these words and
similar expressions, are intended to identify forward-looking statements.
These forward-looking statements reflect the Company's current views with
respect to future events and financial performance and are subject to certain
risks and uncertainties, including, without limitation, product demand,
market growth, new competition, competitive pricing and continued pricing
declines in the DBS market, supplier constraints, manufacturing yields, the
ability to manage cost increases in inventory materials including raw steel,
timing and market acceptance of new product introductions, the Company's
ability to harness new technologies in a competitively advantageous manner,
the Company's ability to eliminate operating losses in its Solutions Division
and make this business segment profitable, the Company's success at
integrating its acquired businesses, and other risks and uncertainties that
are set forth under the "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 results or those
anticipated. Although the Company believes the expectations reflected in
such forward-looking statements are based upon reasonable assumptions, it can
give no assurance that its expectations will be attained. The Company
undertakes no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is interest rate risk. At
February 28, 2006, the Company's term debt and credit facility with its bank
are subject to variable interest rates. The Company monitors its debt and
interest bearing cash equivalents levels to mitigate the risk of interest
rate fluctuations. A fluctuation of one percent in interest rates related to
the Company's outstanding variable rate debt would not have a material
impact on the Company's consolidated statement of operations.
<page>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of CalAmp Corp. is responsible for establishing and
maintaining adequate internal control over financial reporting.
CalAmp Corp. management has assessed the effectiveness of the Company's
internal control over financial reporting as of February 28, 2006. In making
this assessment, management used criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control - Integrated Framework. Based on its assessment, management of
CalAmp Corp. believes that, as of February 28, 2006, the Company's internal
control over financial reporting is effective based on those criteria.
KPMG LLP, the independent registered public accounting firm that
audited the consolidated financial statements included in this Annual Report
on Form 10-K for the fiscal year ended February 28, 2006, has issued an
attestation report on management's assessment of the Company's internal
control over financial reporting.
/s/ Richard K. Vitelle VP Finance, Chief Financial
______________________ Officer and Treasurer
Richard Vitelle (principal accounting officer)
/s/ Fred M. Sturm President, Chief Executive
______________________ Officer and Director
Fred M. Sturm (principal executive officer)
<page>
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CalAmp Corp:
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting, that CalAmp
Corp. maintained effective internal control over financial reporting as of
February 28, 2006, based on criteria established in Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO). CalAmp Corp.'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.
Our responsibility is to express an opinion on management's assessment and an
opinion on the effectiveness of the Company's internal control over financial
reporting based on our audit.
We conducted our audit 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, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control,
and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit 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 (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) 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 (3) 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, management's assessment that CalAmp Corp. maintained
effective internal control over financial reporting as of February 28, 2006,
is fairly stated, in all material respects, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Also, in our opinion, CalAmp
Corp. maintained, in all material respects, effective internal control over
financial reporting as of February 28, 2006, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the consolidated balance sheets
of CalAmp Corp. and subsidiaries as of February 28, 2006 and 2005, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended February 28, 2006, and our report dated May 9, 2006 expressed an
unqualified opinion on those consolidated financial statements.
(signed) KPMG LLP
Los Angeles, California
May 9, 2006
<page>
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
CalAmp Corp.:
We have audited the accompanying consolidated balance sheets of CalAmp Corp.
and subsidiaries as of February 28, 2006 and 2005, and the related
consolidated statements of income, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
February 28, 2006. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated 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 subsidiaries as of February 28, 2006 and 2005, and the results of
their operations and their cash flows for each of the years in the three-year
period ended February 28, 2006, in conformity with U.S. generally accepted
accounting principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of CalAmp
Corp.'s internal control over financial reporting as of February 28, 2006,
based on criteria established in Internal Control-Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO), and our report dated May 9, 2006 expressed an unqualified opinion on
management's assessment of, and the effective operation of, internal control
over financial reporting.
(signed) KPMG LLP
Los Angeles, California
May 9, 2006
<page>
CALAMP CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PAR VALUE)
February 28,
---------------------
2006 2005
-------- --------
Assets
Current assets:
Cash and cash equivalents $ 45,783 $ 31,048
Accounts receivable, less allowance for
doubtful accounts of $203 and $477 at
February 28, 2006 and 2005, respectively 28,630 27,027
Inventories, net 18,279 21,465
Deferred income tax assets 4,042 6,118
Prepaid expenses and other current assets 2,502 2,876
-------- --------
Total current assets 99,236 88,534
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 5,438 5,383
Deferred income tax assets, less current portion 2,344 5,285
Goodwill 91,386 92,834
Other intangible assets, net 5,304 4,028
Other assets 638 691
-------- --------
$204,346 $196,755
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 2,168 $ 2,897
Accounts payable 12,011 18,389
Accrued payroll and employee benefits 3,608 3,652
Other current liabilities 2,763 3,127
Deferred revenue 1,323 1,597
-------- --------
Total current liabilities 21,873 29,662
-------- --------
Long-term debt, less current portion 5,511 7,679
Other non-current liabilities 853 1,126
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; 23,204 and 22,714 shares issued
and outstanding at February 28, 2006 and
2005, respectively 232 227
Additional paid-in capital 135,022 131,784
Less common stock held in escrow (2,532) (2,548)
Retained earnings 44,188 29,626
Accumulated other comprehensive loss (801) (801)
-------- --------
Total stockholders' equity 176,109 158,288
-------- --------
$204,346 $196,755
======== ========
See accompanying notes to consolidated financial statements.
<page>
CALAMP CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Year ended February 28,
-----------------------------
2006 2005 2004
-------- -------- -------
Revenues:
Product sales $201,271 $200,098 $128,616
Service revenues 16,222 19,929 -
-------- -------- --------
Total revenues 217,493 220,027 128,616
-------- -------- --------
Cost of revenues:
Cost of product sales 152,333 163,154 110,950
Cost of service revenues 12,414 15,495 -
-------- -------- --------
Total cost of revenues 164,747 178,649 110,950
-------- -------- --------
Gross profit 52,746 41,378 17,666
-------- -------- --------
Operating expenses:
Research and development 9,109 8,320 5,363
Selling 6,963 6,397 2,336
General and administrative 10,700 11,499 3,880
Amortization of intangibles 1,771 1,643 104
In-process research and development
write-off 310 471 -
-------- -------- --------
Total operating expenses 28,853 28,330 11,683
-------- -------- --------
Operating income 23,893 13,048 5,983
Non-operating income (expense):
Interest income (expense), net 557 (185) (317)
Other income (expense), net (21) 65 74
-------- -------- --------
Total non-operating income (expense) 536 (120) (243)
-------- -------- --------
Income before income taxes 24,429 12,928 5,740
Income tax provision (9,867) (4,852) (26)
-------- -------- --------
Net income $ 14,562 $ 8,076 $ 5,714
======== ======== ========
Earnings per share:
Basic $ 0.64 $ 0.38 $ 0.39
Diluted $ 0.62 $ 0.36 $ 0.37
Shares used in computing basic and
diluted earnings per share:
Basic 22,605 21,460 14,791
Diluted 23,415 22,193 15,390
See accompanying notes to consolidated financial statements.
<page>
CALAMP CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(IN THOUSANDS)
<table>
Accum-
ulated
Common Other Total
Common Stock Additional Stock Compre- Stock-
-------------- Paid-in Held Retained hensive holders
Shares Amount Capital in Escrow Earnings Loss Equity
------ ------ ------ --------- ------- ------ ------
<s> <c> <c> <c> <c> <c> <c> <c>
Balances at
February 28, 2003 14,745 $147 $ 43,441 $ - $15,836 $(801) $ 58,623
Net income - - - - 5,714 - 5,714
Unrealized loss on
available-for-sale
investments - - - - - (21) (21)
------
Comprehensive income 5,693
Exercise of stock
options 165 2 615 - - - 617
Tax benefits from
exercise of non-
qualified stock
options - - 430 - - - 430
------ ---- ------- -------- ------- ------ -------
Balances at
February 28, 2004 14,910 149 44,486 - 21,550 (822) 65,363
Net income - - - - 8,076 - 8,076
Change in unrealized
loss on available-for-
sale investments - - - - - 21 21
------
Comprehensive income 8,097
Issuance of common
stock for Vytek
acquisition 8,123 81 91,090 (9,624) - - 81,547
Cancellation of
escrow shares (628) (6) (7,070) 7,076 - - -
Fair value of options
and warrants assumed
in acquisition - - 1,837 - - - 1,837
Exercise of stock
options 309 3 1,053 - - - 1,056
Tax benefits from
exercise of non-
qualified stock
options - - 388 - - - 388
------ ---- ------- -------- ------- ------ --------
Balances at
February 28, 2005 22,714 227 131,784 (2,548) 29,626 (801) 158,288
Net income - - - - 14,562 - 14,562
Sales of common stock
held in escrow - - - 16 - - 16
Exercise of stock
options 516 5 2,285 - - - 2,290
Tax benefits from
exercise of non-
qualified stock
options - - 1,143 - - - 1,143
Other (26) - (190) - - - (190)
------ ---- ------- -------- ------- ------ --------
Balances at
February 28, 2006 23,204 $232 $135,022 $(2,532) $44,188 $(801) $176,109
====== ==== ======== ======== ======= ====== ========
</table>
See accompanying notes to consolidated financial statements.
<page>
CALAMP CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Year ended February 28,
------------------------------
2006 2005 2004
-------- -------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,562 $ 8,076 $ 5,714
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 4,372 4,340 3,400
Write-off of in-process research and
development 310 471 -
Property and equipment impairment writedowns - 241 739
Loss(gain)on sale of equipment 43 (76) (227)
Tax benefit from exercise of stock options 1,158 388 430
Deferred tax assets, net 6,236 4,201 (233)
Changes in operating assets and liabilities:
Accounts receivable (1,704) (3,192) (2,351)
Inventories 4,266 (825) (7,391)
Prepaid expenses and other assets 427 3,263 (573)
Accounts payable (6,377) (1,237) 5,842
Accrued liabilities (913) (3,114) 744
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,380 12,536 6,094
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,296) (2,359) (3,693)
Proceeds from sale of property and equipment 146 1,749 2,201
Acquisition of Skybility business (4,897) - -
Acquisition of Vytek, net of
cash acquired - (1,776) -
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (7,047) (2,386) (1,492)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt - 2,000 1,000
Debt repayments (2,888) (5,043) (5,281)
Proceeds from exercise of stock options 2,290 1,056 617
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (598) (1,987) (3,664)
-------- -------- --------
Net change in cash and cash equivalents 14,735 8,163 938
Cash and cash equivalents at beginning of year 31,048 22,885 21,947
-------- -------- --------
Cash and cash equivalents at end of year $ 45,783 $ 31,048 $ 22,885
======== ======== ========
See accompanying notes to consolidated financial statements.
<page>
CALAMP CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Description of Business
CalAmp Corp. ("CalAmp" or the "Company") is a provider of wireless
products, engineering services and software that enable anytime/anywhere
access to critical information, data and entertainment content. CalAmp is
the leading supplier of direct broadcast satellite (DBS) outdoor customer
premise equipment to the U.S. satellite television market. The Company also
provides wireless connectivity solutions for the telemetry and asset tracking
markets, public safety communications, the healthcare industry and digital
multimedia delivery applications.
On April 12, 2004, the Company completed the acquisition of Vytek
Corporation ("Vytek"), a privately held company. The operations of Vytek are
included in the Company's consolidated financial statements since that date.
Effective with the acquisition of Vytek, the Company realigned its operations
into a divisional structure. The legacy operations of CalAmp, previously
segregated into the Satellite and Wireless Access business units, were
combined together with Vytek's products manufacturing business into a new
Products Division. The operations of Vytek, which are principally service
oriented, comprise the Company's Solutions Division.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company (a Delaware corporation) and its two wholly-owned subsidiaries,
California Amplifier SARL (a French corporation) and CalAmp Solutions
Holdings, Inc. (formerly known as Vytek Corporation). 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
limited to: allowance for doubtful accounts, inventory valuation, product
warranties, deferred income tax asset valuation allowances, and valuation of
long-lived assets and goodwill.
Fiscal Year
The Company uses a 52-53 week fiscal year ending on the Saturday
closest to February 28, which for fiscal years 2006, 2005 and 2004 fell on
February 25, 2006, February 26, 2005 and February 28, 2004, respectively. In
these consolidated financial statements, the fiscal year end for all years is
shown as February 28 for clarity of presentation. Fiscal years 2006, 2005
and 2004 each consisted of 52 weeks.
Revenue Recognition
The Company's Products Division recognizes revenue from product sales
when persuasive evidence of an arrangement exists, delivery has occurred, the
sales price is fixed and determinable and collection of the sales price is
probable. Generally, these criteria are met at the time product is shipped,
except for 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 do not have rights
of return except for defective products returned during the warranty period.
Revenues of the Company's Solutions Division consist of the sales of
hardware products, software and software maintenance, and services. Product
revenues of the Solutions Division are generally recognized upon shipment of
goods, except that some product revenues associated with systems design and
engineering contracts are recognized on the percentage of completion method,
principally utilizing labor costs to measure the extent of progress toward
completion.
The Company generally licenses its software pursuant to multiple
element arrangements that include maintenance. Where no significant
obligations remain, software license revenue is recognized upon delivery of
the software provided collection of the sales price is considered probable,
the fee is fixed or determinable, there is evidence of an arrangement, and
vendor specific objective evidence exists to allocate the total fee to the
elements of the arrangement.
Revenues from maintenance and software support services, which includes
upgrades, are generally collected before the services are performed and are
recognized ratably over the period of the services. The Company's software
maintenance arrangements do not contain specific upgrade rights.
Service revenues are recognized as the services are rendered, provided
that no significant obligations remain and collection of the receivable is
probable. Generally, contracts for services call for billings on a time and
material basis; however, in instances when a fixed-fee contract is signed,
revenue is recognized on a percentage of completion basis. Provisions for
estimated losses on uncompleted contracts are made in the period in which
such losses are determined.
In accordance with Emerging Issues Task Force Issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs", the Company includes
shipping and handling fees billed to customers as sales. Shipping and
handling fees included in revenues for fiscal years 2006, 2005 and 2004 were
$194,000, $239,000 and $345,000, respectively.
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.
Concentrations of Risk
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
customers which accounted for 10% or more of consolidated annual revenues in
any one of the last three years, as a percent of consolidated revenues, are
as follows:
Year ended February 28,
------------------------------
Customer 2006 2005 2004
-------- ------ ------ ------
A 55.5% 43.4% 39.4%
B 13.7% 17.1% 22.9%
Accounts receivable amounts at fiscal year-end from the customers
referred to in the table above, expressed as a percent of consolidated net
accounts receivable, are as follows:
February 28,
--------------------
Customer 2006 2005
-------- ------ ------
A 40.1% 49.8%
B 19.2% 25.2%
A third customer accounted for 12.3% of consolidated accounts
receivable at February 28, 2006.
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, 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.
Investments
The Company classifies investments in one of three categories: trading,
available-for-sale or held-to-maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term. Held-to-
maturity securities are those securities that the Company has the ability and
intent to hold until maturity. All other securities not included in trading
or held-to-maturity are classified as available-for-sale.
Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses on trading securities are included in earnings.
Unrealized holding gains and losses, net of the related tax effect, on
available-for-sale securities are excluded from earnings and are reported as
a component of accumulated other comprehensive income until realized, or
until holding losses are deemed to be permanent, at which time an impairment
charge is recorded.
Property, equipment and improvements
Property, equipment and improvements are stated at cost. The Company
follows the policy of capitalizing expenditures that increase asset lives,
and charging ordinary maintenance and repairs to operations, 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 loss is
included in operating income.
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.
Operating Leases
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 deferred rent
liability.
The Company accounts for tenant allowances in lease agreements as a
deferred rent liability. The liability is then amortized on a straight-line
basis over the lease term as a reduction of rent expense.
The deferred rent liability is included in other current liabilities
and other non-current liabilities in the accompanying consolidated balance
sheets.
Goodwill
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. As required under Statement of Financial
Accounting Standards (SFAS) No. 142, "Accounting for Goodwill and Intangible
Assets", 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.
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's
carrying amount to the undiscounted future net cash flows an asset is
expected to generate. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount at which the carrying
amount of the asset exceeds the projected discounted future cash flows
arising from the asset.
Capitalized Software Costs
The Company capitalizes software costs once technological feasibility
has been achieved based on the completion of product design and the detail
program design. At February 28, 2006, capitalized software costs in the
amount of $98,000 was included in Other Assets.
No amortization was recorded in fiscal 2006 because the software
product is still under development and not yet available for general release
to customers.
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.
Long-term debt - The carrying value approximates fair value since the
interest rate on the long-term debt approximates the interest rate which is
currently available to the Company for the issuance of debt with similar
terms and maturities.
Warranty
The Company warrants its products against defects over periods ranging
from 3 to 24 months. An accrual for estimated future costs relating to
products returned under warranty is recorded as an expense when products are
shipped. At the end of each quarter, the Company adjusts its liability for
warranty claims based on its actual warranty claims experience as a
percentage of revenues for the preceding three years. See Note 10 for a
table of annual increases in and reductions of the warranty liability for the
last three years.
Deferred Income Tax Assets
Deferred income tax assets reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used 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 on a quarterly basis, and a valuation allowance is
provided, as necessary, in accordance with the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes".
During this evaluation, the Company reviews its forecasts of income in
conjunction with the positive and negative evidence surrounding the
realizability of its deferred income tax assets to determine if a valuation
allowance is needed.
Foreign Currency Translation and Accumulated Other Comprehensive Loss Account
Prior to February 1, 2002, the Company's French subsidiary used the
local currency as its functional currency. The local currency was the French
franc until January 1, 2002 and the Euro beginning on that date. The
financial statements of the French subsidiary were translated into U.S.
dollars using current or historical exchange rates, as appropriate, with
translation gains or losses included in the accumulated other comprehensive
loss account in the stockholders' equity section of the consolidated balance
sheet.
In connection with the conversion of the French subsidiary's local
currency from the French franc to the Euro, effective January 1, 2002, the
Company evaluated which currency, the Euro or the U.S. dollar, was best
suited to be used as the functional currency. On the basis of this
evaluation, management determined that the functional currency should be
changed from the Euro to the U.S. dollar, and this change was made effective
February 1, 2002. Accordingly, beginning in February 2002 gains and losses
from remeasuring the French subsidiary's financial statements from the local
currency (the Euro) into the reporting currency (the U.S. dollar) are
included in the consolidated income statement. As a result of this 2002
change in functional currency, the foreign currency translation account
balance of $801,000 included in accumulated other comprehensive loss will
remain unchanged until such time as the French subsidiary ceases to be part
of the Company's consolidated financial statements. No income tax expense or
benefit has been allocated to this component of accumulated other
comprehensive loss because the Company expects that undistributed earnings of
this foreign subsidiary will be reinvested indefinitely.
The aggregate foreign transaction exchange gains (losses) included in
determining income before income taxes were $(48,000), $35,000 and $75,000 in
fiscal 2006, 2005 and 2004, respectively.
Earnings Per Share
Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding during the period. Diluted earnings per share reflects the
potential dilution, using the treasury stock method, that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. In computing diluted earnings
per share, the treasury stock method assumes that outstanding options are
exercised and the proceeds are used to purchase common stock at the average
market price during the period. Options will have a dilutive effect under
the treasury stock method only when the average market price of the common
stock during the period exceeds the exercise price of the options.
Accounting for Stock Options
As allowed by SFAS No. 123, "Accounting for Stock-Based Compensation",
the Company has elected to continue to measure compensation cost under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25") and comply with the pro forma disclosure
requirements of SFAS No. 123.
The following table illustrates the effect on net income and earnings
per share if the Company had applied the fair value recognition provisions of
SFAS No. 123 to stock-based employee compensation (in thousands except per
share amounts):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Net income as reported $14,562 $8,076 $5,714
Less total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (1,832) (1,647) (2,672)
------ ----- -----
Pro forma net income $12,730 $6,429 $3,042
====== ===== =====
Earnings per share:
Basic -
As reported $.64 $.38 $.39
Pro forma $.56 $.30 $.21
Diluted -
As reported $.62 $.36 $.37
Pro forma $.54 $.29 $.20
Included in the $1,832,000 stock-based employee compensation expense
above was $607,000 expense, net of tax, pertaining to 82,125 options granted
in February and April 2004 at exercise prices of $14.76 and $13.52 for which
the vesting was accelerated in February 2006. These options were granted to
employees who are not officers and directors of the Company. The Board of
Directors authorized the acceleration of vesting of these out-of-the-money
options to avoid the recognition of this expense in future financial
statements.
Recent Authoritative Pronouncements
In November 2004, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter
4". SFAS No. 151 clarifies the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
SFAS 151 requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal". In addition,
it requires that allocation of fixed production overheads to the costs of
conversion be based on the normal capacity of the production facilities.
SFAS No. 151 is effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. Earlier application is permitted. The
Company plans to adopt SFAS No. 151 at the beginning of its fiscal 2007. The
Company believes that SFAS No. 151, when adopted, will not have a significant
impact on its financial position or results of operations.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-
Based Payment" ("SFAS No. 123R"). SFAS No. 123R requires companies to
recognize in the income statement the grant-date fair value of stock options
and other equity-based compensation issued to employees. SFAS No. 123R
eliminates the ability to account for share-based compensation transactions
using APB Opinion No. 25, "Accounting for Stock Issued to Employees". The
Company will be required to adopt SFAS No. 123R at the beginning of its
fiscal 2007. The Company believes that the adoption of SFAS No. 123R could
have a material impact on the amount of earnings it reports in fiscal 2007.
The impact of adoption of SFAS No. 123R cannot be predicted at this time
because it will depend on levels of share-based payments granted in the
future. However, had the Company adopted SFAS No. 123R in prior periods, the
impact of this standard would have approximated the impact of SFAS No. 123 as
described in the disclosure of pro forma net income and earnings per share in
Note 1. SFAS No. 123R also requires the benefits of tax deductions in excess
of recognized compensation cost to be reported as a financing cash flow,
rather than as operating cash flow as required under current literature.
This requirement will reduce net operating cash flows and increase net
financing cash flows in periods after adoption. While the Company cannot
estimate what those amounts will be in the future (because they depend on,
among other things, when employees exercise stock options), the amount of
operating cash flows recognized in prior periods for such excess tax
deductions were $1,158,000, $388,000 and $430,000 in 2006, 2005 and 2004,
respectively.
Note 2 - ACQUISITIONS
Skybility
---------
On April 18, 2005, the Company acquired the business and certain assets
of Skybility, a privately held company located in Carlsbad, California,
pursuant to an Asset Purchase Agreement dated April 18, 2005 (the
"Agreement"). Skybility is a developer and supplier of embedded cellular
transceivers used in telemetry and asset tracking applications that operate
on the Global System for Mobile Communications (GSM) network and the Advanced
Mobile Phone Service (AMPS) network. The Skybility business operates as the
Machine-to-Machine ("M2M") product line of the Company's Products Division.
Skybility's operations are included in the accompanying fiscal 2006
consolidated statement of income for the 45-week period from April 18, 2005
to February 28, 2006.
The acquisition of Skybility was motivated primarily by the strategic
goals of increasing the Company's presence in markets that offer higher
growth and profit margin potential, and diversifying the Company's business
and customer base beyond its current dependence on the two major U.S. DBS
system operators.
The Company acquired the business of Skybility, its inventory, fixed
assets, intellectual property and other intangible assets. No liabilities
were assumed in the acquisition. Pursuant to the Agreement, the Company made
an initial cash payment of $4,829,000 and agreed to make a future cash
payment if certain financial performance targets during the 12-month period
ending April 18, 2006 were attained. These performance targets were not met
as of April 18, 2006.
Following is the purchase price allocation (in thousands):
Purchase price paid in cash $4,829
Direct costs of acquisition 68
------
Total cost of acquisition $4,897
======
Fair value of net assets acquired:
Inventories $1,080
Property and equipment 360
Developed/core technology 1,683
Customer lists 993
Covenants not to compete 321
Contracts backlog 150
In-process research and development 310
-----
Total fair value of net assets acquired $4,897
======
The $310,000 allocated to in-process research and development in the
purchase price allocation above was charged to expense following the
acquisition.
Vytek
-----
On April 12, 2004, the Company acquired Vytek Corporation, a privately
held company headquartered in San Diego, California, pursuant to an
acquisition agreement entered into and announced on December 23, 2003. The
transaction was approved by the stockholders of both companies during special
meetings held on April 8, 2004.
Vytek is a provider of technology integration solutions involving a mix
of professional services and proprietary software and hardware products,
serving the needs of enterprise customers and original equipment
manufacturers. This acquisition was motivated primarily by the strategic
goals of increasing the Company's presence in markets which offer higher
growth and profit margin potential, and diversifying the Company's business
and customer base beyond its current dependence on the two major U.S. DBS
system operators.
Pursuant to the acquisition agreement, the Company issued approximately
8,123,400 shares of common stock as the purchase consideration, of which
854,700 shares were originally placed into an escrow account and
approximately 7,268,700 shares were issued to the selling shareholders of
Vytek. The Company also assumed all fully vested Vytek stock options and
stock purchase warrants that were outstanding at the time of the merger.
For purchase accounting purposes, the fair market value per share used
to value the 7,268,700 shares issued to the Vytek selling stockholders was
$11.26 per share, which was the average closing price of the Company's common
stock on the NASDAQ National Market for the period beginning two trading days
before and ending two trading days after December 23, 2003, the day that the
merger terms were agreed to and announced. Also for purchase accounting
purposes, the fair value of the Vytek options and warrants assumed by the
Company in the merger was calculated using the Black-Scholes option pricing
model. The fair value of options and warrants assumed was estimated using
the Black-Scholes option pricing model with an interest rate of 3.3%, a
dividend yield of 0%, a volatility factor of 134.8%, and an expected life of
5 years in the case of stock options and 2.25 years to 9.25 years in the case
of warrants.
The Company entered into an escrow agreement with a designated
representative of the selling stockholders of Vytek and an independent escrow
agent. Under the terms of the escrow agreement, the 854,700 shares of
CalAmp's common stock deposited into the escrow account were to serve as
security for potential indemnity claims by the Company under the acquisition
agreement. The acquisition agreement provided that in the event Vytek's
balance sheet as of the acquisition date reflected working capital (as
defined in the acquisition agreement) of less than $4 million, then CalAmp
could recover such deficiency from the escrow account (the "Working Capital
Adjustment"). In November 2004, the Company and the selling stockholders of
Vytek reached an agreement on the final Working Capital Adjustment of
$4,907,000, which equated to 628,380 shares of CalAmp's common stock based on
its average share price (as defined in the acquisition agreement). These
628,380 shares were canceled and were returned to the status of authorized,
unissued shares. In November 2005, the escrow agent sold 1,444 shares from
the escrow account to pay for the legal fees of the Vytek Stockholder
Representative. As of February 28, 2006, there were 224,876 shares of
CalAmp's common stock remaining in the escrow account. In April 2006, as
permitted by the terms of the escrow agreement, the Vytek Stockholder
Representative directed the escrow agent to sell 46,000 shares of common
stock from the escrow account. The net cash proceeds of approximately
$523,000 were deposited to the escrow account. Also in April 2006, to
resolve certain indemnification issues which had been in dispute, the Company
and the Vytek Stockholder Representative entered into an agreement whereby
the escrow agent will pay the Company $480,000 in cash from the escrow
account. The escrow agent will also pay legal fees of the Vytek Stockholder
Representative and the remaining cash and common stock in the escrow account
will be released to the selling stockholders of Vytek.
Following is the calculation of the recorded value of common stock
issued and options and warrants assumed in the Vytek acquisition for activity
through February 28, 2006 (in thousands, except per share amounts):
Issued to Deposited
Sellers at to escrow
Apr. 12, 2004 account
------- -------
Number of common shares issued 7,268.7 854.7
Escrow shares canceled in Nov. 2004 - (628.4)
Escrow shares sold in Nov. 2005 to pay
Vytek Stockholder Representative - (1.4)
------- -------
Shares issued net of cancellation 7,268.7 224.9
Fair market value per share $ 11.26 $ 11.26
------- -------
Value of shares issued $81,847 $ 2,532
Less stock registration costs (300) -
------- -------
Fair value of shares issued net
of registration costs 81,547 2,532
Fair value of fully vested Vytek options
and warrants assumed by CalAmp 1,837 -
------- -------
Recorded value of common shares issued
and assumed options and warrants $83,384 $ 2,532
======= =======
The common shares deposited to the escrow account were, for accounting
purposes, treated as contingent consideration, and accordingly were excluded
from the purchase price determination until April 2006 when the remaining
escrow fund assets became distributable to the Vytek selling stockholders, as
described above. The release of the escrow fund assets will be recorded as
additional goodwill in the amount of $2,052,000 in the first quarter of
fiscal 2007.
Following is the original purchase price allocation for the Vytek
acquisition (in thousands):
Recorded value of common stock issued to sellers
and assumed options and warrants (excluding shares
deposited to the escrow account) ........................... $83,384
Direct costs of acquisition including legal,
accounting and financial advisory fees ..................... 2,630
------
Total cost of Vytek acquisition (excluding common
stock deposited to the escrow account) ..................... 86,014
Fair value of net assets acquired:
Current assets .................................... $ 8,341
Property and equipment ............................ 1,185
Intangible assets:
Developed/core technology ............. $3,349
Customer lists ........................ 1,127
Contracts backlog ..................... 845
In-process research and development ... 471
-----
Total intangible assets........................ 5,792
Deferred tax assets, net........................... 8,783
Other assets ...................................... 2,124
Current liabilities ............................... (11,811)
Long-term liabilities ............................. (296)
------
Total fair value of net assets acquired ................... 14,118
------
Goodwill ..................................................... $71,896
======
Factors that contributed to a purchase price that resulted in the
recognition of goodwill include the following: (i) CalAmp's core satellite
products business is heavily dependent on just two key customers, and it was
believed that the Vytek acquisition would provide CalAmp with both customer
diversification and the opportunity to expand into product markets that offer
higher long-term growth potential; (ii) the acquisition was expected to
provide the opportunity for certain operational cost efficiencies for the
combined organization; (iii) Vytek, through its roll-up strategy, had
acquired seven operating companies from April 2000 through April 2003, and
CalAmp believed that acquiring Vytek would accelerate its expansion into the
wireless product vertical markets served by Vytek's various operating units;
(iv) Vytek was primarily a provider of professional design and engineering
services, and consequently it had a relatively small amount of net tangible
assets at the time of the acquisition by CalAmp; and (v) CalAmp's stock price
increased significantly immediately following the announcement of the merger
agreement on December 23, 2003, which increased the value ascribed to the
common stock shares issued, and the resultant goodwill, by approximately $17
million.
Another motivating factor for the acquisition of Vytek was the belief
that CalAmp and Vytek had complementary strengths -- CalAmp's radio frequency
(RF) engineering expertise, high volume manufacturing capability, leadership
position as a supplier of microwave reception and transmission equipment and
strong balance sheet, with Vytek's hardware and software design expertise for
wireless access and mobile computing solutions, diversified customer base
arrayed across a number of vertical markets, and a larger, more
geographically dispersed sales and marketing force.
Concurrent with the acquisition, CalAmp realigned its operations into a
divisional structure in which the Company's existing satellite products and
wireless access products businesses were combined, together with Vytek's
products manufacturing business, into a new Products Division. The remainder
of Vytek's operations, consisting of revenues generated by professional
engineering services and the development of software applications, now
comprise the Solutions Division.
The goodwill of $71,896,000 that resulted from the Vytek acquisition
was apportioned between the Company's two reporting units (the Products
Division and the Solutions Division) because both reporting units were
expected to benefit from the synergies of the merger. An independent
valuation specialist was engaged to perform this goodwill apportionment
analysis. This analysis resulted in an apportionment of the total Vytek
acquisition goodwill to the Products Division and the Solutions Division in
the amounts of $36,847,000 and $35,049,000, respectively.
The goodwill arising from the Vytek acquisition is not deductible for
income tax purposes.
The $471,000 allocated to in-process research and development in the
purchase price allocation above was charged to expense immediately following
the acquisition.
NOTE 3 - INVENTORIES
Inventories consist of the following (in thousands):
February 28,
-----------------------
2006 2005
------- ------
Raw materials $14,375 $17,680
Work in process 380 676
Finished goods 3,524 3,109
------- -------
$18,279 $21,465
======= =======
NOTE 4 - PROPERTY, EQUIPMENT AND IMPROVEMENTS
Property, equipment and improvements consist of the following (in
thousands):
February 28,
-----------------------
2006 2005
------- ------
Leasehold improvements $ 1,415 $ 1,344
Plant equipment and tooling 15,434 14,619
Office equipment, computers
and furniture 5,751 4,657
------- -------
22,600 20,620
Less accumulated depreciation
and amortization (17,162) (15,237)
------- -------
$ 5,438 $ 5,383
======= =======
Note 5 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill associated with each reporting unit is as follows (in
thousands):
Products Solutions Total
-------- --------- ---------
Balance as of February 28, 2004 $ 20,938 $ - $ 20,938
Goodwill from Vytek acquisition
(see Note 2) 36,847 35,049 71,896
-------- --------- ---------
Balance as of February 28, 2005 57,785 35,049 92,834
Realized deferred tax assets
from Vytek acquisition (1,219) (1,219)
Removal of goodwill associated
with the sale of assets - (230) (230)
Other change - 1 1
-------- --------- --------
Balance as of February 28, 2006 $ 57,785 $ 33,601 $ 91,386
======== ========= ========
Impairment tests of goodwill associated with the Products Division and
the Solutions Division are conducted annually as of December 31 and April 30,
respectively. The annual tests for the Products Division conducted in the
last three fiscal years indicated no impairment of Products Division
goodwill. The initial annual impairment test for the Solutions Division as
of April 30, 2005 indicated no impairment of Solutions Division goodwill.
The Company used a discounted cash flow approach to estimate the fair value
of both divisions in these impairment tests.
Intangible assets are comprised as follows (in thousands):
February 28, 2006 February 28, 2005
------------------------ -------------------------
Amorti- Gross Accum. Gross Accum.
zation Carrying Amorti- Carrying Amorti-
Period Amount zation Net Amount zation Net
----- ------ ------ ----- ------ ------ -----
Developed/core
technology 5 yrs. $5,032 $1,561 $3,471 $3,349 $ 592 $2,757
Customer lists 5 yrs. 2,120 601 1,519 1,127 199 928
Contracts
backlog 1 yr. 995 995 - 845 748 97
Covenants not
to compete 4.5 yrs. 721 457 264 400 304 96
Licensing right 2 yrs. 200 150 50 200 50 150
------ ------ ------ ------ ------ ------
$9,068 $3,764 $5,304 $5,921 $1,893 $4,028
====== ====== ====== ====== ====== ======
Amortization expense of intangible assets was $1,871,000, $1,693,000
and $104,000 for the years ended February 28, 2006, 2005 and 2004,
respectively.
Estimated amortization expense for the fiscal years ending February 28
is as follows:
2007 $1,549,000
2008 $1,488,000
2009 $1,488,000
2010 $ 696,000
2011 $ 83,000
NOTE 6 - FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Working capital line of credit
The Company has a $14 million working capital line of credit with a
commercial bank (increased from $10 million by an amendment dated October 25,
2005). Borrowings under this line of credit bear interest at LIBOR plus
1.50% or the bank's prime rate, and are secured by substantially all of the
Company's assets. The maturity date of the line of credit is August 3, 2007.
At February 28, 2006, $3 million was outstanding on this line of credit which
is classified as long-term at that date. Also at that date, $2,875,000 was
reserved under the line of credit for outstanding irrevocable stand-by
letters of credit.
Long-term Debt
Long-term debt consists of the following (in thousands):
February 28,
----------------------
2006 2005
------ ------
Bank term loan payable, interest floating at
LIBOR plus 1.50% or bank prime rate, principal
due in monthly installments of $86 through
June 2006 $ 339 $ 1,362
Bank term loan payable, interest floating at
LIBOR plus 1.50% or bank prime rate, principal
due in monthly installments of $150 through
April 2008 4,303 6,103
Bank working capital line of credit 3,000 3,000
Capital lease obligations 37 111
------- -------
Total debt 7,679 10,576
Less portion due within one year (2,168) (2,897)
------- -------
Long-term debt $ 5,511 $ 7,679
======= =======
The bank credit agreement that encompasses the working capital line of
credit and the two bank term loans contains certain financial covenants and
ratios that the Company is required to maintain, including a fixed charge
coverage ratio of not less than 1.25, a current ratio of not less than 2.0, a
leverage ratio of not more than 2.25, tangible net worth of at least
$22,050,000 and net income of at least $1.00 in each fiscal year. At
February 28, 2006 and 2005, the Company was in compliance with all such
covenants.
The bank credit agreement contains a subjective acceleration clause
that enables the bank to call the loans in the event of a material adverse
change (as defined in the credit agreement) in the Company's business. Based
on the Company's history of profitable operations and positive operating cash
flow over the past five years, and based on the Company's internal financial
forecasts for the next year, the Company does not believe it is probable that
the bank will assert the material adverse change clause in the next 12
months.
Contractual Cash Obligations
Following is a summary of the Company's contractual cash obligations as
of February 28, 2006 (in thousands):
Future Cash Payments Due by Fiscal Year
----------------------------------------------
Contractual There-
Obligations 2007 2008 2009 2010 2011 after Total
- --------------- ------ ------ ------ ------ ------ ------ ------
Debt $ 2,139 $4,800 $ 703 $ - $ - $ - $ 7,642
Capital leases 29 8 - - - - 37
Operating leases 1,651 1,530 1,417 1,409 1,412 284 7,703
Purchase
obligations 23,697 - - - - - 23,697
------- ------ ------ ------ ------ ------ ------
Total contractual
cash obligations $27,516 $6,338 $2,120 $1,409 $1,412 $ 284 $39,079
======= ====== ====== ====== ====== ====== =======
Purchase obligations consist of obligations under non-cancelable
purchase orders, primarily for inventory purchases of raw materials,
components and subassemblies.
Rent expense under operating leases was $2,291,000, $2,363,000, and
$929,000 for fiscal years 2006, 2005 and 2004, respectively.
NOTE 7 - INCOME TAXES
The Company's income before income taxes consists of the following (in
thousands):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Domestic $24,319 $13,089 $ 5,649
Foreign 110 (161) 91
------- ------- -------
$24,429 $12,928 $ 5,740
======= ======= =======
The tax provision consists of the following (in thousands):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Current:
Federal $ 2,056 $ 185 $ (49)
State 265 200 1
Foreign 151 (121) (124)
------ ------ ------
Total current 2,472 264 (172)
------ ------ ------
Deferred:
Federal 4,082 2,940 245
State 2,155 1,202 (477)
------- ------- -------
Total deferred 6,237 4,142 (232)
------- ------- -------
Charge in lieu of taxes
attributable to tax benefit
from employee stock options 1,158 446 430
------- ------- -------
$ 9,867 $ 4,852 $ 26
======= ======= =======
Differences between the income tax provision and income taxes computed
using the statutory federal income tax rate are as follows (in thousands):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Income tax at statutory federal
rate (35% in 2006, 34% in
2005 and 34% in 2004) $ 8,550 $ 4,395 $ 1,952
State income taxes, net of
federal income tax effect 1,350 800 193
Foreign taxes 113 (66) (155)
Valuation allowance reductions - (630) (1,405)
Tax credits - - (517)
In-process research and development - 160 -
Other, net (146) 193 (42)
------- ------- -------
$ 9,867 $ 4,852 $ 26
======= ======= =======
The components of the net deferred income tax asset at February 28,
2006 and 2005 are as follows (in thousands):
February 28,
----------------------
2006 2005
------ ------
Inventory reserve $ 838 $ 720
Allowance for doubtful accounts 82 189
Warranty reserve 194 120
Compensation and vacation accruals 170 117
Depreciation (90) (150)
Goodwill amortization (2,267) (1,641)
Capitalized R&D cost amortization 227 303
Net operating loss carryforward 8,272 10,627
Research and development credits 982 2,668
Financial accounting basis of net
assets of acquired companies
different than tax basis (1,841) (1,673)
Other tax credits 1,277 1,861
Other, net 383 154
------- ------
8,227 13,295
Valuation allowance (1,841) (1,892)
------- ------
6,386 11,403
Less current portion (4,042) (6,118)
------- ------
Non-current portion $ 2,344 $5,285
======= ======
At February 28, 2006, the Company had net operating loss carryforwards
("NOLs") of approximately $30.7 million and $15.9 million for federal and
state purposes, respectively. The federal NOLs expire at various dates
through fiscal 2024, and the state NOLs expire at various dates through
fiscal 2014.
As of February 28, 2006, the Company had foreign tax credit
carryforwards of $633,000 expiring at various dates through 2013 and research
and development tax credit carryforwards of $262,000 and $1,108,000 for
federal and state income tax purposes, respectively, expiring at various
dates through 2023.
As of February 28, 2004, the Company's net deferred income tax asset
was $6,763,000, which amount was net of a valuation allowance of $630,000.
The Company reversed the valuation allowance of $630,000 in fiscal 2005 based
on its assessment that the deferred tax assets would be realized in the
future. As of February 28, 2006, the valuation allowance was $1,841,000, all
of which relates to the deferred tax assets acquired from Vytek.
The Company has not provided withholdings and U.S. federal income taxes
on approximately $753,000 of undistributed earnings of its foreign
subsidiaries because such earnings are or will be reinvested indefinitely in
such subsidiaries or will be approximately offset by credits for foreign
taxes paid. It is not practical to determine the U.S. federal income tax
liability, if any, that would be payable if such earnings were not reinvested
indefinitely.
NOTE 8 - STOCKHOLDERS' EQUITY
Stock Options
Effective July 30, 2004, the Company adopted the 2004 Incentive Stock
Plan (the "2004 Plan"). Under the 2004 Plan, stock options can be granted at
prices not less than 100% of the fair market value at the date of grant.
Option grants become exercisable on a vesting schedule established by the
Compensation Committee of the Board of Directors at the time of grant,
usually over a four-year period. Options can no longer be granted under the
Company's 1999 Stock Option Plan, the 1989 Key Employee Stock Option Plan, or
the 2000 Vytek stock option plan that was assumed by the Company in the Vytek
acquisition.
The following table summarizes the option activity for fiscal years
2006, 2005 and 2004 (in thousands except dollar amounts):
Weighted
Number of Average
Options Option Price
-------- --------
Outstanding at February 28, 2003 2,312 $10.51
Granted 534 6.95
Exercised (165) 3.73
Canceled (103) 14.46
----- ------
Outstanding at February 28, 2004 2,578 $10.05
Granted 762 9.44
Assumed in Vytek acquisition 149 42.87
Exercised (309) 3.41
Canceled (536) 18.25
----- ------
Outstanding at February 28, 2005 2,644 $10.46
Granted 743 6.21
Exercised (516) 4.43
Canceled (248) 14.16
----- ------
Outstanding at February 28, 2006 2,623 $10.09
===== ======
Options outstanding at February 28, 2006 and related weighted average
price and life information are as follows:
Weighted Total
Average Weighted Weighted
Range of Total Remaining Average Average
Exercise Options Life Exercise Options Exercise
Prices Outstanding (Years) Price Exercisable Price
--------- -------- -------- -------- -------- --------
$0.12 14,668(a) 7.6 $ 0.12 14,668 $ 0.12
1.75- 1.88 92,500 3.0 1.78 92,500 1.78
2.06- 2.34 77,500 2.0 2.14 77,500 2.14
3.16- 4.99 532,300 6.0 3.94 408,300 4.17
5.00- 7.95 1,219,188 8.1 6.05 392,063 5.98
8.16- 10.88 167,000 8.0 8.88 42,000 9.21
12.25- 14.76 173,500 8.0 14.54 173,500 14.54
16.25- 19.88 81,000 4.3 19.52 81,000 19.52
20.19- 27.44 33,000 4.1 25.15 33,000 25.15
39.38- 40.00 113,000 4.0 39.97 113,000 39.97
40.66- 50.56 105,292 4.1 45.08 105,292 45.08
50.80-304.67 14,154(a) 5.3 69.60 14,154 69.60
------------ --------- ---- ------ --------- ------
$0.12-$304.67 2,623,102 6.8 $10.09 1,546,977 $12.90
============ ========= ==== ====== ========= ======
(a) These outstanding fully-vested options were assumed by CalAmp in
the Vytek acquisition, as further discussed in Note 2.
At February 28, 2006, there were outstanding warrants that entitle the
holders to purchase 31,929 shares of common stock at exercise prices of $0.04
to $0.12 per share. These warrants were assumed by CalAmp in the Vytek
acquisition, as further discussed in Note 2.
Excluding the options and warrants assumed in the Vytek acquisition,
the weighted average fair value for stock options granted by CalAmp in fiscal
years 2006, 2005 and 2004 was $4.51, $8.06 and $6.15, respectively.
At February 28, 2006, there were 2,130,500 stock options available for
grant under the 2004 Plan.
As permitted by SFAS No. 123, through and including fiscal 2006 the
Company applied the accounting rules of APB No. 25 governing the recognition
of compensation expense for options granted under its stock option plans.
Such accounting rules measure compensation expense on the first date at which
both the number of shares and the exercise price are known. Under the
Company's stock option plans, this would typically be the grant date. To the
extent that the exercise price equals or exceeds the market value of the
stock on the grant date, no expense is recognized. As options are generally
granted at exercise prices not less than the market value on the date of
grant, no compensation expense is recognized under this accounting treatment
in the accompanying consolidated statements of income. The Company will be
required to adopt SFAS No. 123R, which requires the expensing of stock
options, at the beginning of its fiscal 2007. See discussion under Recent
Authoritative Pronouncements in Note 1.
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Expected life (years) 5 5 5
Dividend yield 0% 0% 0%
Interest 3.9%-4.6% 3.3%-4.8% 2.6%-3.1%
Volatility 68%-95% 135%-136% 133%-135%
The estimated stock-based compensation cost calculated using the
assumptions indicated totaled $3,350,000, $2,648,000 and $3,686,000 in fiscal
2006, 2005 and 2004, respectively.
Preferred Stock Purchase Rights
At February 28, 2006, 23,204,415 preferred stock purchase rights are
outstanding. Each right may be exercised to purchase one-hundredth of 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 more of the Company's outstanding common stock. The
rights, which do not have voting rights, may be redeemed by the Company at a
price 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.
Note 9 - EARNINGS PER SHARE
Following is a summary of the calculation of basic and diluted weighted
average shares outstanding for fiscal 2006, 20054 and 2004 (in thousands):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Weighted average shares:
Basic weighted average number
of common shares outstanding 22,605 21,460 14,791
Effect of dilutive securities:
Stock options 628 632 599
Shares held in escrow 182 101 -
------ ------ ------
Diluted weighted average number
of common shares outstanding 23,415 22,193 15,390
====== ====== ======
Outstanding stock options in the amount of 533,000, 836,000, and
1,220,000 at February 28, 2006, 2005 and 2004, respectively, which had
exercise prices ranging from $10.49 to $304.67, $7.95 to $304.67 and $3.69 to
$50.56, respectively, were not included in the computation of diluted
earnings per share for the years then ended because the exercise price of
these options was greater than the average market price of the common stock
and accordingly the effect of inclusion would be antidilutive.
In connection with the acquisition of Vytek, at February 28, 2006,
224,876 shares of common stock were held in an escrow account to satisfy
indemnification claims by the Company as further described in Note 2 herein.
These shares held in escrow have been excluded from the basic weighted
average number of common shares outstanding. However, the dilutive impact of
these shares has been included in the diluted weighted average number of
common shares outstanding in 2006 and 2005.
NOTE 10 - OTHER FINANCIAL INFORMATION
"Net cash provided by operating activities" in the consolidated
statements of cash flows includes cash payments for interest and income as
follows (in thousands):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Interest paid $ 453 $ 462 $ 527
Income taxes paid (net
refunds received) $2,721 $ 78 $(170)
Following is the supplemental schedule of non-cash investing and
financing activities (in thousands):
Year ended February 28,
--------------------------------
2006 2005 2004
------ ------ ------
Fair value of Company common
stock received as consideration
from the sale of assets $ 190 $ - $ -
Company common stock issued
from escrow fund to reimburse
legal fees of the Vytek
Stockholder Representative $ 16 $ - $ -
Issuance of common stock and
assumption of stock options and
warrants as consideration for
acquisition of Vytek Corporation,
net of common stock held in escrow $ - $83,384 $ -
Valuation and Qualifying Accounts
Following is the Company's schedule of valuation and qualifying
accounts for the last three years (in thousands):
Charged
Balance at (credited) Balance
beginning to costs and at end
of period expenses Deductions Others of period
--------- -------- --------- --------- --------
Allowance for doubtful accounts:
- -------------------------------
Fiscal 2004 273 34 (96) - 211
Fiscal 2005 211 192 (236) 310 (1) 477
Fiscal 2006 477 (71) (203) - 203
Warranty reserve:
- ----------------
Fiscal 2004 491 164 (496) - 159
Fiscal 2005 159 234 (514) 867 (1) 746
Fiscal 2006 746 223 (492) - 477
(1) These represent amounts of allowances and reserves pertaining
to the assets acquired from Vytek.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company leases the building that houses its corporate office,
Products Division offices and manufacturing plant in Oxnard, California under
an operating lease that expires June 30, 2011. The lease agreement requires
the Company to pay all maintenance, property taxes and insurance premiums
associated with the building. In addition, the Products Division leases
small facilities in California, Minnesota and France. The Solutions Division
leases offices in California and New Jersey. 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.
NOTE 12 - LEGAL PROCEEDINGS
The Company from time to time is a party, either as plaintiff or
defendant, to various legal proceedings and claims which arise in the
ordinary course of business. While the outcome of these claims cannot be
predicted with certainty, management does not believe that the outcome of any
of these legal matters will have a material adverse effect on the Company's
consolidated financial position or results of operations.
Investigation by the Securities and Exchange Commission:
In May 2001, the Securities and Exchange Commission ("SEC") commenced
an investigation into the circumstances surrounding the misstatements in the
Company's consolidated financial statements for its 2000 and 2001 fiscal
years caused by its former controller. In April 2004, the SEC concluded its
investigation and issued a cease and desist order directing the Company to
not violate federal securities laws in the future.
NOTE 13 - SEGMENT AND GEOGRAPHIC DATA
Information by business segment is as follows:
<table>
Year Ended Year Ended
February 28, 2006 February 28, 2005
------------------------------------ ------------------------------------
Operating Segments Operating Segments
------------------- -------------------
Products Solutions Products Solutions
Division Division Corporate Total Division Division Corporate Total
-------- ------ ------- ----- -------- ------ ------- -----
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Revenues:
Products $196,908 $ 4,363 $201,271 $194,835 $ 5,263 $200,098
Services - 16,222 16,222 - 19,929 19,929
------- ----- ------- ------- ------ -------
Total $196,908 $20,585 $217,493 $194,835 $25,192 $220,027
====== ===== ======= ======= ====== =======
Gross profit:
Products $ 45,589 $ 3,349 $ 48,938 $ 35,765 $ 1,179 $ 36,944
Services - 3,808 3,808 - 4,434 4,434
------- ----- ------- ------- ----- -------
Total $ 45,589 $ 7,157 $ 52,746 $ 35,765 $ 5,613 $ 41,378
======= ====== ======= ======= ===== =======
Gross margin:
Products 23.2% 76.8% 24.3% 18.4% 22.4% 18.5%
Services - 23.5% 23.5% - 22.2% 22.2%
Total 23.2% 34.8% 24.3% 18.4% 22.3% 18.8%
Operating
income
(loss) $ 31,361 $(3,190) $(4,278) $ 23,893 $ 25,316 $(8,051) $(4,217)$ 13,048
======= ====== ===== ======= ====== ===== ====== ======
Identifiable
assets $162,128 $42,218 $ - $204,346 $150,996 $45,759 $ - $196,755
======= ====== ===== ======= ======= ====== ====== =======
</table>
Year Ended
February 28, 2004
------------------------------------
Operating Segments
-------------------
Products Solutions
Division Division Corporate Total
------- ------ ------- -----
Revenues:
Products $128,616 $ - $128,616
Services - - -
------- ------ -------
Total $128,616 $ - $128,616
======= ====== =======
Gross profit:
Products $ 17,666 $ - $ 17,666
Services - - -
------- ----- -------
Total $ 17,666 $ - $ 17,666
======= ===== =======
Gross margin:
Products 13.7% - 13.7%
Services - - -
Total 13.7% - 13.7%
Operating
income
(loss) $ 8,112 $ - $(2,129) $ 5,983
======= ===== ====== =======
Identifiable
assets $ 98,619 $ - $ - $ 98,619
======= ===== ====== =======
The Company considers operating income (loss) to be the primary measure
of profit or loss of its business segments. The amount shown for each period
in the "Corporate" column above for operating income (loss) consists of
corporate expenses not allocated to the business segments. Unallocated
corporate expenses include salaries for the CEO, CFO and three other
corporate staff, and corporate expenses such as audit fees, investor
relations, stock listing fees, director and officer liability insurance, and
director fees and expenses.
The Company does not have significant long-lived assets outside the
United States.
The Company's revenues were derived mainly from customers in the United
States, which represented 95%, 97% and 96% of consolidated revenues in fiscal
2006, 2005 and 2004, respectively.
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (unaudited)
The following summarizes certain quarterly statement of income data for
each of the quarters in fiscal years 2006 and 2005 (in thousands, except
percentages and per share data):
Fiscal 2006
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
Revenues $47,580 $57,661 $64,463 $47,789 $217,493
Gross profit 10,698 13,415 16,464 12,169 52,746
Gross margin 22.5% 23.3% 25.5% 25.5% 24.3%
Net income 1,977 3,681 5,439 3,465 14,562
Net income per
diluted share 0.09 0.16 0.23 0.15 0.62
Fiscal 2005
---------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- ------
Revenues $44,997 $50,827 $57,066 $67,137 $220,027
Gross profit 8,301 10,324 10,299 12,454 41,378
Gross margin 18.4% 20.3% 18.0% 18.6% 18.8%
Net income 1,309 1,746 1,787 3,234 8,076
Net income per
diluted share 0.07 0.08 0.08 0.14 0.36
NOTE 15 - SUBSEQUENT EVENT
On May 9, 2006, the Company signed a definitive agreement to acquire
Dataradio, Inc. ("Dataradio"), a privately held Canadian company, for a cash
payment of Canadian $60.1 million or approximately U.S. $54.6 million at the
current Canadian Dollar to U.S. Dollar exchange rate of 1.10. The Company
plans to finance the transaction using a combination of cash on hand and new
bank debt of approximately $33 million. Dataradio is currently focused in
three primary business lines: wireless data systems for public safety and
first response applications; wireless data modems for fixed location critical
infrastructure and industrial applications; and design and manufacture of
radio frequency modules. Dataradio has approximately 175 employees at
facilities located in Montreal, Minnesota and Georgia. For the 12 month
period ended April 30, 2006, Dataradio had unaudited revenues of
approximately U.S. $32 million. During this same period, Dataradio generated
gross margins in excess of 50%. The transaction is expected to close in the
next several weeks.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company's principal executive officer and principal financial
officer have concluded, based on their evaluation of disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934) as of February 28, 2006, that the Company's disclosure
controls and procedures are effective to ensure that the information required
to be disclosed in reports that are filed or submitted under the Exchange Act
is accumulated and communicated to management, including the principal
executive officer and principal financial officer, as appropriate, to allow
timely decisions regarding required disclosure and that such information is
recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities Exchange Commission.
Management's Report on Internal Control over Financial Reporting
The report of management of the Company regarding internal control over
financial reporting is set forth in Item 8 of this Annual Report on Form 10-K
under the caption "Management's Report on Internal Control over Financial
Reporting" and incorporated herein by reference.
Attestation Report of Independent Registered Public Accounting Firm
The attestation report of the Company's independent registered public
accounting firm regarding internal control over financial reporting is set
forth in Item 8 of this Annual Report on Form 10-K under the caption "Report
of Independent Registered Public Accounting Firm" and incorporated herein by
reference.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial
reporting during the fourth quarter of fiscal 2006 that have materially
affected, or are reasonably likely to materially affect, the Company's
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
On May 5, 2006, the Company's Board of Directors, upon the
recommendation of the Compensation Committee, approved bonus payments for
fiscal 2006 to its named executive officers in the following amounts: Fred
Sturm, President and Chief Executive Officer, $478,000; Patrick Hutchins,
President - Products Division, $253,400; Steven L'Heureux, President -
Solutions Division, $64,600; and Richard Vitelle, Vice President Finance and
Chief Financial Officer, $238,100. The Company's Board of Directors, upon
the recommendation of the Compensation Committee, also approved new annual
base salaries for Messrs. Sturm, Hutchins, L'Heureux and Vitelle in the
amounts of $415,000, $268,000, $241,000 and $268,000, respectively,
retroactive to March 1, 2006, the beginning of fiscal 2007.
Also on May 5, 2006, the Company's Board of Directors, upon the
recommendation of the Compensation Committee, established the target and
maximum bonuses and performance goals under the fiscal 2007 executive officer
incentive compensation plan for Messrs. Sturm, Hutchins, L'Heureux and
Vitelle. Mr. Sturm is eligible for target and maximum bonuses of up to 80%
and 130%, respectively, of his annual salary. Messrs. Hutchins, L'Heureux
and Vitelle are each eligible for target bonuses of up to 60% of annual
salary, and maximum bonuses of up to 100% of annual salary. The target and
maximum bonuses for Mr. Sturm are based upon the Company attaining certain
levels of consolidated revenue and consolidated pretax income for fiscal
2007, and upon achieving certain other business goals. The target and
maximum bonuses for Mr. Vitelle are based upon the Company attaining certain
levels of consolidated revenue and consolidated pretax income for fiscal
2007. The target and maximum bonuses for Messrs. Hutchins and L'Heureux are
based 75% on the divisional revenue and operating income performance of their
respective divisions for fiscal 2007 and 25% on consolidated revenue and
pretax income performance for fiscal 2007.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information about executive officers is included in Part I, Item 1 of
this Annual Report on Form 10-K.
The following information is included in the Company's definitive proxy
statement for the Annual Meeting of Stockholders to be held on July 26, 2006
and is incorporated herein by reference in response to this item:
* Information regarding directors of the Company who are standing for
reelection.
* Information regarding the Company's Audit Committee and designated "audit
committee financial experts".
* Information on the Company's "Code of Business Conduct and Ethics" for
directors, officers and employees.
ITEM 11. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" in the
Company's definitive proxy statement for the Annual Meeting of Stockholders
to be held on July 26, 2006 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 under the caption "Stock Ownership" in the Company's
definitive proxy statement for the Annual Meeting of Stockholders to be held
on July 26, 2006 is incorporated herein by reference in response to this
item.
Securities Authorized for Issuance under Equity Compensation Plans
At February 28, 2006, the Company had four stock option plans, the
"1989 Plan", the "1999 Plan", the "2000 Plan" and the "2004 Plan". Options
to purchase the Company's common stock have been granted to both employees
and non-employee directors. Options can no longer be granted under the 1989,
1999 and 2000 Plans. The 1989, 1999 and 2004 Plans were approved by the
Company's stockholders. The 2000 Plan and outstanding employee stock options
thereunder were assumed by the Company in connection with the acquisition of
Vytek on April 12, 2004.
Further information about these plans is set forth in Note 8 to the
consolidated financial statements. Certain information about the plans is as
follows:
Number of Number of securities
securities to be Weighted-average remaining available for
issued upon exercise price future issuance under
exercise of of outstanding equity compensation
outstanding options, plans (excluding
options, warrants warrants and securities reflected in
and rights rights the first column)
----------- ---------- -------------
2,623,102 $10.09 2,130,500
=========== ========== =============
At February 28, 2006, there were outstanding warrants that entitle the
holders to purchase 31,929 shares of common stock at exercise prices of $0.04
to $0.12 per share. These warrants were assumed by CalAmp in the Vytek
acquisition, as further discussed in Note 2 to the consolidated financial
statements.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Certain Relationships and
Related Transactions" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on July 26, 2006 is incorporated
herein by reference in response to this item.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information contained under the caption "Independent Public
Accountants" in the Company's definitive proxy statement for the Annual
Meeting of Stockholders to be held on July 26, 2006 is incorporated herein by
reference in response to this item.
PART IV
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 -
Financial Statements and Supplementary Data:
Form 10-K
Page No.
--------
Report of Independent Registered Public
Accounting Firm 32-34
Consolidated Balance Sheets 35
Consolidated Statements of Income 36
Consolidated Statements of Stockholders' Equity
and Comprehensive Income 37
Consolidated Statements of Cash Flows 38
Notes to Consolidated Financial Statements 39
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
------ -----------
2.1 Agreement and Plan of Merger and Reorganization dated
December 23, 2003 between the Company and Vytek Corporation
(incorporated by reference to Exhibit 2.1 of the Company's
Registration Statement No. 333-112851 on Form S-4).
3.1 Amended and Restated Certificate of Incorporation
reflecting the change in the Company's name to CalAmp Corp.
and the increase in authorized common stock from 30 million
to 40 million shares (incorporated by reference to Exhibit
3.1 of the Company's Report on Form 10-Q for the period
ended August 31, 2004).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K for
the year ended February 28, 2005).
4.1 Amended and Restated Rights Agreement, amended and restated
as of September 5, 2001, by and between Registrant and
Mellon Investor Services LLC, as Rights Agent (incorporated
by reference to Exhibit 4.1 of the Company's Current Report
on Form 8-K filed on September 6, 2001).
4.2 Registration Rights agreement dated February 11, 2004, as
Exhibit H to the Agreement and Plan of Merger and
Reorganization dated December 23, 2003 among the Registrant,
Mobile Acquisition Sub, Inc., Vytek Corporation, and James E
Ousley, as Stockholder Representative (incorporated by
reference to Exhibit 2.1 of the Registrant's Registration
Statement on Form S-4 filed on February 13, 2004).
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 a facility in Oxnard, California
(incorporated by reference to Exhibit 10-1 filed with the
Company's Report on Form 10-Q for the quarter ended May 31,
2003).
10.2 Loan and Security Agreement by and between the Company and
U.S. Bank National Association dated May 2, 2002
(incorporated by reference to Exhibit 10.6 of the
Company's Annual Report on Form 10-K for the year ended
February 28, 2002).
10.2.1 Amendment No. 1 dated April 3, 2003 to the Loan and
Security Agreement between the Company and U.S. Bank
National Association dated May 2, 2002 (incorporated by
reference to Exhibit 10-2 filed with the Company's Report
on Form 10-Q for the quarter ended May 31, 2003).
10.2.2 Amendment No. 2 dated July 3, 2003 to the Loan and
Security Agreement between the Company and U.S. Bank
National Association dated May 2, 2002 (incorporated by
reference to Exhibit 10-2 filed with the Company's Report
on Form 10-Q for the quarter ended May 31, 2003).
10.2.3 Amendment No. 3 dated January 5, 2004 to the Loan and
Security Agreement between the Company and U.S. Bank
National Association dated May 2, 2002 (incorporated by
reference to Exhibit 10.5.3 filed with Company's Annual
Report on Form 10-K for the year ended February 28, 2004).
10.2.4 Amendment No. 4 dated February 27, 2004 to the Loan and
Security Agreement between the Company and U.S. Bank
National Association dated May 2, 2002 (incorporated by
reference to Exhibit 10.5.4 filed with Company's Annual
Report on Form 10-K for the year ended February 28, 2004).
10.2.5 Amendment No. 5 dated November 23, 2004 to the Loan and
Security Agreement between the Company and U.S. Bank
National Association dated May 2, 2002 (incorporated by
reference to Exhibit 10.1 filed with Company's Report
on Form 10-Q for the quarter ended November 30, 2004).
10.2.6 Amendment No. 6 dated October 25, 2005 to the Loan and
Security Agreement between the Company and U.S. Bank
National Association dated May 2, 2002 (incorporated by
reference to Exhibit 10.1 filed with Company's Report
on Form 10-Q for the quarter ended November 30, 2005).
10.3 Form of Directors and Officers Indemnity Agreement
(incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K for the year ended
February 28, 2005).
(ii) Compensatory Plans or Arrangements required to be filed as
Exhibits to this Report pursuant to Item 15 (b) of this
Report:
10.4 1989 Key Employee Stock Option Plan (incorporated by
reference to Exhibit 4.4 of the Company's Registration
Statement No. 33-31427 on Form S-8).
10.4.1 Amendment No. 1 to the 1989 Key Employee Stock Option Plan
(incorporated by reference to Exhibit 4.7 of the Company's
Registration Statement No. 33-36944 on Form S-8).
10.4.2 Amendment No. 2 to the 1989 Key Employee Stock Option Plan
(incorporated by reference to Exhibit 4.8 of the Company's
Registration Statement No. 33-72704 on Form S-8).
10.4.3 Amendment No. 3 to the 1989 Key Employee Stock Option Plan
(incorporated by reference to Exhibit 4.10 of the
Company's Registration Statement No. 33-60879 on Form S-
8).
10.5 The 1999 Stock Option Plan (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement No.
333-93097 on Form S-8).
10.6 CalAmp Corp. 2004 Stock Incentive Plan approved by
stockholders at the 2004 annual meeting on July 30,
2004 (incorporated by reference to Exhibit 10.2 of
the Company's Report on Form 10-Q for the period ended
August 31, 2004).
10.7 Vytek Wireless, Inc. 2000 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.14 of the Company's
Registration Statement on Form S-4 as filed February 13,
2004).
10.8 Employment Agreement between the Company and Patrick
Hutchins dated May 31, 2002 (incorporated by
reference to Exhibit 10.6 filed with Company's Annual
Report on Form 10-K for the year ended February 28, 2004).
10.9 Employment Agreement between the Company and Fred Sturm
dated May 31, 2002 (incorporated by reference to Exhibit
10.7 filed with Company's Annual Report on Form 10-K for
the year ended February 28, 2004).
10.10 Employment Agreement between the Company and Richard
Vitelle dated May 31, 2002 (incorporated by reference to
Exhibit 10.9 filed with Company's Annual Report on Form
10-K for the year ended February 28, 2004).
10.11 Employment Agreement between CalAmp Corp. and Steven
A. L'Heureux effective July 5, 2005 (incorporated by
reference to Exhibit 10.1 filed with Company's Report on
Form 10-Q for the quarter ended May 31, 2005).
21 Subsidiaries of the Registrant.
23 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.
(b) Each management contract or compensatory plan or arrangement required to
be filed as an exhibit to this form is filed as part of Item 15(a)(3)Exhibits
and specifically identified as such.
(c) Other Financial Statement Schedules. None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on May 9, 2006.
CALAMP CORP.
By: /s/ Fred M. Sturm
__________________________
Fred M. Sturm
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/ Richard Gold Chairman of the May 9, 2006
______________________ Board of Directors ___________________
Richard Gold
/s/ Arthur Hausman Director May 9, 2006
______________________ ___________________
Arthur Hausman
/s/ A.J. Moyer Director May 9, 2006
______________________ ___________________
A.J. Moyer
/s/ Frank Perna, Jr. Director May 9, 2006
______________________ ___________________
Frank Perna, Jr.
/s/ Thomas Ringer Director May 9, 2006
______________________ ___________________
Thomas Ringer
/s/ Fred M. Sturm President, Chief Executive May 9, 2006
______________________ Officer and Director ___________________
Fred M. Sturm (principal executive officer)
/s/ Richard Vitelle VP Finance, Chief Financial May 9, 2006
______________________ Officer and Treasurer ___________________
Richard Vitelle (principal accounting officer)