SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended: November 30, 2005
_________________
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
__________ ____________
Commission File Number: 0-12182
Exact Name of Registrant as
Specified in Its Charter: CalAmp Corp.
_______________________
DELAWARE 95-3647070
_______________________________ _______________
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification No.
Address of Principal Executive Offices: 1401 N. Rice Avenue
Oxnard, CA 93030
Registrant's Telephone Number: (805) 987-9000
__________________________________________
Former name, Former Address and Former
Fiscal Year, if Changed since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [X] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The registrant had 23,009,665 shares of Common Stock outstanding as of
January 3, 2006.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands except par value amounts)
November 30, February 28,
2005 2005
Assets -------- --------
Current assets:
Cash and cash equivalents $ 38,205 $ 31,048
Accounts receivable, less allowance for
doubtful accounts of $213 and $477 at
November 30, 2005 and February 28, 2005,
respectively 36,164 27,027
Inventories, net 19,806 21,465
Deferred income tax assets 3,225 6,118
Prepaid expenses and other current assets 2,227 2,876
-------- --------
Total current assets 99,627 88,534
-------- --------
Property, equipment and improvements, net of
accumulated depreciation and amortization 5,383 5,383
Deferred income tax assets, less current portion 2,747 5,285
Goodwill 92,605 92,834
Other intangible assets, net 5,807 4,028
Other assets 473 691
-------- --------
$206,642 $196,755
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt $ 2,425 $ 2,897
Accounts payable 16,720 18,389
Accrued payroll and employee benefits 3,623 3,652
Other accrued liabilities 4,366 3,127
Deferred revenue 1,297 1,597
-------- --------
Total current liabilities 28,431 29,662
-------- --------
Long-term debt, less current portion 5,964 7,679
Other non-current liabilities 1,091 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; 22,999 and 22,714 shares issued
and outstanding at November 30, 2005 and
February 28, 2005, respectively 230 227
Additional paid-in capital 133,536 131,784
Less common stock held in escrow (2,532) (2,548)
Retained earnings 40,723 29,626
Accumulated other comprehensive loss (801) (801)
-------- --------
Total stockholders' equity 171,156 158,288
-------- --------
$206,642 $196,755
======== ========
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
November 30, November 30,
------------------- -------------------
2005 2004 2005 2004
------- ------- ------- -------
Revenues:
Product sales $60,889 $51,749 $156,717 $138,499
Service revenues 3,574 5,317 12,987 14,391
------- ------- -------- --------
Total revenues 64,463 57,066 169,704 152,890
------- ------- -------- --------
Cost of revenues:
Cost of product sales 45,299 42,786 119,308 113,048
Cost of service revenues 2,700 3,981 9,819 10,918
------- ------- -------- --------
Total cost of revenues 47,999 46,767 129,127 123,966
------- ------- -------- --------
Gross profit 16,464 10,299 40,577 28,924
------- ------- -------- --------
Operating expenses:
Research and development 2,585 2,315 7,142 6,190
Selling 1,914 1,847 5,582 4,651
General and administrative 2,679 2,786 7,900 8,410
Amortization of intangibles 403 486 1,375 1,207
In-process research and
development write-off - - 320 471
------- ------- -------- --------
Total operating expenses 7,581 7,434 22,319 20,929
------- ------- -------- --------
Operating income 8,883 2,865 18,258 7,995
Non-operating income (expense) 162 8 231 (131)
------- ------- -------- --------
Income before income taxes 9,045 2,873 18,489 7,864
Income tax provision (3,606) (1,086) (7,392) (3,022)
------- ------- -------- --------
Net income $ 5,439 $ 1,787 $ 11,097 $ 4,842
======= ======= ======== ========
Net income per share:
Basic $ 0.24 $ 0.08 $ 0.49 $ 0.23
Diluted $ 0.23 $ 0.08 $ 0.48 $ 0.22
Shares used in per share
calculations:
Basic 22,580 22,356 22,520 21,135
Diluted 23,592 23,113 23,272 21,891
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
November 30,
---------------------
2005 2004
------- -------
Cash flows from operating activities:
Net income $11,097 $ 4,842
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,305 3,218
Write-off of in-process research and development 320 471
Equipment impairment write-down - 241
Increase in equity associated with tax
benefit from exercise of stock options 678 224
Deferred tax assets, net 5,431 2,609
Changes in operating assets and liabilities:
Accounts receivable (9,238) (4,900)
Inventories 2,739 (3,434)
Prepaid expenses and other assets 867 2,641
Accounts payable (1,668) 4,136
Accrued payroll and other accrued liabilities 1,088 (2,175)
Deferred revenue (273) 357
Other 16 (128)
------- -------
Net cash provided by operating activities 14,362 8,102
------- -------
Cash flows from investing activities:
Capital expenditures (1,555) (1,970)
Proceeds from sale of assets 143 835
Acquisition of Skybility business (4,897) -
Acquisition of Vytek Corporation, net of
cash acquired - (1,727)
------- -------
Net cash used in investing activities (6,309) (2,862)
------- -------
Cash flows from financing activities:
Proceeds from debt borrowings - 2,000
Debt repayments (2,178) (4,300)
Proceeds from exercise of stock options 1,282 703
------- -------
Net cash used in financing activities (896) (1,597)
------- -------
Net change in cash and cash equivalents 7,157 3,643
Cash and cash equivalents at beginning of period 31,048 22,885
------- -------
Cash and cash equivalents at end of period $38,205 $26,528
======= =======
See notes to unaudited consolidated financial statements.
CALAMP CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED NOVEMBER 30, 2005 and 2004
Note 1 - DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
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.
The Company uses a 52-53 week fiscal year ending on the Saturday closest
to February 28, which for fiscal year 2005 fell on February 26, 2005. The
actual interim periods ended on November 26, 2005 and November 27, 2004. In
the accompanying consolidated financial statements, the 2005 fiscal year end
is shown as February 28 and the interim period end for both years is shown as
November 30 for clarity of presentation.
Certain notes and other information are condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Therefore, these financial statements should be read in conjunction with the
Company's 2005 Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on May 6, 2005.
In the opinion of the Company's management, the accompanying
consolidated financial statements reflect all adjustments necessary to
present fairly the Company's financial position at November 30, 2005 and its
results of operations for the three and nine month periods ended November 30,
2005 and 2004. The results of operations for such periods are not
necessarily indicative of results to be expected for the full fiscal year.
All intercompany transactions and accounts have been eliminated in
consolidation.
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
interim consolidated statement of income for the 32-week period from April
18, 2005 to November 30, 2005.
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 (the "Earn-out Payment"), subject to the attainment of certain
financial performance targets. The formula for the Earn-out Payment is as
follows:
Net sales during the
12-month period ending
4/18/06 ("Earn-out Period") Earn-out Payment
---------------------------- -------------------------------
Less than $10 million None
$10 million or more but 50% of gross profit on all net
not more than $13 million sales during the Earn-out Period
More than $13 million 75% of gross profit on net sales
up to $20 million during the
Earn-out Period
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 369
Intangible assets:
Developed/core technology 1,730
Customer lists 1,020
Covenants not to compete 330
Contracts backlog 150
In-process research and development 320
-----
Total fair value of net assets acquired 4,999
------
Negative goodwill $ (102)
======
The $320,000 allocated to in-process research and development in the
purchase price allocation above was charged to expense following the
acquisition.
The negative goodwill of $102,000 is classified as a liability at
November 30, 2005, pending the determination of the Earn-out Payment amount
as described above. The Earn-out Payment, if any, will be first applied to
the negative goodwill liability. Any Earn-out Payment in excess of the
liability will be recorded as goodwill. If after applying the Earn-out
Payment against the liability, it results in a remaining balance in the
liability account, such amount will be used to reduce the amounts allocated
to the acquired assets on a pro rata basis.
Vytek
-----
In connection with the acquisition of Vytek Corporation on April 12,
2004, the Company entered into an escrow agreement with a designated
representative of the selling stockholders of Vytek (the "Vytek Stockholder
Representative") and an independent escrow agent. Under the terms of the
escrow agreement, 854,700 shares of CalAmp's common stock were deposited into
the escrow account at the time of the acquisition and were to serve as
security for potential indemnity claims by the Company under the acquisition
agreement. In November 2004, 628,380 shares of common stock held in escrow
were forfeited by the selling stockholders of Vytek pursuant to the Working
Capital Adjustment provisions of the acquisition agreement and were returned
to the Company. These 628,380 shares were then canceled and 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. At November 30, 2005, there were 224,876
shares of CalAmp's common stock remaining in the escrow account. Subject to
any claims by the Company for indemnification, except for an amount equal in
value to $2 million, all shares of the Company's common stock in the escrow
account were to be released to the selling stockholders of Vytek, in
accordance with their pro rata interests, 15 months after the April 12, 2004
closing date. No further shares have been released from the escrow account
because the Company has indemnification claims against the escrow account
(which the Vytek Stockholder Representative is disputing) and because the
market value of the remaining escrow shares was less than $2 million at July
12, 2005. All remaining shares of the Company's common stock, if any, in the
escrow account will be released to the Vytek selling stockholders two years
after the April 12, 2004 closing date, subject to any then pending and
unresolved claims for indemnification. The shares in escrow are carried at a
per share value of $11.26, 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 acquisition terms were agreed to and announced.
Note 3 - INVENTORIES
Inventories include the cost of material, labor and manufacturing
overhead, are stated at the lower of cost (determined on the first-in, first-
out method) or market, and consist of the following (in thousands):
November 30, February 28,
2005 2005
------ ------
Raw materials $15,068 $17,680
Work in process 896 676
Finished goods 3,842 3,109
------- -------
$19,806 $21,465
======= =======
Note 4 - GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill associated with each reporting unit is as follows (in
thousands):
Products Solutions Total
-------- --------- ---------
Balance as of February 28, 2005 $ 57,785 $ 35,049 $ 92,834
Removal of goodwill associated
with divested assets - (230) (230)
Other change - 1 1
-------- --------- --------
Balance as of November 30, 2005 $ 57,785 $ 34,820 $ 92,605
======== ========= ========
Impairment tests of goodwill associated with the Products Division are
conducted annually as of December 31. The annual tests conducted in the last
three fiscal years indicated no impairment of Products Division goodwill.
The initial annual impairment test of the goodwill associated with the
Solutions Division 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 used a discounted cash flow approach to estimate the fair
value of both divisions in these impairment tests.
Other intangible assets are comprised as follows (in thousands):
November 30, 2005 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. $5,079 $1,307 $3,772 $3,349 $ 592 $2,757
Customer lists 5 yrs. 2,147 494 1,653 1,127 199 928
Contracts
backlog 1 yr. 995 995 - 845 748 97
Covenants not
to compete 4.5 yrs. 730 423 307 400 304 96
Licensing right 2 yrs. 200 125 75 200 50 150
------ ------ ------ ------ ------ ------
$9,151 $3,344 $5,807 $5,921 $1,893 $4,028
====== ====== ====== ====== ====== ======
Amortization of intangibles was $1,451,000 and $1,257,000 for the nine
months ended November 30, 2005 and 2004, respectively. Amortization expense
for the nine months ended November 30, 2005 is reported in the accompanying
consolidated statements of income in cost of revenues and operating expenses
in the amounts of $76,000 and $1,375,000, respectively.
Estimated amortization expense for the fiscal years ending February 28
is as follows:
2006 (remainder) $ 420,000
2007 $1,571,000
2008 $1,509,000
2009 $1,509,000
2010 $ 717,000
Thereafter $ 81,000
Note 5 - FINANCING ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Bank credit facility
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 November 30, 2005, $3,000,000 was outstanding on the line of credit which
is classified as long-term at that date. Also at that date, $2,974,000 was
reserved under the line for outstanding irrevocable stand-by letters of
credit. The Company also has two bank term loans which had an aggregate
outstanding principal balance of $5,348,000 at November 30, 2005 of which
$2,395,000 is classified as current at that date. The bank credit agreement
that encompasses the line of credit and the two term loans 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 bank credit agreement)
in the Company's business. Based on the Company's history of profitable
operations and positive operating cash flow over the past several years, and
based on the Company's internal financial forecasts for the next several
quarters, the Company does not believe it is probable that the bank will
assert the material adverse change clause in the next 12 months.
Other long-term debt
The Company had capital lease obligations of $41,000 at November 30,
2005, of which $30,000 was classified as current at that date.
Contractual cash obligations
Following is a summary of the Company's contractual cash obligations as
of November 30, 2005 (in thousands):
Future Cash Payments Due by Fiscal Year
----------------------------------------------
Contractual 2006 There-
Obligations (remainder) 2007 2008 2009 2010 after Total
--------------- ------ ------ ------ ------ ------ ------ ------
Debt principal $ 706 $2,139 $4,800 $ 703 $ - $ - $ 8,348
Capital leases 9 33 9 - - - 51
Operating leases 485 1,912 1,926 1,991 2,061 1,803 10,178
Purchase
obligations 25,273 824 - - - - 26,097
------- ------ ------ ------ ------ ------ ------
Total contractual
cash obligations $26,473 $4,908 $6,735 $2,694 $2,061 $1,803 $44,674
======= ====== ====== ====== ====== ====== =======
Purchase obligations consist of obligations under non-cancelable
purchase orders, primarily for inventory purchases of raw materials,
components and subassemblies.
Note 6 - INCOME TAXES
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.
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, Vytek's deferred
tax assets were valued at $8,783,000, which is net of a valuation allowance
of $1,892,000.
At November 30, 2005 the Company's net deferred income tax asset was
$5,972,000, which amount is net of a valuation allowance of $1,892,000.
If in the future a portion or all of the $1,892,000 valuation allowance
at November 30, 2005 is no longer deemed to be necessary, reductions of the
valuation allowance will decrease the goodwill balance associated with the
Solutions Division. 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.
The effective income tax rate was 40.0% and 38.4% in the nine months
ended November 30, 2005 and 2004, respectively.
Note 7 - 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 Company reports income and the
average market price of the common stock during the period exceeds the
exercise price of the options.
The following is a summary of the calculation of weighted average shares
used in the computation of basic and diluted earnings per share (in
thousands):
Three months ended Nine months ended
November 30, November 30,
---------------- ----------------
2005 2004 2005 2004
------ ------ ------ ------
Basic weighted average number
of common shares outstanding 22,580 22,356 22,520 21,135
Effect of dilutive securities:
Stock options 787 531 584 644
Shares held in escrow 225 226 168 112
------ ------ ------ ------
Diluted weighted average number
of common shares outstanding 23,592 23,113 23,272 21,891
====== ====== ====== ======
Options and warrants outstanding at November 30, 2005 to purchase
approximately 555,000 shares of common stock at exercise prices of $10.88 and
above were excluded from the computation of diluted earnings per share for
the three months then ended because the exercise price of these options and
warrants was greater than the average market price of the common stock and
accordingly the effect of inclusion would be antidilutive.
As further discussed in Note 2, there are shares of the Company's common
stock held in escrow in connection with the April 2004 acquisition of Vytek.
The shares held in escrow have been excluded from the basic weighted average
number of common shares outstanding. However, the estimated impact of these
shares has been included in the diluted weighted average number of common
shares outstanding for the three and nine months ended November 30, 2005 and
2004.
Note 8 - COMPREHENSIVE INCOME
Comprehensive income is defined as the total of net income and all non-
owner changes in equity. The following table details the components of
comprehensive income for the three and nine months ended November 30, 2005
and 2004 (in thousands):
Three Months Ended Nine Months Ended
November 30, November 30,
---------------- ----------------
2005 2004 2005 2004
------ ------ ------ ------
Net income $5,439 $1,787 $11,097 $4,842
Unrealized holding gain on
available-for-sale investments - - - 21
------ ------ ------- ------
Comprehensive income $5,439 $1,787 $11,097 $4,863
====== ====== ======= ======
Note 9 - STOCK OPTIONS
As permitted by SFAS 123, the Company continues to apply 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 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.
Because 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 123R, which requires
the expensing of stock options, effective February 26, 2006, which is the
first day of fiscal 2007.
The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model with the following assumptions:
Options granted
during the nine months
ended November 30,
-------------------
2005 2004
------ ------
Expected life (years) 5 5
Dividend yield 0% 0%
Interest rates 3.9%-4.3% 3.3%-4.0%
Volatility 84%-95% 97%-134%
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 123 to stock-based employee compensation (in thousands except per share
amounts):
Three months ended Nine months ended
November 30, November 30,
---------------- ----------------
2005 2004 2005 2004
------ ------ ------ ------
Net income as reported $5,439 $1,787 $11,097 $ 4,842
Less total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of related
tax effects (273) (460) (843) (1,623)
----- ----- ----- ------
Pro forma net income $5,166 $1,327 $10,254 $ 3,219
===== ===== ====== ======
Earnings per share:
Basic -
As reported $ 0.24 $ 0.08 $ 0.49 $ 0.23
Pro forma $ 0.23 $ 0.06 $ 0.46 $ 0.15
Diluted -
As reported $ 0.23 $ 0.08 $ 0.48 $ 0.22
Pro forma $ 0.22 $ 0.06 $ 0.44 $ 0.15
Note 10 - CONCENTRATION OF RISK
Because the Company's principal business involves the sale of products
into a market comprised of two large service providers, a significant
percentage of consolidated revenue and consolidated accounts receivable
relate to a small number of customers. Sales to customers which accounted
for 10% or more of consolidated sales for the three or nine months ended
November 30, 2005 or 2004, as a percent of consolidated revenue, are as
follows:
Three months ended Nine months ended
November 30, November 30,
---------------- ----------------
Customer 2005 2004 2005 2004
-------- ------ ------ ------ ------
A 56.6% 44.0% 57.0% 38.5%
B 12.6% 17.4% 12.0% 15.6%
C - 6.6% - 11.4%
Accounts receivable from these customers as a percent of consolidated
net accounts receivable are as follows:
Nov. 30, Feb. 28,
Customer 2005 2005
-------- ------ ------
A 54.1% 49.8%
B 11.0% 25.2%
C - 0.2%
Customers A, B and C are customers of the Company's Products Division.
Note 11 - PRODUCT WARRANTIES
The Company generally warrants its products against defects for a period
of one year. 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
sales for the preceding three years. Activity in the warranty liability for
the nine months ended November 30, 2005 and 2004 is as follows (in
thousands):
Nine months ended
November 30,
-----------------
2005 2004
------ ------
Balance at beginning of period $746 $159
Charged to costs and expenses 401 589
Deductions (336) (469)
---- ----
Balance at end of period $811 $279
==== ====
Note 12 - OTHER FINANCIAL INFORMATION
"Net cash provided by operating activities" in the consolidated
statements of cash flows includes cash payments for interest and income taxes
as follows (in thousands):
Nine months ended
November 30,
-------------------
2005 2004
------ ------
Interest paid $ 362 $ 347
Income taxes paid $ 644 $ 123
Following is the supplemental schedule of non-cash investing and
financing activities (in thousands):
Nine months ended
November 30,
-------------------
2005 2004
------ ------
Fair value of Company common
stock received as consideration
from the sale of assets $ 190 -
Sale of Company common stock held
in escrow to pay for the 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 issued and
held in escrow $ - $83,383
Decrease in valuation allowance
for available-for-sale investment $ - $ 21
Note 13 - SEGMENT INFORMATION
Segment information for the three and nine months ended November 30,
2005 and 2004 is as follows (dollars in thousands):
Three months ended Three months ended
November 30, 2005 November 30,2004
------------------------------------ ------------------------------------
Operating Segments Operating Segments
------------------- -------------------
Products Solutions Products Solutions
Division Division Corporate Total Division Division Corporate Total
------- ------ ------- ----- ------- ------ ------- -----
Revenues:
Products $59,565 $ 1,324 $60,889 $50,425 $ 1,324 $51,749
Services - 3,574 3,574 - 5,317 5,317
------ ----- ------ ------ ----- ------
Total $59,565 $ 4,898 $64,463 $50,425 $ 6,641 $57,066
====== ===== ====== ====== ===== ======
Gross profit:
Products $14,441 $ 1,149 $15,590 $ 8,737 $ 226 $ 8,963
Services - 874 874 - 1,336 1,336
------ ----- ------ ------ ----- ------
Total $14,441 $ 2,023 $16,464 $ 8,737 $ 1,562 $10,299
====== ===== ====== ====== ===== ======
Gross margin:
Products 24.2% 86.8% 25.6% 17.3% 17.1% 17.3%
Services - 24.5% 24.4% - 25.1% 25.1%
Total 24.2% 41.3% 25.5% 17.3% 23.5% 18.0%
Operating
income
(loss) $10,406 $ (373) $(1,150) $ 8,883 $ 6,191 $(2,379) $ (947) $ 2,865
====== ===== ===== ====== ====== ===== ===== ======
Nine months ended Nine months ended
November 30, 2005 November 30, 2004
------------------------------------ ------------------------------------
Operating Segments Operating Segments
------------------- -------------------
Products Solutions Products Solutions
Division Division Corporate Total Division Division Corporate Total
------- ------ ------- ----- ------- ------ ------- -----
Revenues:
Products $153,331 $ 3,386 $156,717 $133,980 $ 4,519 $138,499
Services - 12,987 12,987 - 14,391 14,391
------- ------ -------- ------- ------ -------
Total $153,331 $16,373 $169,704 $133,980 $18,910 $152,890
======= ====== ======= ======= ====== =======
Gross profit:
Products $ 34,975 $ 2,434 $ 37,409 $ 24,506 $ 945 $ 25,451
Services - 3,168 3,168 - 3,473 3,473
------- ----- ------- ------- ------ -------
Total $ 34,975 $ 5,602 $ 40,577 $ 24,506 $ 4,418 $ 28,924
======= ===== ======= ======= ====== =======
Gross margin:
Products 22.8% 71.9% 23.9% 18.3% 20.9% 18.4%
Services - 24.4% 24.5% - 24.1% 24.1%
Total 22.8% 34.2% 23.9% 18.3% 23.4% 18.9%
Operating
income
(loss) $ 23,453 $(2,029) $(3,166) $ 18,258 $16,861 $(5,971) $(2,895) $ 7,995
======= ===== ===== ======= ======= ====== ===== =======
The Company considers operating income (loss) to be the primary measure
of profit or loss of its business segments. The amount shown for each period
in the "Corporate" column above for operating income (loss) consists of
corporate expenses not allocated to the business segments. Unallocated
corporate expenses include salaries and benefits of the CEO, CFO and two
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.
Note 14 - 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 Company's Products Division
leases small facilities in Minnesota and France. The Company's 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 payments under operating lease
commitments is included in the contractual cash obligations table in Note 5.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 or due to
insolvency, disputes or other collection issues. As further described in
Note 10 to the accompanying consolidated financial statements, the Company's
customer base is quite concentrated, with two customers accounting for 69% of
the Company's total revenue for the nine months ended November 30, 2005 and
approximately 65% of the Company's accounts receivable balance as of November
30, 2005. 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.
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, Vytek's deferred
tax assets were valued at $8,783,000, which is net of a valuation allowance
of $1,892,000.
At November 30, 2005 the Company's net deferred income tax asset was
$5,972,000, which amount is net of a valuation allowance of $1,892,000.
If in the future a portion or all of the $1,892,000 valuation allowance
at November 30, 2005 is no longer deemed to be necessary, reductions of the
valuation allowance will decrease the goodwill balance associated with the
Solutions Division. 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
No. 144, "Accounting for the Impairment and Disposal of Long Lived Assets"
("SFAS 144"), which supersedes Statement of Financial Accounting Standards
No. 121 and certain sections of Accounting Principles Board Opinion No. 30
specific to discontinued operations. SFAS 144 classifies long-lived assets
as one of the following: (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 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. This statement has not had
a material impact on the Company's financial position or results of
operations.
The Company adopted Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" at the beginning of fiscal 2003. As a
result, goodwill is no longer amortized, but 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 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
Effective with the acquisition of Vytek on April 12, 2004, 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 the Products Division. The operations of Vytek, which are
principally service oriented, comprise the Company's Solutions Division. The
Company's results of operations for the nine months ended November 30, 2004
include the operations of Vytek for 33 weeks.
The Skybility business that was acquired by the Company on April 18,
2005 became the Machine-to-Machine ("M2M") product line within the Products
Division and is included in the Company's results of operations for the nine
months ended November 30, 2005 for 32 weeks.
The Company's revenue, gross profit and operating income (loss) by
business segment are as follows:
REVENUE BY SEGMENT
Three months ended November 30, Nine months ended November 30,
------------------------------- --------------------------------
2005 2004 2005 2004
-------------- -------------- -------------- --------------
% of % of % of % of
Division $000s Total $000s Total $000s Total $000s Total
--------- ------- ----- ------- ----- -------- ----- ------- -----
Products $59,565 92.4% $50,425 88.4% $153,331 90.4% $133,980 87.6%
Solutions 4,898 7.6% 6,641 11.6% 16,373 9.6% 18,910 12.4%
------- ----- ------- ----- -------- ----- ------- -----
Total $64,463 100.0% $57,066 100.0% $169,704 100.0% $152,890 100.0%
======= ===== ======= ===== ======== ===== ======= =====
GROSS PROFIT BY SEGMENT
Three months ended November 30, Nine months ended November 30,
------------------------------- -------------------------------
2005 2004 2005 2004
-------------- -------------- ------------- --------------
% of % of % of % of
Division $000s Total $000s Total $000s Total $000s Total
--------- ------- ----- ------- ----- ------- ----- ------- -----
Products $14,441 87.7% $ 8,737 84.8% $34,975 86.2% $24,506 84.7%
Solutions 2,023 12.3% 1,562 15.2% 5,602 13.8% 4,418 15.3%
------- ----- ------- ----- ------- ----- ------- -----
Total $16,464 100.0% $10,299 100.0% $40,577 100.0% $28,924 100.0%
======= ===== ======= ===== ======= ===== ======= =====
OPERATING INCOME (LOSS) BY SEGMENT
Three months ended November 30, Nine months ended November 30,
------------------------------- -------------------------------
2005 2004 2005 2004
---------------- ---------------- --------------- ---------------
% of % of % of % of
Total Total Total Total
Division $000s Revenue $000s Revenue $000s Revenue $000s Revenue
--------- ------- ------- ------- ------- ------- ------- ------- -------
Products $10,406 16.1% $ 6,191 10.8% $23,453 13.8% $16,861 11.0%
Solutions (373) (0.6%) (2,379) (4.2%) (2,029) (1.2%) (5,971) (3.9%)
Corporate
expenses (1,150) (1.7%) (947) (1.6%) (3,166) (1.8%) (2,895) (1.9%)
------- ------ ------- ------ ------- ------ ------- -----
Total $ 8,883 13.8% $ 2,865 5.0% $18,258 10.8% $ 7,995 5.2%
======= ====== ======= ====== ======= ====== ======= =====
Revenue
Products Division revenue increased $9,140,000, or 18%, to $59,565,000
in the three months ended November 30, 2005 from $50,425,000 for the same
period in the previous fiscal year. About $2.9 million or 32% of the
increase is attributable to increased sales of DBS products. Sales of M2M
products accounted for revenue of $2.5 million or 27% of the increase. The
remainder of the increase is attributable to increased sales of other
wireless products, primarily radio modules to a legacy customer of Vytek.
For the nine months ended November 30, 2005, Products Division revenue
increased $19,351,000, or 14%, over the same period of the prior year. Sales
of M2M products accounted for revenue of $6.3 million or 33% of the increase.
About $5.2 million of the increase is attributable to increased sales of DBS
products. The remainder of the increase is attributable to increased sale of
other wireless products, primarily radio modules to the customer referred to
above that was acquired in the Vytek purchase.
Revenue of the Solutions Division decreased $1,743,000, or 26%, to
$4,898,000 in the three months ended November 30, 2005 from $6,641,000 for
the same period in the previous fiscal year. For the nine months ended
November 30, 2005, Solutions Division revenue decreased $2,537,000, or 13%,
over the same period of the prior year. 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 $5,704,000, or 65%, which is
primarily attributable to the gross margin improvement from 17.3% in last
year's third quarter to 24.2% in the latest quarter. The gross margin
improvement was mainly due to increased sales of higher-margin products,
primarily M2M products, radio modules and latest generation DBS products.
The remainder of the gross profit improvement is attributable to the
$9,140,000 increase in revenue.
For the nine months ended November 30, 2005, Products Division gross
profit increased by $10,469,000, or 43%, from the same period of last year,
and gross margin improved from 18.3% to 22.8%, primarily for the reasons
explained in the preceding paragraph.
Solutions Division gross profit increased $461,000, or 30%, and gross
margin improved from 23.5% in the three months ended November 30, 2004 to
41.3% in the latest quarter. For the nine months ended November 30, 2005,
Solutions Division gross profit increased $1,184,000, or 27%, from the same
period of last year, and gross margin improved from 23.4% to 34.2%. A
product mix favoring higher margin software sales resulted in significantly
improved gross margin in the three month period ended November 30, 2005. The
remainder of the gross profit and gross margin improvement is attributable to
actions taken 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 expense ("R&D") increased by
$270,000 to $2,585,000 in the latest quarter from $2,315,000 in the third
quarter of last year. The Products Division increased its R&D spending by
$570,000 primarily in connection with product development costs relating to
the M2M product line that was recently acquired. The Solutions Division
reduced its R&D spending by approximately $300,000. For the nine month year-
to-date periods, R&D expenses increased $952,000 from $6,190,000 last year to
$7,142,000 this year. The increase is primarily attributable to M2M R&D
expenses of $1,475,000, partially offset by $742,000 in reduced R&D spending
in the Solutions Division.
Consolidated selling expenses increased to $1,914,000 in the latest
quarter from $1,847,000 in the third quarter of last year. Although the
expense was relatively unchanged between these two periods, the Products
Division incurred increased selling expenses of $360,000 and Solutions
Division lowered its selling expenses by $293,000 compared to last year. For
the nine month year-to-date periods, selling expenses increased $931,000 from
$4,651,000 last year to $5,582,000 this year, primarily attributable to the
Products Division. The inclusion of M2M selling expenses of $524,000
accounted for more than half of the increase. The Solutions Division
incurred increased selling expenses of $256,000.
Consolidated general and administrative expenses ("G&A") decreased 4% to
$2,679,000 in the latest quarter from $2,786,000 last year. The decrease is
attributable to a reduction of $715,000 in G&A of the Solutions Division,
partially offset by an increase in Products Division G&A of approximately
$400,000 and higher Corporate (non-division) G&A of approximately $200,000.
More than half of the increase in the Products Division and Corporate G&A is
attributable to higher payroll related expenses due to new hires and
increases in wage rates and incentive compensation. In addition, the
Products Division had a gain on sale of assets of $91,000 in the third
quarter of last year compared with a loss on sale of assets of $22,000 in the
latest quarter. Such gain (loss) amounts on sales of assets are included in
G&A expense for financial reporting purposes. For the nine month year-to-
date periods, general and administrative expenses decreased $510,000 from
$8,410,000 last year to $7,900,000 this year. The decrease is attributable
to a reduction of Solutions Division G&A of $1,439,000, partially offset by
an increase in Products Division G&A of $658,000 and higher Corporate (non-
division) G&A of $271,000, mainly from higher payroll related expenses.
Amortization expense of intangible assets in the three months ended
November 30, 2005 and 2004 was $403,000 and $486,000, respectively. The
decrease is attributable to certain intangibles assets related to the Vytek
acquisition that became fully amortized prior to the latest three-month
period. In the nine months ended November 30, 2005 and 2004, amortization
expense was $1,375,000 and $1,207,000, respectively. The increase in the
nine month period is attributable to amortization expense related to the
intangible assets arising from the acquisition of the M2M product line.
The in-process research and development ("IPR&D") write-off decreased by
$151,000 to $320,000 in the nine months ended November 30, 2005 from $471,000
last year. 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
Skybility. See also Note 2 to the accompanying unaudited consolidated
financial statements for additional information on the Skybility acquisition.
Operating Income
Operating income was $8,883,000 and $2,865,000 in the three months ended
November 30, 2005 and 2004, respectively, and $18,258,000 and $7,995,000,
respectively in the nine months ended November 30, 2005 and 2004. 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 the third
quarter, reducing its operating loss by about 84% compared to the same period
last year, which is the result of the Company focusing its efforts on higher
margin business and changing the division's 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 40.0% and 38.4% in the nine months
ended November 30, 2005 and 2004, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are its cash and cash
equivalents, which amounted to $38,205,000 at November 30, 2005, and its $14
million working capital line of credit with a bank. During the nine months
ended November 30, 2005, cash and cash equivalents increased by $7,157,000.
This increase consisted of cash provided by operating activities of
$14,362,000, proceeds from stock option exercises of $1,282,000 and proceeds
from the sale of assets of $143,000, partially offset by cash used for the
Skybility acquisition of $4,897,000, cash used for capital expenditures of
$1,555,000 and debt repayments of $2,178,000.
At November 30, 2005 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
November 30, 2005, $3 million was outstanding on this line of credit which is
classified as long-term at that date. Also at that date, $2,974,000 was
reserved under the line of credit for outstanding irrevocable stand-by
letters of credit. The Company also has two bank term loans which had an
aggregate outstanding principal balance of $5,348,000 at November 30, 2005 of
which $2,395,000 is classified as current at that date. The bank credit
agreement which encompasses the line of credit and the two term loans
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 bank
credit agreement) in the Company's business. Based on the Company's history
of profitable operations and positive operating cash flow over the past
several years, and based on the Company's internal financial forecasts for
the next several quarters, the Company does not believe it is probable that
the bank will assert the material adverse change clause in the next 12
months.
See Note 5 to the accompanying consolidated financial statements for a
summary of the Company's contractual cash obligations as of November 30,
2005.
The Company believes that inflation and foreign currency exchange rates
have not had a material effect on its operations. The Company believes that
fiscal 2006 will not be impacted significantly by foreign exchange since a
significant portion of the Company's sales are to U.S. markets, or to
international markets where its sales are denominated in U.S. dollars.
FORWARD LOOKING STATEMENTS
Forward looking statements in this Form 10-Q which include, without
limitation, statements relating to the Company's plans, strategies,
objectives, expectations, intentions, projections and other information
regarding future performance, are made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The words "may",
"could", "plans", "believes," "anticipates," "expects," 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 ongoing pricing declines on
existing products in the DBS market, supplier constraints, manufacturing
yields, the ability to manage cost increases in inventory materials including
raw steel, the timing and market acceptance of new product introductions, new
technologies, the Company's ability to eliminate operating losses in its
Solutions Division and make this business segment profitable, and other risks
and uncertainties that are set forth under the heading "Risk Factors" in the
Company's registration statement on Form S-3 (number 333-119858) as filed
with the Securities and Exchange Commission on October 20, 2004. 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's financial instruments include cash equivalents, accounts
receivable, accounts payable and bank term loans payable. At November 30,
2005, the carrying values of cash equivalents, accounts receivable and
accounts payable approximate fair values given the short maturity of these
instruments.
The carrying value of bank term loans payable approximates fair value
since the interest rates on these loans approximate the interest rates which
are currently available to the Company for the issuance of debt with similar
provisions and maturities. Based on the amount of bank debt outstanding at
November 30, 2005, a change in interest rates of one percent would result in
an annual impact of less than $100,000, net of tax, on the Company's
consolidated statement of income.
A portion of the Company's operations consists of an investment in a
foreign subsidiary. As a result, the consolidated financial results have
been and could continue to be affected by changes in foreign currency
exchange rates. However, the Company believes that it does not have material
foreign currency exchange rate risk since a significant portion of the
Company's sales are to U.S. markets, or to international markets where its
sales are denominated in U.S. dollars, and material purchases from foreign
suppliers are typically also denominated in U.S. dollars. Additionally, the
functional currency of the Company's foreign subsidiary is the U.S. dollar.
It is the Company's policy not to enter into derivative financial
instruments for speculative purposes. Furthermore, the Company generally
does not enter into foreign currency forward exchange contracts. There are
no foreign currency forward exchange contracts outstanding at November 30,
2005.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company's principal executive officer and principal financial
officer have concluded, based on their evaluation of disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of the end of the period covered by this Report,
that the Company's disclosure controls and procedures are effective to ensure
that the information required to be disclosed in reports that are filed or
submitted under the Exchange Act is accumulated and communicated to
management, including the principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure and that such information is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities Exchange Commission.
Internal Control Over Financial Reporting
There has been no change in the Company's internal control over
financial reporting that occurred during the Company's most recently
completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
(a) CalAmp Corp. and U.S. Bank National Association entered into
Amendment Agreement Number Six to Loan and Security Agreement ("Amendment No.
6") dated as of October 25, 2005. Amendment No. 6, attached as Exhibit 10.1
to this report, provides for, among other items, a one year extension of the
maturity date of the working capital line of credit to August 3, 2007, an
increase in the maximum revolving amount to $14,000,000, lowering of the
LIBOR-based interest rate by 0.25%, and deletion of the liquidity requirement
which required CalAmp to maintain cash and cash equivalents of at least
$8,000,000.
ITEM 6. EXHIBITS
Exhibit 10.1 - Amendment Agreement Number Six to Loan and
Security Agreement dated October 25, 2005 by and
between CalAmp Corp. and U.S. Bank National
Association (1)
Exhibit 31.1 - Chief Executive Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (1)
Exhibit 31.2 - Chief Financial Officer Certification pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (1)
Exhibit 32 - Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (1)
(1) Filed herewith.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
January 5, 2006 /s/ Richard K. Vitelle
------------------------------ ---------------------------------
Date Richard K. Vitelle
Vice President Finance & CFO
(Principal Financial Officer
and Chief Accounting Officer)