LOJACK ACQUISITION

3 Months Ended

May 31, 2016

LOJACK ACQUISITION [Abstract]

LOJACK ACQUISITION

NOTE 2 – LOJACK ACQUISITION

In March 2016, the Company completed the acquisition of all outstanding common stock of LoJack. As a result of the acquisition, LoJack became a wholly-owned subsidiary of CalAmp and is consolidated with the Company's financial statements as of March 15, 2016 as a component of the Company's Wireless DataCom business segment. The Company funded the acquisition from cash on hand. The total purchase price was $131.7 million, which included the $5.5 million fair value of the 850,100 shares of LoJack common stock that CalAmp purchased in the open market in November and December 2015, prior to entering into a definitive acquisition agreement with LoJack.

Pursuant to the Company's business combinations accounting policy, the Company estimated the preliminary fair values of net tangible and intangible assets acquired, and the excess of the consideration transferred over the aggregate of such fair values was recorded as goodwill. The preliminary fair values of net tangible assets and intangible assets acquired were based upon preliminary valuations. The Company's estimates and assumptions reflected in such preliminary valuations are subject to change within the measurement period (up to one year from the acquisition date). The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, certain legal matters, deferred income taxes and goodwill. The Company expects to continue to obtain information to assist in determining the fair values of the net assets acquired during the measurement period. The following is the preliminary purchase price allocation for LoJack (in thousands):

Purchase price				$	131,735
Less cash acquired, net of debt assumed					(9,287	)
Net cash paid					122,448
Fair value of net assets acquired:
Current assets other than cash	$	41,986
Property and equipment		9,646
Developed technology		8,200
Tradename		35,500
Customer lists		4,650
Dealer relationships		16,850
Other non-current assets		4,180
Deferred tax liability		(3,631	)
Current liabilities		(34,218	)
Non-current liabilities		(11,087	)
Total fair value of net assets acquired					72,076
Goodwill				$	50,372

The Company paid a premium (i.e., goodwill) over the fair value of the net tangible and identified intangible assets acquired. The Company believes the acquisition aligns with CalAmp's strategy to deliver innovative, next generation connected vehicle telematics technologies, thereby accelerating the Company's strategic roadmap in this large and fast growing market. The Company believes that combining CalAmp's leading portfolio of wireless connectivity devices, software, services and applications, with LoJack's world-renowned brand, proprietary stolen vehicle recovery product, unique law enforcement network and strong relationships with auto dealers, heavy equipment providers and global licensees, will create a market leader that is well-positioned to drive the broad adoption of connected vehicle telematics technologies and applications worldwide. The combined enterprise will offer customers access to integrated, turnkey offerings that enable a multitude of high value applications encompassing vehicle security and enhanced driver safety. Furthermore, the combination of CalAmp's and LoJack's technology offerings is expected to provide global customers with connected vehicle applications to help ensure that retail auto dealers remain competitive and relevant in today's rapidly evolving markets.

The goodwill arising from the LoJack acquisition is not deductible for income tax purposes.

The fair value of the LoJack trade receivables at March 15, 2016 was $24.7 million, comprised of a gross contractual amount of $25.8 million net of receivables of $1.1 million not expected to be collected.

In connection with the acquisition of LoJack, the Company has assumed liabilities related to quality assurance programs, warranty claims and contract obligations which are included in accrued expenses and other current liabilities in the purchase price allocation described above. The fair value of inventories acquired included an acquisition accounting fair market value step-up of $4.6 million. In the three months ended May 31, 2016, the Company recognized $4.0 million as a component of cost of revenue that reflects the extent to which the inventory that was subject to step-up was sold to the Company's customers in such period. Included in inventory as of May 31, 2016 was $0.6 million relating to the remaining fair value step-up associated with the LoJack acquisition.

Acquisition and integration-related costs of $3.5 million were included in selling, general, and administrative expenses in the Company's statement of comprehensive income (loss) for the three months ended May 31, 2016.

Revenues of LoJack included in the consolidated statements of operations for the three months ended May 31, 2016 were $27.9 million. Post-acquisition earnings of LoJack on a standalone basis are impracticable to determine, as on the acquisition date we began to immediately integrate LoJack into CalAmp's existing operations.

The following is unaudited pro forma consolidated financial information for CalAmp presented as if the acquisition had occurred on March 1, 2015.

(in thousands except per share amounts)

	Pro Forma
	Three Months Ended
	May 31,
	2016		2015
Revenues	$	96,401	$	98,490
Net income (loss)	$	3,321	$	(1,230	)
Earnings (loss) per share:
Basic	$	0.09	$	(0.03	)
Diluted	$	0.09	$	(0.03	)
Shares used in computing earnings per share:
Basic		36,699		35,964
Diluted		37,173		35,964

The following adjustments were included in the unaudited pro forma financial information:

	Pro Forma
	Three Months Ended
	May 31,
	2016			2015
LoJack standalone net income:
From March 1 to March 14, 2016	$	973		$	-
For three months ended June 30, 2015					1,188
Increase (decrease) in revenue for fair valuation of
deferred revenue		581			(581	)
(Increase) decrease in costs and expenses:
Amortization of inventory step-up		4,010			(4,010	)
Amortization of intangible assets and depreciation of
property, equipment and improvements acquired		(309	)		(1,851	)
Acquisition and integration expenses		3,539			(3,195	)
Net increase (decrease) in pretax income (loss)		8,794			(8,449	)
Income tax effects		(2,814	)		3,160
Change in net income		5,980			(5,289	)
Net income (loss) as reported		(2,659	)		4,059
Pro forma net income (loss)	$	3,321		$	(1,230	)

The pro forma consolidated financial information is not necessarily indicative of what the Company's actual results of operations would have been had LoJack been included in the Company's historical consolidated financial statements for the three months ended May 31, 2016 and 2015. In addition, the pro forma consolidated financial information does not attempt to project the future results of operations of the combined company.