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CalAmp pays down debt with $8M payout

By   /   Saturday, January 31st, 2009  /   Comments Off on CalAmp pays down debt with $8M payout

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CalAmp has taken big steps back toward profitability after announcing an $8.2 million cash infusion from a legal settlement and an 8 percent cut to its workforce as customers cut back on orders of communications gear.

The Oxnard-based company makes dishes for DirecTV and EchoStar, two of the largest satellite television providers in the country. CalAmp settled a lawsuit with one of its suppliers Jan. 6, further healing a product-defect mess that temporarily drove away EchoStar’s business.

Cash from the settlement let CalAmp make a $6.2 million payment on a term loan, wiping out about 25 percent of the balance.

“We view it as a strengthening of our balance sheet,” CalAmp Chief Financial Officer Richard Vitelle said in a Business Times interview.

Though the company has regained ground with EchoStar and gotten back on track – it narrowed losses 95 percent in the first nine months of 2008 – it remains vulnerable to slumping consumer demand. On Jan. 7, it eliminated 40 positions at the company, or about 8 percent of its work force.

“Our customers are cutting back their investment in new projects, new communications systems, new capital expenditures,” Vitelle said. “We’re feeling that.”

CalAmp is far from alone. On Jan. 26, huge names including Wyeth, Sprint Nextel and Alcoa announced nearly 60,000 in job cuts.

Investors have signaled approval for both of CalAmp’s recent moves. Shares, which traded in the mid-40-cent range at the end of 2008, have perked up to almost 90 cents recently, a rise of nearly 50 percent.

Key customer regained

CalAmp’s legal dustup with Connecticut-based supplier Rogers Corp. started in 2007 and hit the company hard.
Historically, CalAmp’s satellite dish sales made up the bulk of its revenue, about 90 percent in 2006.

But by 2007, EchoStar – which was buying about 60 percent of CalAmp’s satellite dishes – had started complaining about the deterioration of a laminate in printed circuit boards used in dishes from CalAmp from 2004 to 2006. The laminate came from Rogers Corp.

EchoStar put its new orders on hold; its share of CalAmp’s satellite sales plummeted, hitting 10 percent by fiscal year 2008. Without EchoStar’s business, CalAmp’s $14 million profit in fiscal year 2006 turned into a $31 million loss the next year and an $84 million loss the next.

In late 2007, CalAmp reached a settlement with EchoStar over the laminate issue, but it wasn’t kind to CalAmp.
The Oxnard company forked over a million shares and a $5 million promissory note; it also cancelled $1 million in receivables from EchoStar. In May 2008, CalAmp started shipping orders to EchoStar again.

Meanwhile, CalAmp filed a lawsuit in May 2007 against Rogers Corp., which had supplied the laminate at the root of its problems with EchoStar. In the suit, the company alleged Rogers Corp. was liable for the faulty laminate.

The legal dispute ended Jan. 6, when the two companies settled out of court. Under the deal, both companies acknowledged that Roger Corp. wasn’t liable for any of CalAmp’s claims. But Rogers Corp. paid CalAmp $9 million, which netted the Oxnard firm $8.2 million after legal costs.

The lump of cash let CalAmp make a $6.2 million payment on a $25.3 million term loan from the Bank of Montreal, shoring up CalAmp’s balance sheet.

“Paying down the term loan by roughly 25 percent does get us closer to the point at which we believe we can refinance the remaining term-loan balance,” Vitelle said. “But the credit markets are still very tight – lenders are very conservative.”

Vitelle added that CalAmp hopes to refinance the term loan by the end of calendar 2009. “That’s our expectation,” he said. “There are no assurances or guarantees that we’ll achieve that.”

Job cuts

CalAmp narrowed its losses from $75 million in the first nine months of 2007 to $4 million last year. But despite regaining some ground, CalAmp has suffered under plunging consumer demand. Revenue was down 20 percent in the most recent quarter.

“Our business has been impacted by the difficult economic environment, very much like most other industries,” Vitelle said, explaining the company’s decision to cut 40 positions.

Vitelle continued: “In order to help insure that CalAmp will be able to survive through this difficult economic period, we found it necessary to reduce our cost structure somewhat. We expect that we’ll emerge from the economic downturn a stronger company financially.”

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