COMMITMENTS AND CONTINGENCIES

6 Months Ended

Aug. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Lease Commitments

A summary of future payments of operating lease commitments is as follows (dollars in thousands):

2017 (remainder)	$	3,621
2018		6,109
2019		4,656
2020		3,013
2021		1,559
Thereafter		3,712
Total	$	22,670

Legal Proceedings

Omega patent infringement claim

In December 2013, a patent infringement lawsuit was filed against the Company by Omega Patents, LLC, (“Omega”), a non-practicing entity. Omega alleged that certain of the Company’s vehicle tracking products infringed on certain patents asserted by Omega. On February 24, 2016, a jury in the U.S. District Court for the Middle District of Florida awarded Omega damages of $2.9 million, for which CalAmp recorded a full reserve in the fiscal 2016 fourth quarter. Following trial, Omega brought a motion seeking entry of judgment, an injunction and requesting the court to exercise its discretion to treble damages and assess attorneys’ fees. The Company filed an opposition to Omega’s motion, and the judge’s ruling has not yet been rendered. Motions for judgment as a matter of law and a new trial have not yet been filed because no judgment has been entered. If, following resolution of all post-trial motions, judgment is ultimately entered in Omega’s favor, CalAmp intends to pursue an appeal at the Court of Appeals for the Federal Circuit. In addition to its appeal, CalAmp is seeking to invalidate a number of Omega’s patents in actions filed with the U.S. Patent and Trademark Office. Notwithstanding the adverse jury verdict, the Company continues to believe that its products do not infringe Omega’s patents and that Omega’s patents are not valid, and accordingly CalAmp intends to continue pursuing its judicial and administrative options. While it is not feasible to predict with a high degree of certainty the outcome of this litigation, its ultimate resolution could be material to CalAmp’s cash flows and results of operations. Furthermore, if an injunction is issued by the court, the Company could be prevented from manufacturing and selling a number of its products, which could have a material adverse effect on the Company’s business, results of operations, financial condition and cash flows.

Orbcomm patent infringement claim

On April 7, 2016, a patent infringement lawsuit was filed against the Company by Orbcomm Inc. (“Orbcomm”) in the U.S. District Court for the Eastern District of Virginia. Orbcomm alleged that certain of the Company’s systems for tracking, monitoring, and controlling vehicles, machinery, and other assets infringed on certain patents asserted by Orbcomm. Orbcomm has not yet made a specific damages claim, but seeks compensatory damages, treble damages, and an injunction. The Company believes that its products and services do not infringe Orbcomm’s patentsand/or that Orbcomm’s patents are invalid. On May 27, 2016, the Company filed a motion to dismiss Orbcomm’s claims on the basis, inter alia, that Orbcomm’s patents are directed at ineligible subject matter and are therefore invalid under 35 U.S.C. § 101. On July 22, 2016, the court denied CalAmp’s motion; however, in light of new Federal Circuit case law, CalAmp filed a motion for reconsideration of its motion to dismiss, and the court has received briefs and scheduled an oral argument, regarding certain aspects of CalAmp’s motion, for October 13, 2016. Regardless of the outcome of its motion to dismiss, the Company intends to vigorously defend itself against Orbcomm’s claims. In addition, on July 19, 2016, CalAmp filed with the court its first amended answer to Orbcomm’s complaint, which included an affirmative defense and a counterclaim alleging that Orbcomm’s patents were unenforceable due to inequitable conduct. Orbcomm then filed a motion to dismiss CalAmp’s inequitable conduct counterclaim and to strike CalAmp’s inequitable conduct defense. On September 9, 2016, the court denied Orbcomm’s motion to dismiss and strike. At this early stage of the lawsuit, it is not feasible to predict with any certainty the outcome of this litigation, and the Company has made no accrual for this claim.

G.L.M. contract claim

On October 13, 2010, a suit was filed by G.L.M. Security & Sound, Inc. (“G.L.M.”) against LoJack in the United States District Court for the Eastern District of New York (the “Court”) alleging breach of contract, misrepresentation, and violation of the New York franchise law, Mass. Gen. Laws c. 93A and the Robinson-Patman Act, among other claims. G.L.M. sought damages of $10,000,000, punitive damages, interest and attorney’s fees, and treble damages. On September 19, 2014, the Court entered summary judgment in favor of LoJack on G.L.M’s three remaining claims for breach of contract, breach of the duty of good faith and fair dealing, and violation of Mass. Gen. Laws c. 93A. The Court denied G.L.M.’s attempt to amend its complaint on the basis of futility and undue delay. The Court also entered summary judgment in favor of LoJack on its counterclaim for breach of contract. On August 21, 2015, the Court issued a Memorandum and Opinion with respect to LoJack’s claim for damages on its breach of contract counterclaim. The Court found that LoJack is entitled to recover damages and interest on its counterclaim in the total amount of $1.9 million. The Court ordered that judgment enter in that amount and that the case be closed. On August 25, 2015, the clerk of the Court entered judgment in LoJack’s favor. On September 23, 2015, G.L.M. filed a notice of appeal in the Court of Appeals for the Second Circuit. On August 2, 2016, the Second Circuit issued a Mandate on the Summary Order affirming the Court’s August 15, 2015 judgment. The Company is now embarking on collecting its judgment, but there can be no assurances that the Company will be able to recover the full amount of the judgment, if any.

EVE battery claim

LoJack was notified in 2013 by some of its international licensees that some of the batteries manufactured by LoJack’s former battery supplier, EVE Energy Co., Ltd. (“EVE”), and included in self-powered LoJack units these licensees had purchased from LoJack, exhibited degraded performance below LoJack’s quality standards. These notifications led LoJack to perform its own investigation. As a result of this investigation, LoJack confirmed that batteries manufactured by EVE that were included in certain self-powered LoJack units sold in the United States and to LoJack’s international licensees were exhibiting a failure to power over a period of time that could impact the ability of the LoJack unit to transmit a signal when called upon for stolen vehicle recovery. LoJack manufactures both vehicle and self-powered (battery) units and this degraded performance potentially affects only the transmit battery pack in the self-powered units. As of the date of this report, the majority of LoJack units in circulation are vehicle powered.

LoJack has incurred, and expects to continue to incur, costs and expenses related to the actions that it decided to take to address this matter. These costs and expenses may include, among others, those related to quality assurance programs, product or battery replacements, warranty claims, extension of product warranties, legal and other professional fees, litigation, and payments or other business concessions to LoJack’s customers. Because of the ongoing nature of this matter, the Company cannot predict what other actions will be required, nor can it predict the outcome nor estimate the possible loss or range of loss with respect to any such actions. See Note 13 for the accrued warranty cost liability related to this matter.

LoJack filed a formal claim under its relevant insurance policy and was paid $5,000,000.

On October 27, 2014, LoJack and its wholly-owned subsidiary LoJack Ireland commenced arbitration proceedings against EVE by filing a notice of arbitration with a tribunal of with the Hong Kong International Arbitration Centre (the “Tribunal”). The filing alleges that EVE breached representations and warranties made in a supply agreement relating to the quality and performance of batteries supplied by EVE. The arbitration proceedings against EVE were held in Hong Kong on June 6 to 24, 2016. The Tribunal held an additional hearing on September 15 to 16, 2016, and the Tribunal has scheduled an additional hearing for January 9 to 10, 2017, focused on damages. The Company cannot predict the ultimate outcome of the arbitration proceedings or the amount of damages, if any, that the Company may be awarded by the Tribunal.

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

LoJack Financing Recourse Agreement

LoJack’s financing recourse agreement to certain automobile dealers represents the maximum potential amount of future payments under an agreement with a certain financing company. Pursuant to the recourse agreement, the Company will reimburse participating dealers the unamortized dealer cost of LoJack units purchased by customers via auto loans underwritten by the financing company upon a borrower’s default within the initial 18 months of the auto loan. This agreement was renewed for the year ending December 31, 2016. Based on the unamortized cost of units sold and assuming the default of all borrowers, the Company’s maximum potential amount of future payments under this agreement is $4.2 million as of August 31, 2016. The expected obligation is accrued based on sales to the participating dealers and historical loss experience. As of August 31, 2016, the Company had accrued $73,000 under these guarantees. Accruals for the financing recourse agreement are recorded as a reduction of revenue in the consolidated statement of operations.