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 January 2, 2004
December 30, 2005
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: 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact
(Exact name of Registrant as specified in its charter)
California 94-2802192
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
749 North Mary Avenue, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)
Registrant's
| California | 94-2802192 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
| 935 Stewart Drive, Sunnyvale, CA | 94085 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (408) 481-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Preferred Share Purchase Rights
(Title
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange 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] [ 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'sregistrant’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]
[ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large Accelerated Filer[ X ]Accelerated Filer[ ] 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 [X] No [ ]
TheNo[ X ]
As of July 1, 2005, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $2.0 billion based uponon the last saleclosing price of the Common Stockas reported on the NasdaqNASDAQ National Market on July 3, 2003 was approximately $795 million.
There were 50,537,119Market.
Indicate the number of shares
outstanding of each of the registrant's
Common Stock issued and
outstandingclasses of common stock, as of
March 11, 2004.
the latest practicable date. | Class | Outstanding at March 6, 2006 |
| Common stock, no par value | 54,338,187 shares |
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of Trimble Navigation Limited's Proxy Statement relating to the annual meeting of stockholders to be held on May
19, 200418, 2006 (the "Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are subject to the "safe harbor" created by those sections. The forward-looking statements regarding future events and the future results of Trimble Navigation Limited
("Trimble"(“Trimble” or
" The Company"“The Company” or
"We"“We” or
"Our"“Our” or
"Us"“Us”) are based on current expectations, estimates, forecasts, and projections about the industries in which Trimble operates and the beliefs and assumptions of the management of Trimble. Discussions containing such forward-looking statements may be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations." In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," and similar expressions. These forward-looking statements involve certain risks and uncertainties that could cause actual results, levels of activity, performance, achievements and events to differ materially from those implied by such forward-looking statements, but are not limited to those discussed in this Report under the section entitled
"Other“Other Risk
Factors"Factors” and elsewhere, and in other reports Trimble files with the Securities and Exchange Commission
("SEC"(“SEC”), specifically the most recent reports on Form 8-K and Form 10-Q, each as it may be amended from time to time. These forward-looking statements are made as of the date of this Annual Report on Form 10-K. We reserve the right to update these statements for any reason, including the occurrence of material events. The risks and uncertainties under the caption "Management's Discussion and Analysis of Financial Condition and Results of
Operations--RisksOperations—Risks and Uncertainties" contained herein, among other things, should be considered in evaluating our prospects and future financial performance. We have attempted to identify forward-looking statements in this report by placing an asterisk (*) before paragraphs containing such material.
TRIMBLE NAVIGATION LIMITED
2003
2005 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1 Business...........................................................5
Item 2 Properties........................................................17
Item 3 Legal Proceedings.................................................17
Item 4 Submission of Matters to a Vote of Security Holders...............17
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters...............................................18
Item 6 Selected Financial Data...........................................19
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................20
Item 7A Quantitative and Qualitative Disclosures about Market Risk........42
Item 8 Financial Statements and Supplementary Data.......................45
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................76
Item 9A Controls and Procedures...........................................76
PART III
Item 10 Directors and Executive Officers of the Registrant................76
Item 11 Executive Compensation............................................76
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters........................77
Item 13 Certain Relationships and Related Transactions....................77
Item 14 Principal Accountant Fees and Services............................77
PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on
Form 8-K.......................................................77-89
| PART I | |
| Item 1 | Business Overview | 5 |
| Item 1A | Risk Factors | 16 |
| Item 1B | Unresolved Staff Comments | 23 |
| Item 2 | Properties | 23 |
| Item 3 | Legal Proceedings | 23 |
| Item 4 | Submission of Matters to a Vote of Security Holders | 23 |
| | |
| PART II | |
| Item 5 | Market for Registrant's Common Equity and Related Stockholder Matters | 24 |
| Item 6 | Selected Financial Data | 25 |
| Item 7 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 26 |
| Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 41 |
| Item 8 | Financial Statements and Supplementary Data | 43 |
| Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 74 |
| Item 9A | Controls and Procedures | 74 |
| Item 9B | Other Information | 74 |
| | |
| PART III | |
| Item 10 | Directors and Executive Officers of the Registrant | 75 |
| Item 11 | Executive Compensation | 75 |
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 75 |
| Item 13 | Certain Relationships and Related Transactions | 75 |
| Item 14 | Principal Accountant Fees and Services | 75 |
| | |
| PART IV | |
| Item 15 | Exhibits, Financial Statement Schedules and Reports on Form 8-K | 76-89 |
TRADEMARKS
Trimble, the globe and triangle logo, EZ-Guide, Telvisant, Lassen, SiteVision, GeoExplorer, AgGPS, Thunderbolt, FirstGPS,
Spectra Precision, CrossCheck, Recon, and
CrossCheckTrimTrac among others are trademarks of Trimble Navigation Limited
and its subsidiaries registered in the United States
Patent and Trademark
Office and other countries.
EZ-Steer, Force
Galaxy, Placer, TrimTrac and
Trimble ToolboxRanger are trademarks of Trimble Navigation
Limited.Limited and its subsidiaries. All other trademarks are the property of their respective owners.
PART I
Item 1Business Overview
Trimble Navigation Limited, a California corporation ("Trimble"(“Trimble” or "the Company"“the Company” or "we"“we” or "our"“our” or "us"“us”), provides advanced positioning product solutions, most typically to commercial and government users in a large number of markets. These marketsusers. The principle applications served include surveying, construction, agriculture, urbanmachine guidance, asset and resourcefleet management, military, transportation, and telecommunications.telecommunications infrastructure. Our products typically provide benefits that can include cost savings, improved quality, orlower operational costs, and higher productivity. Examples of our products include earthmovingsystems that guide agricultural and construction equipment, guidance
systems, surveying instruments, fleetsystems that track fleets of vehicles, and data collection systems that enable the management systems,of large amounts of geo-referenced information. In addition, we also manufacture components for in vehicle navigation and telematics systems, farm equipment guidance systems,
field data collection handhelds, and timing modules used in the synchronization of wireless networks.
Our
Trimble products typically integrate positioning, communication, and information
technologies. Positioningoften combine knowledge of location or position together with a wireless link to provide a solution to a specific application. Position is provided through a number of alternative technologies used includeincluding the Global Positioning System (GPS), and systems that use laser or optical and inertial, whiletechnologies to establish position. Wireless communication techniques include both public networks, such as cellular, and private networks, such as business band radio. A significant amount of the differentiation in theOur products is provided through software; bothare augmented by our software algorithms; this includes embedded firmware that enables the positioning solution and applications software that allows the customer to make use of the positioning information.
We design and market our own products. Our manufacturing strategy includes a combination of in house assembly and fabrication as well as subcontracting those
functions tothe use of third parties. We conduct our business globally withparty subcontractors. Our global operations include major development, manufacturing or logistics operations in the United States, Sweden, Germany, New Zealand, France, Canada, and the Netherlands. Products are sold through dealers, representatives, joint ventures, and other channels throughout the world. These channels are supported by our sales offices located in more than 2015 countries.
We began operations in 1978 and incorporated in California in 1981. Our common stock has been publicly traded on NasdaqNASDAQ since 1990 under the symbol TRMB.
Technology Overview
A majoritysignificant portion of our revenuesrevenue is derived from applying GPSGlobal Navigation Satellite Systems (GNSS) to terrestrial applications. GPS isGNSS systems include a system of 24 orbiting US based satellites and associated ground control that is funded and maintained by the U. S. Government and is available worldwide free of charge. GPScharge, a Russian satellite based system, and the future European Galileo system. GNSS positioning is based on a technique that precisely measures distances from four or more satellites. The satellites continuously transmit precisely timed radio signals using extremely accurate atomic clocks. A GPSGNSS receiver measures distances from the satellites in view by determining the travel time of a signal from the satellite to the receiver, and then uses those distances to compute its position. Under normal circumstances, a stand-alone GPSGNSS receiver is able to calculate its position at any point on earth, in the earth's atmosphere, or in lower earth orbit, to approximately 10 meters, 24 hours a day. Much better accuracies are possible through a technique called "differential
GPS."“differential GNSS.” In addition GPSto providing position, GNSS provides extremely accurate time measurement.
GPS
GNSS accuracy is dependent upon the locations of the receiver and the number of GPSGNSS satellites that are above the horizon at any given time. Reception of GPSGNSS signals requires line-of-sight visibility between the satellites and the receiver, which can be blocked by buildings, hills, and dense foliage. The receiver must have a line of sight to at least four satellites to determine its latitude, longitude, attitude (angular orientation), and time. The accuracy of GPSGNSS may also be limited by distortion of GPSGNSS signals from ionospheric and other atmospheric conditions.
Our GPSGNSS products are based on proprietary receiver technology. The convergence
ofOver time, the advances in positioning, wireless communication, and information technologies enables significant newhave enabled us to add more capability to our products and thereby deliver more value to be added to positioning systems, thereby creating a more robust
solution forour users. For example, the user. In addition, recent developments in wireless technology and deployments of next generation wireless networks have enabled less expensive wireless communications. These developments allow for the efficient transfer of position data to locations away from the positioning field device, allowing the data to be accessed by more users and thereby increasing productivity. This has allowed us to include a wireless link in many of our products and connect remote field operations to a central location.
Our laser and optical products
either measure distances and angles
accurately using
light. Weto provide a position in three dimensional space or they provide highly accurate laser references from which position can be established. The key element of these products is typically a laser, which is generally
usea commercially available laser
diodes to create light
beams for distance measurement. In addition, our proprietary precision mechanics
diode and a complex mechanical assembly. These elements are augmented by software algorithms in these products combine to give robust, accurate
distance and angle measurements for a variety of agricultural, surveying, and
construction applications.
algorithms.
Business Strategy
Our business strategy leverages our expertise in positioning to provide
solutions for our customers, builtis developed around an analysis of several key elements:
o Attractive markets - We focus on markets that offer potential for revenue
growth, profitability, and market leadership.
o Innovative solutions that provide significant benefits to our customers - We
seek to apply our technology to applications for which position data has a high
value. We anticipate that further advances in positioning, wireless, and
information technologies will enable new classes of solutions to emerge that
will create new opportunities.
o Distribution channels to best access our markets - We utilize a range of
distribution channels to best serve the needs of individual markets. These
channels can include independent dealers, direct sales, OEM sales, and
distribution alliances with key partners. In addition, we will continue to
extend our international distribution.
| · | Attractive markets - We focus on markets that offer potential for revenue growth, profitability, and market leadership. |
| · | Innovative solutions that provide significant benefits to our customers - We seek to apply our technology to applications in which position data is important and where we can create unique value. We look for opportunities in which the rate of technological change is high and which have a requirement for the integration of multiple technologies into a solution. |
| · | Distribution channels to best access our markets - We select distribution channels that best serve the needs of individual markets. These channels can include independent dealers, direct sales, joint ventures, OEM sales, and distribution alliances with key partners. We view international expansion as an important element of our strategy and seek to develop international channels. |
Business Segments and Markets
We are organized into four main operatingfive reporting segments encompassing our various applications and product lines: Engineering and Construction, Field Solutions, Component Technologies, Mobile Solutions, and Mobile Solutions. We also operate in smaller
business areas, primarily focused on military and inertial integration
technologies, which aggregate into the Portfolio Technologies segment.Technologies. Our segments are distinguished by the markets they serve. Each segment consists of businesses which are responsible for product development, marketing, sales, strategy, and financial performance, and is headed by a general manager.
Segment Realignment
In the first fiscal quarter of 2003, we realigned two of our reportable
segments. The Tripod Data Systems (TDS) business is now included in the
performance.
Engineering and Construction segment. Previously it was included in the
Portfolio Technologies segment. All comparable information for earlier periods
has been restated to conform to the new basis.
Engineering and Construction
Products in the Engineering and Construction segment improve productivity and accuracy throughout the entire construction process including the initial survey, planning, design, earthmoving,site preparation, and building phases. The product emphasis
is aimed at makingOur products are intended to both improve the productivity of each individual task more efficient,phase, as well as speeding upfacilitate the entire process by improving information flow from one step to the next.
We
The product solutions typically combine a number of technologies into product solutions.include multiple technologies. The elements of these solutions may incorporate GPS, optical, laser, radio or cellular communications, and software.
communications.
An example of the customer benefits provided by our product is our GPS and robotic optical surveying instruments which enable the surveyor to perform operations in the field faster, more reliably than conventional surveying instruments and with a smaller crew. Similarly, our construction machine guidance products allow the operator to achieve the desired landform by eliminating stakeout and reducing rework. In
turn, theseThese steps in the construction process can be readily linked together with data collection modules and software to minimize the time and effort required to maintain data accuracy throughout the entire construction process.
We sell and distribute our products
fromin this segment through a global network of independent dealers that are supported by
our sales force.Trimble personnel. This channel is supplemented by relationships that create additional channel breadth including our joint ventures with Caterpillar, Nikon, and private branding arrangements with other companies.
We also design and market handheld data collectors and data collection software for field use by surveyors, contractors, and other professionals. These products are sold directly, through dealers, and other survey manufacturers. Competitors
in this portion of the business are small and geographically diverse.
Competitors in this segment are typically companies that provide optical, laser, or GPS positioning products. Our principal competitors are Topcon Corporation and Leica Geosystems. Price points in this segment range from less than $1,000 for certain laser systems to approximately $125,000 for a high precision,high-precision, three-dimensional, machine control system.
Representative products sold in this segment include:
5800 RTK Rover
Spectra Precision® Laser System - This is an integrated unit that allows the surveyor to make
centimeter-level measurements or do construction stakeout with only one person.
Wireless technology eliminates cables that could otherwise snag on foliageThe Spectra Precision Laser machine systems include a portfolio of laser-based machine display and structures. The rover weighs 3.5kgcontrol systems for an entire systemgrading and excavating applications. These machine systems can be used on a polewide range of machines, including batteries.
5600dozers, backhoes, scrapers, skid steers and excavators. Furthermore, the Spectra Laser grade control systems offers visual guidance to the operators while performing such tasks as cutting the edge of the blade or bucket.
Trimble® SPS700 Robotic Construction Total Station - ThisThe Trimble SPS700 Robotic Total Station is used with the Trimble LM80 Layout Manager to provide contractors with more control of their construction layout. The robotic operation allows contractors to perform layout tasks significantly more efficiently than with conventional mechanical systems leading to increased productivity.
Trimble® S6 Total Station - The Trimble S6 Total Station is a technologically advanced optical total station seriessurveying system. Its advanced servo motors make the Trimble S6 fast, silent, and precise, allowing surveyors to measure points and collect data in the field efficiently and productively. The Trimble S6 offers unique new Trimble technologies that enable cable-free operation, longer battery life, and accuracy assurance, among many other features. Its detachable Trimble CU controller is utilized to effectively collect, display, and manage field data.
Trimble® R8 GNSS System - The Trimble R8 GNSS System combines a GNSS receiver, radio, and battery in one compact unit to produce a lightweight and versatile, cable-free GNSS surveying solution. Surveyors can use the Trimble R8 system to achieve centimeter-level accuracy in their measurements in real time. The Trimble R8 GNSS offers R-Track technology, which is a unique Trimble technology developed with GNSS capabilities to support new GPS signals for civilian use and the Russian Glonass system. These new signals such as the next-generation GPS L2C and L5 signals and GLONASS provide our customers increased reliability and productivity.
Trimble® Recon® Controller - The Trimble Recon Controller is a rugged handheld controller used by surveyors and engineers in the field. Running the Microsoft Pocket PC operating system, the Trimble Recon controller enables users to run the Trimble software of their choice, plus other applications to support their business needs. The Trimble Recon controller features a touch screen for quick and easy data entry and a color graphic display. It tackles multiple surveying applications, including topographic surveying, engineering, construction, and mapping.
GCS family of Grade Control Systems - Grade control systems meets construction contractors' needs with productivity-enhancing solutions for earthmoving, site prep and roadwork. The Trimble GCS family provides a choice of
increasing levels of automationupgrade options that allowdeliver earthmoving contractors with the surveyorflexibility to chooseselect a system that will best suit his work. Dependingmeets their daily needs today, and later add on to meet their changing needs. For example, a single control system such as the job, these configurations enable
one-person stakeout and survey. The included Attachable Control Unit (ACU) also
works with the 5800 RTK Rover providing complete measurement compatibility
regardlessGCS300 can provide for low-cost point of the technology used.
SiteVision(R) GPS System - SiteVision GPS is a machine-mounted, positioning
system that guides the operator by comparing the actual position of the blade
with the digitized design that resides in a computer on the machine. The use of
this system enables faster machine speed, eliminates the need for placing
stakes, and lowers the number of passes needed to get the desired grade.
Applications include road construction and site preparation.
Spectra Precision(R) Laser GL 700 Series - This laser product providesentry into grade control, capability for heavy equipment on a construction site. The level surface
of the laser lightand over time can be precisely controlled,upgraded to the GCS400 dual sensor system, or to the full 3D GCS900 Grade Control System.
Spectra Precision® Laser portable tools - Our Spectra Precision Laser portfolio includes a broad range of laser based tools for the interior, drywalls and machines withceilings, HVAC, and mechanical contractor. Designed to replace traditional methods of measurement and leveling for a wide range of interior construction applications, our laser tools are easy to learn and use. Our Spectra Precision Laser product portfolio includes rotating lasers for horizontal leveling and vertical alignment, as well as laser pointers and a laser receiver can be controlled to establish a precisebased distance measuring device. They are available through independent and uniform grade overnational construction supply houses both in the desired area. Applications include trenching, pipe laying, machine control
grading,US and road construction applications.
TDS Ranger(TM) Series - The TDS Ranger device is a handheld data collector
supporting Microsoft's Windows CE operating system. Running TDS survey software,
this unit can control and collect data from all major brands of optical and GPS
surveying instruments. The operator can also run his or her own application
programs for the Microsoft Windows CE operating system on the platform.
in Europe.
Field Solutions
Our Field Solutions segment addresses the agriculture and geographic information system (GIS) markets.
Our agriculture products consist of manual and automated navigation guidance for tractors and other farm equipment used in spraying, planting, cultivation, and harvesting applications. The benefits to the farmer include faster machine operation, higher yields, and lower consumption of chemicals.chemicals than conventional equipment. We also provide positioning solutions for leveling agricultural fields in irrigation applications and aligning drainage systems to better manage water flow in fields.
Our
We use multiple distribution channels to access the agricultural market, is through multiple channels.
Revenue is generated throughincluding independent dealers and through partners such as CNH Global.Global . Competitors in this market are either vertically integrated implement companies such as John Deere, or agricultural instrumentation suppliers such as Raven, RHS, CSI Wireless Beeline and Integrinautics.
Novariant.
Our GIS product line is centered on handheld data collectors that gather information in the field to be incorporated into GIS databases. Typically this information includes features, attributes, and positions of fixed infrastructure and natural resource assets. An example would be that of a utility company performing a survey of its transmission poles including the age and condition of each telephone pole. Our handheld unit enables this data to be collected and automatically stored while confirming the location of the asset. The data can
then be downloaded into a GIS database. This stored data could later be used to navigate back to any individual asset or item for maintenance or data update. Our mobile GIS initiative goes one step further by allowing this information to be communicated from the field worker to the back-office GIS database through the combination of wireless technologies, (Bluetooth and cellular), as well as giving the field worker the ability to download information from the database
using these same wireless technologies.database. This capability provides significant advantages to users including improved productivity, accuracy and access to the information in the field.
Distribution for GIS products is primarily through a network of independent dealers and business partners, supported by our sales force.Trimble personnel. Primary markets for our GIS products and solutions include government, defenseboth governmental and homeland
security, utility and communicationscommercial users. Government users are most often municipal governments and natural resources management.resource agencies. Commercial users include utility companies. Competitors in this market are typically either survey instrument companies havingutilizing GPS technology and/or consumer GPS companies.technology. Two examples are Leica Geosystems and Thales Navigation.
Thales.
Approximate price points in this segment range from $3,000 for a GIS handheld unit to $35,000 for a fully automated, farm equipment control system.
Representative products sold within this segment include:
GeoExplorer(R) CE Series - Combines a GPS receiver in a rugged handheld unit
running Microsoft's Windows CE operating system that makes it easy to collect
and maintain data about objects in the field.
AgGPS(R) Autopilot
AgGPS® Autopilot™System - A GPS-enabled, agricultural navigation system that connects to a tractor'stractor’s steering system and automatically steers the tractor along a precise path to within three centimeters or less. This enables both higher machine productivity and more precise application of seed and chemicals, thereby reducing costs to the farmer.
AgGPS(R) EZ-Guide(R)
AgGPS® EZ-Guide® PlusSystem - A GPS-enabled, manual guidance system that provides the tractor operator with steering visual corrections required to stay on course to within 25 centimeters.20 centimeters or less. This system reduces the overlap or gap in spraying, fertilizing, and other field applications.
AgGPS® EZ-Steer™System - A value added assisted steering system, that when combined with the EZ-Guide Plus system, automatically steers agricultural vehicles along a path within 20 centimeters or less. This system installs in less than thirty minutes and is designed to reduce gaps and overlaps in spraying, fertilizing, and other field applications as well as reduce operator fatigue.
GeoExplorer®2005Series - Combines a GPS receiver in a rugged handheld unit running industry standard Microsoft Windows Mobile version 5.0, making it easy to collect and maintain data about objects in the field. The GeoExplorer series features three models ranging in accuracy from subfoot to 1-3 meters —allowing the user to select the system most appropriate for their data collection and maintenance needs.
GPS Pathfinder® Series - A diverse collection of rugged GPS receivers with a variety of accuracy options from subfoot to submeterideally suited for GIS data collection and maintenance applications. These receivers integrate seamlessly with industry-standard GIS systems, providing the user with timely and accurate data for decision-making.
Component Technologies
Our Component Technologies segment provides GPS-based components for applications that require embedded position or time. Our largest markets are in the telecommunications and automotive industries where we supply modules, boards, custom integrated circuits and software, or single application IP licenses to the customer according to the needs of the application. Sales are made directly to original equipment manufacturers (OEMs) and system integrators who incorporate our component into a sub-system or a complete system-level product.
In the telecommunications infrastructure market, we provide timing modules that keep wireless networks synchronized and on frequency. For example, CDMA cellular telephone networks require a high level of both short-term and long-term frequency stability for proper operation (synchronization of information/voice flow to avoid dropped calls). Our timing modules meet these needs at a much lower cost than the atomic standards or other
specially prepared components that would otherwise be required. Customers include wireless infrastructure companies such as Nortel, Samsung, Nokia, UTStarcom, and Andrew.
In the automotive and embedded market, we provide a GPS component that is embedded into in-vehicle navigation (IVN)
systems. Our focus on high
reliability, continuous improvement,, fleet management, vehicle security, asset management and
low cost has earned us supplier awards
and continuing businesstelematics applications. For the automotive market, in addition to core GPS technology, we provide a location engine for IVN that blends GPS with advanced dead reckoning (DR) technology to provide exceptional position density in the most challenging navigation environments. The primary selling attributes in this
market. Customers includemarket are quality, technology, logistics and customer support. Trimble supplies several Tier-1 IVN system manufacturers
in Europe and
integrators such as Siemens VDO Automotive AG, Hyundai
Automotive Company, Robert Bosch GmbH, and Ixfin Magneti Marelli Sistemi
Electronici S.P.A .
* The declining size and power requirements for GPS components, coupled with
improving capabilities allow GPS to potentially be used in a new class of
applications such as position-aware cellular telephones or other wireless
handheld devices. We expect our strength in GPS technology will expand our
participation in this market.
* Asia.
Component Technologies continueshas developed GPS software technologies which it is making available for license. This software can run on certain digital signal processors (DSP) or microprocessors removing the need for dedicated GPS baseband signal processor chips. Component Technologies has an agreement with u-Nav Microelectronics to explore other positioning solutions in
addition to GPS. An example of such a solution is the television triangulationlicense Trimble GPS software technology developed by Rosum. With Rosum, we intend to develop a family of
devices which will greatly extend the ability to locate both people and assets
in environments that would be difficult or impossible for u-Nav GPS only solutions.
chipsets.
The major competitor in the telecommunication infrastructure market is Symmetricom. Competitors in the automotive and embedded markets are typically component companies with GPS capability, including Japan Radio Corporation, Motorola, and SiRF.
Representative products sold by this segment include:
Thunderbolt(R)
Thunderbolt® GPS Disciplined Clock - The Thunderbolt clock is used as a time source for the synchronization of wireless networks. By combining a GPS receiver with a high-quality quartz oscillator, the Thunderbolt clock achieves the performance of an atomic standard with higher reliability and lower price.
FirstGPS(R)
FirstGPS® Technology - We license our FirstGPS technology, which is a host-based, GPS system available as two integrated circuits and associated software. The software runs on a customer'scustomer’s existing microprocessor system complementing the work done by the integrated circuit to generate position, velocity, and time. This low-power technology is particularly suitable for small, mobile, battery-operated applications.
Lassen(R) SQ
Lassen® iQModule - The Lassen SQiQ module adds complete GPS functionality to a mobile product in a postage stamp-sized footprint with ultra-low power consumption, consuming less than 100mW at 3.3V. This module is designed for portable handheld, battery-powered applications such as cell phones, pagers, PDAs, digital cameras, and many others.
TrimTrac(TM)
TrimTrac® Locator - Our new TrimTrac product is a complete end user device that combines GPS functionality with tri-band global system for mobile communications (GSM) wireless communications. It is intended for high volume personal vehicle and commercial asset management applications that demand a low-cost locator device.
Mobile Solutions
Our Mobile Solutions segment addresses the market for fleet management services by providing a Trimble-hosted platformTrimble solution that bundlesincludes both the hardware and softwaresubscription service needed to run the application. The software solutionsubscription service is web based. Our solutions are typically provided to the user through Internet-enabled access to our hosted platform for a monthly service fee. This bundled solution enables the fleet owner to dispatch, track, and monitor the conditions of vehicles in the fleet on a real-time basis. A vehicle-mounted unit consists of a single module including a GPS receiver, sensor interface, and a cellular modem. Our solution includes the communication service from the vehicle to our data center and access over the Internet to the application software, relieving the user of the need to maintain extensive computer operations.
We market
One element of our fleet management services in three primary areas, leveraging the
core platform. Our vertical market strategy targets opportunities in specific vertical markets where we believe we can provide a unique value to the end user by customizing thetailoring our hardware and softwaresubscription service solution for a particular industry. For example, the firstone vertical we are addressing is ready mix concrete. Here, we combine a suite of sensors into a solution that can automatically determine the status of a vehicle without driver intervention. Our agreement with McNeilus, a
major manufacturer of trucks for the ready mix concrete and waste management
industries, facilitates the delivery of a complete management solution to ready
mix concrete fleet operators and refuse haulers. McNeilus' sales force markets
our solution as a retrofit for trucks already in the field, or as a
factory-installed option. We plan on leveraging our technology partnersand capabilities and customers into other verticals, such as otherdirect store delivery, public safety and construction material delivery
vehicles and waste management trucks, where a customized solution can provide
similar benefits as in ready mix.
management.
We also have a horizontal market strategy that focuses on providing turnkey solutions to a broad range of service fleets and mobile workers that span
over
90 distinct markets.a large number of market segments. Here, we leverage
the same general applications that are
used in our
vertical markets, however,capabilities without the same level of
customization, such as
additional sensors, is typically not required.customization. These products are distributed through individual dealers
and dealer service providers, as well as
after-market
automotive electronics suppliers.
in the vertical applications.
Our enterprise strategy focuses on sales to large, enterprise accounts. Here, in addition to a Trimble-hosted solution, we can also integrate our softwareservice directly into the customer'scustomer’s IT infrastructure, giving them improved control of thetheir information. In this market we sell directly to end users and sales cycles tend to be long due to field trials followed by an extensive decision-making process.
Approximate prices for the hardware fall in the range of $300$400 to $3,000, while the monthly softwaresubscription service fees range from approximately $20 to approximately $55, depending on the customer service level. Competition comes largely from service-oriented businesses such as @Road@Road.
We have also entered new markets by acquisitions of MobileTech Solutions, Inc. and Advanced Public Saftey, Inc. (APS) MobileTech provides field workforce automation solutions and has a leading position in the direct store delivery market. APS provides mobile and handheld software companies such as Command
Alkon.
products used by law enforcement, fire rescue and other public safety agencies.
Representative products sold by this divisionsegment include:
Telvisant(R) System
TrimWeb™ Systems - Our fleet management service offering, Telvisantofferings are comprised of the TrimWeb system and TrimFleet system. The TrimWeb system provides different levels of service that run from snapshots of fleet activity to real-time fleet dispatch capability. Telvisantcapability via access to the TrimWeb platform network through a secure internet connection. The TrimWeb system includes truck communication service and computer backbone support of the software.service. Variations of Telvisantthe TrimWeb system are tailored for specific industry applications.
CrossCheck(R)
CrossCheck® Module - This hardware, mounted on the vehicle, provides location and information through its built-in cellular interface. This module also includes GPS positioning, sensor interfaces for vehicle conditions, and built-in intelligence for distributed decision-making.
RoutePower™ CE Mobile - This software operates in the Microsoft CE/Pocket PC environment and addresses the pre-sales, delivery, routes sales and full service vending functions performed on the routes of Direct Store Delivery (DSD) companies. In addition, RoutePower software can communicate with digital phones, printers, GPS receivers, and other peripherals in a wireless non-tethered Bluetooth environment.
GateWay™ Middleware Software - This software handles all communications from/to the mobile computer as well as from/to the host and any other decision support systems. In addition, the GateWay software supports all functionality of the RoutePower™ mobile system regardless of host system capabilities.
PocketCitation™ System - This electronic ticketing system enables law enforcement officers to issue traffic citations utilizing a mobile handheld device. This system scans the traffic offender’s driver’s license and automatically populates the appropriate information into the citation.
QuickTicket™ System - This system works in conjunction with mobile software platforms to enable law enforcement officers to complete electronic traffic citations in under 30 seconds.
Portfolio Technologies
Our Portfolio Technologies segment includes various operations that aggregate to less than 10 percent of our total revenue. The products in this segment are
navigation modules and embedded sensors that are used in avionics, flight, and
military applications. The two operations in this segment are Applanix, and
Military and Advanced Systems (MAS).
, and Trimble Outdoors.
Applanix develops, manufactures, sells and supports high-value, precision products that combine GPS with inertial sensors for accurate measurement of the position and attitude of moving vehicles. Sales are made directly by our sales force to the end users or to systems integrators. Competitors include IGI in the airborne survey market, and iXsea and VT TSS in the marine survey market.
Our MAS business supplies GPS receivers and embedded modules that use the military'smilitary’s GPS advanced capabilities. The modules are principally used for guiding aircraft.in aircraft navigation and timing application. Military products are sold directly by our sales force to either the US Government or a contractor.defense contractors. Sales are also made to non-US governments, with the sales of the encrypted
components taking place through the US Government.authorized foreign end users. Competitors in this market include Rockwell Collins, L3, Raytheon, and Thales.
Raytheon.
The Trimble Outdoors service utilizes GPS-enabled cell phones to provide information for outdoor recreational activities. Some of the recreational activities include hiking, biking, backpacking, boating, and water sports. Consumers purchase the Trimble Outdoors product through our wireless operator partners which include Sprint-Nextel, SouthernLINC Wireless and Boost Mobile. In 2005, Trimble entered into an agreement with Rodale Inc., owner of Backpacker Magazine, to bring high quality trip content to consumer GPS cell phones. The Trimble Outdoors service operates on more than 20 different GPS cell phones.
Representative products sold by this segment include:
Applanix POS/AVAV™ - An integrated GPS/inertial system for airborne surveying that measures aircraft position to an accuracy of a few centimeters and aircraft attitude (angular orientation) to an accuracy of 30 arc seconds or better. This system is typically interfaced to large format cameras and scanning lasers for producing geo-referenced topographic maps of the terrain.
Force 5(TM)
Force™ 5 GS (GRAM-SAASM) Module - A dual frequency, embedded GPS module that is used in a variety of military airborne applications.
Trimble® Outdoors™ - Trip planning and navigation software that works with GPS-enabled cell phones and conventional GPS receivers. This software enables consumers to research specific trips online as part of trip pre-planning. In addition, users are able to share outdoor and off-road experiences online with their friends and family.
Acquisitions and Joint Ventures
Our growth strategy is centered
aroundon developing and marketing innovative and complete value-added solutions to our existing customers, while also marketing them to new customers and geographic regions.
To doIn some cases, this
we believe it is
essential to continually enhance our market position, which has led to partnering with or acquiring companies that bring technologies, products or distribution capabilities that will allow us to enter or penetrate a market
quickermore effectively than if we had done so solely through internal development. Over the
past five years, this has led us to form two joint ventures and acquire sixmultiple companies. No assurance can be given that our previous or future acquisitions will be successful or will not materially adversely affect our financial condition or operating results.
Advanced Public Safety, Inc. (APS)
* On December 30, 2005, we acquired APS of Deerfield Beach, Florida. APS provides mobile and handheld software products used by law enforcement, fire-rescue and other public safety agencies. With the APS acquisition, we plan to leverage our rugged mobile computing devices and our fleet management systems to provide complete mobile resource solutions for the public safety industry. APS will be reported within our Mobile Solutions business segment.
MobileTech Solutions Inc.
* On October 25, 2005, we acquired MobileTech Solutions, Inc. of Plano, Texas. MobileTech Solutions provides field workforce automation solutions and has a leading position in the direct store delivery (DSD) market. We expect the MobileTech Solutions acquisition to extend our portfolio of fleet management and field workforce applications. MobileTech Solutions’ performance is reported under our Mobile Solutions business segment.
Apache Technologies, Inc.
On April 19, 2005, we acquired Apache Technologies Inc. of Dayton, Ohio. Apache is a leading developer of laser detection technology. With the acquisition, we extended our laser product portfolio for handheld laser detectors and entry-level machine displays and control systems, as well as our distribution network in the United States. Apache’s performance is reported under our Engineering and Construction business segment.
Pacific Crest Corporation
On January 10, 2005 we acquired Pacific Crest Corporation of Santa Clara, California, a supplier of wireless data communication systems for positioning and environmental monitoring applications. The Pacific Crest acquisition has enhanced our wireless data communications capabilities in the Engineering and Construction business segment.
GeoNav
On July 5, 2004 we acquired GeoNav GmbH, a small provider of customized field data collection solutions for the cadastral survey market in Europe. This acquisition augments our capability for localization of our products in Europe. GeoNav’s performance is reported under our Engineering and Construction segment.
TracerNET Corporation
On March 5, 2004 we acquired TracerNET Corporation of Virginia, a provider of wireless fleet management solutions. The TracerNET acquisition added more diverse and complete fleet management solutions. TracerNET’s performance has been integrated into our Mobile Solutions segment.
MENSI S.A.
On December 9, 2003, we acquired MENSI S.A., a French developer of terrestrial 3D laser scanning technology. The MENSI acquisition enhanced our technology portfolio and expanded our product offerings. MENSI’s performance is reported under our Engineering and Construction segment.
Applanix Corporation
*
On July 7, 2003, we acquired privately held Applanix Corporation, a Canadian developer of systems that integrate inertial navigation system and GPS technologies. We expect theThe Applanix acquisition to extendextended our technology portfolio and enableoffers increased robustness and capabilities in our future
positioning products. Applanix'sApplanix’s performance is reported under our Portfolio Technologies segment.
MENSI S.A.
* On December 9, 2003, we acquired privately held MENSI S.A., a French developer
of terrestrial 3D laser scanning technology. We expect the MENSI acquisition to
enhance our technology portfolio and expand our product offerings. MENSI's
performance is reported under our Engineering and Construction segment.
TracerNET Corporation
* On March 5, 2004, we acquired privately held TracerNET Corporation of
Virginia, a provider of wireless fleet management solutions. We expect the
TracerNET acquisition to offer more diverse and complete fleet management
solutions. TracerNET's performance will be reported under our Mobile Solutions
segment.
Nikon-Trimble Co., Ltd.
On March 28, 2003, Trimble and Nikon Corporation entered into an agreementagreed to form a joint venture in Japan, Nikon-Trimble Co., Ltd., which would assumeassumed the operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of Nikon Corporation and Trimble Japan KK, our Japanese subsidiary. Nikon-Trimble began operations in July of 2003.
Nikon-Trimble is 50% owned by us and 50% owned by Nikon, with equal voting rights. It is focusing on the design and manufacture of surveying instruments including mechanical total stations and related products. In Japan, this joint venture distributes Nikon'sNikon’s survey products as well as our survey, agriculture, construction and GIS products. Outside of Japan, we are the exclusive distributor of Nikon survey and construction products.
* We expect the
The joint venture to enhancehas enhanced our market position in survey instruments through geographic expansion and market penetration. The Nikon instruments will broadenproducts broadens our survey and construction product portfolio and enableenables us to better access emerging markets such as Russian, Chinese,Russia, China, and Indian
markets.India. It will also provideprovides us with the ability to sell our GPS and robotic technology to existing Nikon customers. Additionally, Nikon-Trimble is expected
to improve our market position in Japan.
Caterpillar Trimble Control Technologies, LLC
On April 1, 2002, we established and began operations of a joint venture with Caterpillar called Caterpillar Trimble Control Technologies, LLC, in which each company has a 50% ownership stake and have equal voting rights. This joint venture is developing new generations ofdevelops and manufactures machine control products for the construction and mining markets for installation in the factory or as a dealer option.
* Today, we sell construction machine control products to contractors through
our dealer channel, for installation on bulldozers, motorgraders, and excavators
that are already in the field (the "after-market"). However, both companies
believe the adoption of the technology will spur future demand for machine
control products that can be integrated into the design of new Caterpillar
machines, while also available for "after-market" installation.
Patents, Licenses and Intellectual Property
We hold approximately 600 US patents and
108approximately 100 non-US patents, the majority of which cover GPS technology and
other applications
and over 94 of which coversuch as optical and laser
technology and applications.
technology.
We prefer to own the intellectual property used in our products, either directly or though subsidiaries. From time to time we license technology from third parties.
There are approximately 60200 trademarks registered to Trimble and its subsidiaries including "Trimble," the globe and triangle logo, "AgGPS," "GeoExplorer," and "Telvisant," among others that are registered to Trimble Navigation Limited in the United States and other countries. Additional trademarks are pending registration.
Sales and Marketing
We currently have regional sales offices throughout North America and Europe.
Offices serving the rest of the world include Australia, China, Korea, New
Zealand, Singapore, and United Arab Emirates.
We tailor the distribution channel to the needs of our products and regional markets. Therefore, we havemarkets through a number of forms of sales channel solutions around the world. North America
We sell our products in the United States and Canadaworldwide primarily through dealers, distributors, and authorized representatives.representatives, occasionally granting exclusive rights to market certain products within specific countries. This channel is supported and supplemented and
supported by our employees who provide additional sales support. In some cases,
where(where third party distribution is not available, we utilize a directavailable) by our regional sales force.offices throughout the world. We also utilize distribution alliances, and OEM relationships and joint ventures with other companies as a means to serve selected markets.
International
We market to end users through an extensive world wide network of dealers and
distributors. Distributors carry one or more product lines and are generally
assigned a territory. We occasionally grant exclusive rights to market certain
products within specified countries. See Note 3 of
During the Notes to the Consolidated
Financial Statements for financial information regarding joint ventures
Sales to unaffiliated customers outside the2005 fiscal year, United States comprised
approximately 51% in 2003, 49% in 2002, and 50% in 2001. During the 2003 fiscal
year, North and South America represented 56%54%, Europe the Middle Eastrepresented 25%, Asia Pacific represented 11% and Africaother regions represented 31%, and Asia represented 13%10% of our total revenues. SupportDuring the 2004 fiscal year, United States represented 50%, Europe represented 28%, Asia Pacific represented 13% and other regions represented 9% of our total revenues.
Warranty
The warranty periods for our products are generally between one and three years
from date of shipment.years. Selected military programs may require extended warranty periods up to 5.5 years certain TDS products have a 90-day warranty period, and certain Nikon products have a five-year warranty period. We support our GPS products through a circuit board replacement program from locations in the United Kingdom, Germany, Japan, and the United States. The repair and calibration of our non-GPS products are available from company-owned or authorized facilities. We reimburse dealers and distributors for all authorized warranty repairs they perform.
While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, our warranty obligation is affected by product failure rates, 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 the estimates, revisions to the estimated warranty accrual and related costs may be required.
Seasonality of Business
* Our individual segment revenues aremay be affected by seasonal buying patterns in some of our
businesses. Over half of our total revenue comes from our Engineering and
Construction business, which has the biggest seasonal impact on our total
revenue. This business, and therefore our total revenue, is seasonally strongest
duringpatterns. Typically the second fiscal quarter due tohas been the start ofstrongest quarter for the Company driven by the construction buying seasonseason. The second quarter has averaged 27% of total revenue in the northern hemisphere in spring. Typically, we expect the first and fourth
quarters to be the seasonal lows due to the lack of construction during the
winter months. If other factors such as economic conditions or underlying growth
in the business are removed, the historical variability in our total quarterly
revenue from seasonality has generally been less than 10 percent.
last two fiscal years.
Backlog
In most of our markets, the time between order placement and shipment is short. Therefore, we believe that backlog is not a reliable indicator of present or future business conditions.
Manufacturing
Manufacturing of substantially all our GPS productssubsystems is subcontracted to Solectron Corporation. We
completed the moveDuring fiscal 2005 we continued to utilize Solectron's Suzhou facilities in China for all of allour Component Technologies products to Solectron in China
in the first quarterproducts. During 2004 we expanded our use of 2003. During 2003 we started utilizing Solectron in Mexico for some of our handheld products.Field Solutions products and handhelds. We continue to utilize Solectron California for our high-end GPS products and new product introduction services. Solectron is responsible for substantially all material procurement, assembly, and testing. We continue to manage product design up through pilot production for the subcontracted products, and we are directly involved in qualifying suppliers and key components used in all our products. Our current contract with Solectron continues in effect until either party gives the other ninety days written notice.
We manufacture laser and optics-based products at our plants in Dayton, Ohio; Danderyd, Sweden; and Jena and Kaiserslautern, Germany.Germany; Paris, France; and Toronto, Canada. Some of these products or portions of these products are also subcontracted to third parties for assembly.
All of our
Our manufacturing sites in Dayton, Ohio; Danderyd, Sweden; Jena and Kaiserslautern, Germany are registered to ISO9001:2000, covering the design, production, distribution, and servicing of all our products. The Component Technologies segment is registered to QS9000 for its automotive products. QS9000 is the automotive version of ISO9000 covering specific requirements for the market.
Research and Development
We believe that our competitive position is maintained through the development and introduction of new products that incorporate improved features, better performance, smaller size and weight, lower cost, or some combination of these factors. We invest substantially in the development of new products. We also make significant investment in the positioning, communication, and information technologies that underlie our products and will likely provide competitive advantages.
Our research and development expenditures, net of reimbursed amounts were $84.3 million for fiscal 2005, $77.6 million for fiscal 2004, and $67.6 million for fiscal 2003, $61.2 million for fiscal 2002, and $62.9 million for
fiscal 2001.
2003.
* We expect to continue investing in research and development with the goal of maintaining or improving our competitive position, as well as the goal of entering new markets and satisfying new needs for positioning related solutions.
There can be no assurance that we will succeed in doing so.
markets.
Employees
As of January 2, 2004,December 30, 2005, we employed approximately 2,1502,462 employees, including 30%32% in sales and marketing, 29%28% in manufacturing, 28%26% in engineering, and 13%14% in general and administrative positions. Approximately 45%40% of employees are in locations outside the United States.
Our employees are not represented by unions except for those in Sweden and some in Germany. We also employ temporary and contract personnel that are not included in the above headcount numbers. We have not experienced work stoppages or similar labor actions.
Available Information
The Company'sCompany’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on the Company's websiteCompany’s web site through www.trimble.com/www.trimble.com/investors.html, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Information contained on our websiteweb site is not part of this annual report on Form 10-K. In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing or telephoning us at our principal executive offices at the following address or telephone number:
Trimble Navigation Limited
749 North Mary Avenue,
935 Stewart Drive, Sunnyvale, CA 94085
Attention: Investor Relations Telephone: 408-481-8000
Executive Officers
The names, ages, and positions of the Company's executive officers as of March 1, 20042006 are as follows:
Name Age Position
- ---------------------------------------------------------------------------
| Name | Age | Position |
| Steven W. Berglund | 54 | President and Chief Executive Officer |
| Rajat Bahri | 41 | Chief Financial Officer |
| Joseph F. Denniston, Jr. | 45 | Vice President, Operations |
| Bryn A. Fosburgh | 43 | Vice President and General Manager, Engineering and Construction |
| Mark A. Harrington | 50 | Vice President, Strategy and Business Development |
| Debi Hirshlag | 40 | Vice President, Human Resources |
| John E. Huey | 56 | Treasurer |
| Irwin L. Kwatek | 66 | Vice President and General Counsel |
| Michael W. Lesyna | 45 | Vice President, Business Transformation |
| Bruce E. Peetz | 54 | Vice President, Advanced Technology and Systems |
| Anup V. Singh | 35 | Vice President and Corporate Controller |
| Alan R. Townsend | 57 | Vice President and General Manager, Field Solutions |
| Dennis L. Workman | 61 | Vice President and General Manager, Component Technologies |
Steven W. Berglund 52 President and Chief Executive Officer
Mary Ellen P. Genovese 44 Chief Financial Officer
William C. Burgess 57 Vice President, Human Resources
Joseph F. Denniston, Jr. 43 Vice President, Operations
Bryn A. Fosburgh 41 Vice President and General Manager,
Geomatics and Engineering
Mark A. Harrington 48 Vice President of Strategy
and Business Development
John E. Huey 54 Treasurer
Irwin L. Kwatek 64 Vice President and General Counsel
Michael W. Lesyna 43 Vice President and General Manager,
Mobile Solutions
Bruce E. Peetz 52 Vice President, Advanced Technology and Systems
Christopher J. Shephard 41 Vice President and General Manager,
Construction Instruments
Anup V. Singh 33 Corporate Controller
Alan R. Townsend 55 Vice President and General Manager,
Field Solutions
Dennis L. Workman 58 Vice President and General Manager,
Component Technologies
Steven W. Berglund - Steven Berglund joined Trimblehas served as president and chief executive officer inof Trimble since March 1999. Prior to joining Trimble, Mr. Berglund was president of Spectra Precision, a group within Spectra Physics AB, and a pioneer in the development of laser systems. He spent 14 years at Spectra Physics in a variety of senior leadership positions. In the early 1980s, Mr. Berglund spent a number of years at Varian Associates in Palo Alto, where he held a variety of planning and manufacturing roles. Mr. Berglund began his career as a process engineer at Eastman Kodak in Rochester, New York. He attended the University of Oslo and the University of Minnesota where he received a B.S. in chemical engineering in 1974. He later received his M.B.A. from the University of Rochester in New York in 1977.
Mary Ellen Genovese
Rajat Bahri - Mary Ellen Genovese, chief financial officer, has been
responsible for the overall financial activities of Trimble since September
2000. Ms. Genovese was vice president of finance and corporate controller from
1997 to September 2000. From 1994 to 1997, Ms. Genovese served as business unit
controller for Software and Component Technologies, and Tracking and
Communications. SheRajat Bahri joined Trimble as controller of manufacturing operationsChief Financial Officer in December 1992. Prior to joining Trimble, Ms. Genovese was chief financial
officer for Minton Co., a distributing company to the commercial building
market, from 1991 to 1992. Prior to 1991, she worked for 10 years with General
Signal Corp. in several management positions. Ms. Genovese is a certified public
accountant and received her B.S. in accounting from Fairfield University in
Connecticut in 1981.
William C. Burgess - William Burgess joined Trimble in August of 2000 as vice
president of Human Resources.January 2005. Prior to joining Trimble, Mr. Burgess was vice
presidentBahri served for more than 15 years in various capacities within the financial organization of Human Resourcesseveral subsidiaries of Kraft Foods, Inc. and Management Information Systems for Sonoma West
Holdings, Inc. From 1993 to 1997,General Foods Corporation. Most recently, he served as vice presidentthe chief financial officer for Kraft Canada, Inc. From June 2000 to June 2001 he served as chief financial officer of Human ResourcesKraft Pizza Company. From 1997 to 2000, Mr. Bahri was Operations Controller for Optical Coating Laboratory, from 1990 to 1993, he established and managed
the human resources function at Teknekron Communications Systems, and from 1985
to 1990 he was vice presidentKraft Jacobs Suchard Europe. Mr. Bahri holds a Bachelor of Human Resources for a $25 billion,
35,000-employee segment of Asea Brown Boveri (ABB), a global technology company.
Mr. Burgess received a B.S.Commerce from the University of NebraskaDelhi in 1985 and an M.S.M.B.A. from Duke University in organizational development from Pepperdine University.
1987. In 2005, he was elected on the board of Simple Technologies, Inc., a publicly traded company.
Joseph F. Denniston, Jr. Jr. - Joseph Denniston joined Trimble as vice president of operations in April 2001, responsible for worldwide manufacturing, distribution and logistics. Prior to Trimble, Mr. Denniston worked for 3Com Corporation. During his 14-year tenure, he served as vice president of supply chain management for the Americas and held several positions in test engineering, manufacturing engineering and operations. Previously at Sentry Schlumberger for seven years, he held several positions including production engineering, production management and test engineering over six years. Mr. Denniston received a B.S. in electrical engineering technology from the Missouri Institute of Technology in 1981 and an M.S. in computer science engineering from Santa Clara University in 1990.
Bryn A. Fosburgh-Bryn Fosburgh was appointed vice presidentjoined Trimble in 1994 as a technical service manager for surveying, mining, and general
manager of the Geomatics and Engineering business in July 2002, with
responsibility for all the division-level activities associated with survey,
construction, and infrastructure solutions. From October 1999 to July 2002, Mr.
Fosburgh served as division vice president of survey and infrastructure.construction. In 1997, Mr. Fosburgh was appointed director of development for the Company'sCompany’s land survey business unit where he oversaw the development of field and office software that enabled the interoperability of Trimble survey products. From October 1999 to July 2002, he served as division vice president of survey and infrastructure. From 2002 to 2005, Mr. Fosburgh joined Trimble in 1994served as technical servicevice president and general manager of Trimble's Geomatics and Engineering (G&E) business area, with responsibility for surveying,
mining,all the division-level activities associated with survey, construction, and construction.infrastructure solutions. In January 2005, he was appointed vice president and general manager of the Engineering and Construction Division. Prior to Trimble, Mr. Fosburghhe was a civil engineer with the Wisconsin Department of Transportation where he was responsible for coordinating the planning, data acquisition, and data analysis for statewide GPS surveying projects in support of transportation improvement projects. He has also held various engineering, research and operational positions for the USU.S. Army Corps of Engineers and Defense Mapping Agency. Mr. Fosburgh received a B.S. in geology from the University of Wisconsin in Green Bay in 1985 and an M.S. in civil engineering from Purdue University in 1989.
Mark A. Harrington - Mark Harrington joined Trimble in January 2004 as vice president of strategy and business development. Prior to joining Trimble, Mr. Harrington served as vice president of finance at Finisar Corporation and chief financial officer for both Cielo Communications, Inc., a photonics components manufacturer, from February 1998 to September 2002, and Vixel Corporation.Corporation, a photonics manufacturer, from April 2003 to December 2003. His experience also includes 11 years at Spectra-Physics where he served in a variety of roles including vice president of finance for Spectra-Physics Lasers, Inc. and vice president of finance for Spectra-Physics Analytical, Inc. Mr. Harrington began his career at Varian Associates, Inc. where he held a variety of management and individual positions in finance, operations and IT. Mr. Harrington received his B.S. in Business Administration from the University of Nebraska-Lincoln.
Debi Hirshlag - Debi Hirshlag joined Trimble in July 2005 as vice president of human resources. Prior to joining Trimble, Ms. Hirshlag served as vice president of human resources at Ariba Inc., a purchasing technology company from January 2003 to July 2004, and vice president of corporate services at Latitude Communications, a conferencing software provider from January 2001 to December 2002. In addition, she has held human resources positions at Seagate Technology, Inc., Pepsi-Cola and Amoco Corporation. Ms. Hirshlag received her B.S. in industrial management from Carnegie Mellon University and an M.A. in labor and industrial relations from the University of Illinois.
John E. Huey -John Huey joined Trimble in 1993 as director corporate credit and collections, and was promoted to assistant treasurer in 1995 and treasurer in 1996. Past experience includes two years with ENTEX Information Services, five years with National Refractories and Minerals Corporation (formerly Kaiser Refractories), and thirteen years with Kaiser Aluminum and Chemical Sales, Inc. He has held positions in credit management, market research, inventory control, sales, and as an assistant controller. Mr. Huey received his B.A. degree in Business Administration in 1971 from Thiel College in Greenville, Pennsylvania and an MBA in 1972 from West Virginia University in Morgantown, West Virginia.
Irwin L. Kwatek- Irwin Kwatek has served as vice president and general counsel of Trimble since November 2000. Prior to joining Trimble, Mr. Kwatek was vice president and general counsel of Tickets.com, a ticketing service provider, from May 1999 to November 2000. Prior to Tickets.com, he was engaged in the private practice of law for more than six years. During his career, he has served as vice president and general counsel to several publicly held high-tech companies including Emulex Corporation, Western Digital Corporation and General Automation, Inc. Mr. Kwatek received his B.B.A. from Adelphi College in Garden City, New York and an M.B.A. from the University of Michigan in Ann Arbor. He received his J.D. from Fordham University in New York City in 1968.
Michael W. Lesyna-Michael Lesyna has beenjoined Trimble in September 1999 as vice president of strategic marketing. In September 2000, he was appointed vice president and general manager of the Mobile Solutions segment since September 2000.Division. In July 2004, Lesyna was appointed vice president of Business Transformation. In this cross-divisional role he focuses on driving operational improvements based on the marketing, sales and distribution channel strategies of Trimble's business segments. The scope of his work includes tailored business prioritization as well as lean manufacturing and lean overhead principles. Prior to Trimble, Mr. Lesyna spent six years at Booz Allen & Hamilton where he most recently served as a principal in the operations management group. Prior to Booz Allen & Hamilton, Mr. Lesyna held a variety of engineering positions at Allied Signal Aerospace. Mr. Lesyna received his M.B.A., as well as an M.S. and B.S. in mechanical engineering from Stanford University.
Bruce E. Peetz- Bruce Peetz has served as vice president of Advanced Technology and Systems since 1998 and has been with Trimble for 15 years. From 1996 to 1998, Mr. Peetz served as general manager of the Survey Business. Prior to joining Trimble, Mr. Peetz was a research and development manager at Hewlett-Packard for 10 years. Mr. Peetz received his B.S. in electrical engineering from Massachusetts Institute of Technology in Cambridge, Massachusetts in 1973.
Anup V. Singh- Anup Singh has served as corporate controller since joiningjoined Trimble in December 2001.2001 as corporate controller. In August 2004 he was appointed vice president and corporate controller. Prior to joining Trimble, Mr. Singh was with Excite@Home from July 1999 to December 2001. During his tenure at Excite@Home, he held the positions of senior director of Corporate Financial Planning and Analysis, and international controller. Before Excite@Home, Mr. Singh also worked for 3Com Corporation from December 1997 to July 1999, and Ernst & Young LLP in San Jose, California and London, England. Mr. Singh received his B.A. in 1991 and M.A. in 1995 in economics and management science from Cambridge University in England. He is also a chartered accountant and was admitted as a member of the Institute of Chartered Accountants in England and Wales in 1994.
Christopher J. Shephard - Chris Shephard was appointed vice president and
general manager of the Construction Instruments business area in July 2002 after
serving as division vice president of operations for Engineering and
Construction since Trimble's acquisition of Spectra Precision Group in July
2000. Prior to Trimble, Mr. Shephard served from 1998 to 2000 as Spectra
Precision's chief financial officer. Mr. Shephard also worked for more than
eight years at Booz Allen & Hamilton. Prior to Booz Allen & Hamilton, Mr.
Shephard spent three years at Copeland Corporation, a division of Emerson, in
their management-training program. Mr. Shephard received a B.A. in business
studies from Manchester Polytechnic in England in 1985 and an M.M. from the J.L.
Kellogg Graduate School of Management at Northwestern University, Evanston,
Illinois in 1990.
Alan R. Townsend- Alan Townsend has served as vice president and general manager of the Field Solutions business area since November 2001. He also serves
as the managing director of Trimble Navigation New Zealand Ltd. for which he has
overall site responsibility. From 1995 to 2001, Mr. Townsend was general manager of Mapping and GIS. Mr. Townsend joined Trimble in 1991 as the manager of Trimble Navigation New Zealand Ltd. Prior to Trimble, Mr. Townsend held a variety of technical and senior management roles within the Datacom Group of companies in New Zealand including managing director of Datacom Software Research Ltd. from 1986 to 1991. In addition, Mr. Townsend is a director of IT Capital Ltd., a venture capital company based in Auckland, New Zealand. He is also a fellow of the New Zealand Institute of Management and a past president of the New Zealand Software Exporters Association. Mr. Townsend received a B.S.c in economics from the University of Canterbury in 1970.
Dennis L. Workman -Dennis Workman has served as vice president and general manager of Trimble'sTrimble’s Component Technologies segment since September 1999. From 1998 to 1999, Mr. Workman was senior director and chief technical officer of the newly formed Mobile and Timing Technologies (MTT) business group, also serving as general manager of Trimble's Automotive and Timing group. In 1997, he was director of engineering for Software & Component Technologies. Mr. Workman joined Trimble in 1995 as director of the newly created Timing vertical market. Prior to Trimble, Mr. Workman held various senior-level technical positions at Datum Inc. During his nine year tenure at Datum, he held the position of CTO. Mr. Workman received a B.S. in mathematics and physics from St. Mary'sMary’s College in 1967 and an M.S. in electrical engineering from the Massachusetts Institute of Technology in 1969.
Item 2 Properties
The following table sets forth the significant real property that we own or
lease:
Location Segment(s) served Size in sq.feet Commitment
Sunnyvale, California All 150,000 Leased, expiring 2005
4 buildings
Huber Heights (Dayton), Ohio Engineering & Construction, 150,000 Owned, no encumbrances
Field Solutions 57,200 Leased, expiring in 2011
Distribution 32,800 Leased, month to month
Westminster, Colorado Engineering & Construction, 73,000 Leased, expiring 2006
Field Solutions 2 buildings
Corvallis, Oregon Engineering & Construction 20,000 Owned, encumbered by $1.7M mortgage
21,000 Leased, expiring 2006
Chandler, Arizona Mobile Solutions 11,500 Leased, expiring 2004
Toronto, Canada Portfolio Technologies 50,500 Leased, expiring 2004
Danderyd, Sweden Engineering & Construction 93,900 Leased, expiring 2005
Christchurch, New Zealand Engineering & Construction, 65,000 Leased, expiring 2011
Mobile Solutions, Field 2 buildings
Solutions
Jena, Germany Engineering & Construction 28,700 Leased, no expiration date
12 months notice
Kaiserslautern, Germany Engineering & Construction 26,000 Leased, expiring 2005
Raunheim, Germany Sales 28,700 Leased, expiring 2011
In addition, we lease a number of smaller offices around the world primarily for
sales functions. For financial information regarding obligations under leases,
see Note 10 of the Notes to the Consolidated Financial Statements.
* We believe that our facilities are adequate to support current and near-term
operations.
Item 3 Legal Proceedings
* We are from time to time a party to disputes or litigation incidental to our
business. We believe that our ultimate liability as a result of such disputes,
if any, would not be material to our overall financial position, results of
operations, or liquidity.
Item 4 Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2003.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
On January 22, 2004, our Board of Directors approved a 3-for-2 split of all
outstanding shares of our common stock, payable March 4, 2004 to stockholders of
record on February 17, 2004. All shares and per share information presented has
been adjusted to reflect the stock split on a retroactive basis for all periods
presented.
Our common stock is traded on the Nasdaq National Market under the symbol
"TRMB." The table below sets forth, during the periods indicated, the high and
low per share bid prices for our common stock as reported on the Nasdaq National
Market.
2003 2002
Sales Price Sales Price
Quarter Ended High Low High Low
------------- ---- --- ---- ---
First quarter $14.17 $8.68 $11.43 $7.84
Second quarter 18.50 12.43 12.33 9.98
Third quarter 19.57 14.97 10.00 6.85
Fourth quarter 25.60 13.49 9.65 5.35
As of January 2, 2004, there were approximately 1,055 holders of record of our
common stock.
We made the following sales of unregistered securities during the year ended
January 2, 2004.
Our merger agreement with LeveLite provides for us to make earn-out payments not
to exceed an aggregate $3.9 million (in common stock and cash payment) based on
certain future revenues and payments received. Upon a hearing before the
California Department of Corporations in which the terms and conditions of the
offer to the LeveLite shareholders were approved, the shares of Common Stock to
be issued in the transaction were exempt from registration by reason of
qualification under Section 3(a)(10) of the Securities Act of 1933, as amended.
We made the following earn-outs in common stock during fiscal 2003:
Date of Number of
issuance shares issued Price
-------- ------------- -----
January 22, 2003 35,994 $ 9.35
April 23, 2003 26,549 13.86
July 29, 2003 20,679 16.52
October 27, 2003 19,842 15.25
On June 30, 2003, we issued 349,251 shares of common stock to Nikon-Trimble Co.
Ltd. We issued these shares as a contribution to capital in the formation of
Nikon-Trimble Co. Ltd. as a joint venture with Nikon Corporation. The shares
were valued at $16.95 per share and were exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, based on the nature of the
purchaser and the nature of the arms-length negotiated transaction.
Dividend Policy
We have not declared or paid any cash dividends on our common stock during any
period for which financial information is provided in this Annual Report on Form
10-K. At this time, we intend to retain future earnings, if any, to fund the
development and growth of our business and do not anticipate paying any cash
dividends on our common stock in the foreseeable future.
We are allowed to pay dividends and repurchase shares of our common stock up to
25% of net income in the previous fiscal year, under the existing terms of our
credit facilities.
Equity Compensation Plan Information
The following table sets forth, as of January 2, 2004, the total number of
securities outstanding under our stock option plans, the weighted average
exercise price of such options, and the number of options available for grant
under such plans.
Plan Category Number of securities to Weighted average exercise Number of securities remaining
be issued upon exercise price of outstanding available for future issuance
of outstanding options, options, warrants and under equity compensation plans
warrants and rights rights (excluding securities reflected
in column (a))
(a) (b) (c)
--- --- ---
Equity compensation plans approved by security holders:
Stock Option Plans.... 7,600,787 $13.61 1,643,555
Equity compensation plans
not approved by
security holders... - - -
Total..................... 7,600,787 $13.61 1,643,555
Item 6. Selected Financial Data
The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
appearing elsewhere in this annual report. Historical results are not
necessarily indicative of future results. In particular, because the results of
operations and financial condition related to our acquisitions are included in
our Consolidated Statement of Operations and Consolidated Balance Sheets data
commencing on those respective acquisition dates, comparisons of our results of
operations and financial condition for periods prior to and subsequent to those
acquisitions are not indicative of future results.
We have significant intangible assets on our Consolidated Balance Sheets that
include goodwill and other purchased intangibles related to acquisitions. At the
beginning of fiscal 2002, we adopted Statement of Financial Accounting Standards
No. 141 ("SFAS 141"), Business Combinations, and No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). Application of the non-amortization provisions
of SFAS 142 significantly reduced amortization expense of purchased intangibles
and goodwill to approximately $8.3 million for the fiscal year 2002 from $29.4
million in fiscal year 2001.
January 2, January 3, December 28, December 29, December 31,
Fiscal Years Ended 2004 2003 2001 2000 1999
- ------------------ ---- ---- ---- ---- ----
(Dollar in thousands, except per share data)
Revenue $ 540,903 $ 466,602 $ 475,292 $ 369,798 $ 271,364
Gross margin $ 268,030 $ 234,432 $ 237,235 $ 196,561 $ 144,247
Gross margin percentage 50% 50% 50% 53% 53%
Income (loss) from continuing operations $ 38,485 $ 10,324 $ (23,492) $ 14,185 $ 18,662
Gain on disposal of discontinued operations
(net of tax) $ - $ - $ 613 $ - $ 2,931
Net income (loss) $ 38,485 $ 10,324 $ (22,879) $ 14,185 $ 21,593
Per common share: (1)
Income (loss) from continuing operations
- Basic $ 0.81 $ 0.24 $ (0.63) $ 0.40 $ 0.55
- Diluted $ 0.77 $ 0.24 $ (0.63) $ 0.37 $ 0.54
Gain on disposal of discontinued operations
(net of tax)
- Basic $ - $ - $ 0.01 $ - $ 0.09
- Diluted $ - $ - $ 0.01 $ - $ 0.09
Net income (loss)
- Basic $ 0.81 $ 0.24 $ (0.62) $ 0.40 $ 0.64
- Diluted $ 0.77 $ 0.24 $ (0.62) $ 0.37 $ 0.63
Shares used in calculating basic earnings
per share (1) 47,505 42,860 37,091 35,402 33,636
Shares used in calculating diluted earnings
per share (1) 50,012 43,578 37,091 38,964 34,278
Cash dividends per share $ - $ - $ - $ - $ -
Total assets $ 544,903 $ 441,656 $ 419,395 $ 488,628 $ 181,751
Non-current portion of long term debt and
other liabilities $ 85,880 $ 114,051 $ 131,759 $ 143,553 $ 33,821
(1) Earnings per share and shares used in calculating earnings per share have
been restated to reflect a three-for-two stock split in February 2004.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes. The following discussion contains
forward-looking statements that reflect our plans, estimates and beliefs. Our
actual results could differ materially from those discussed in the
forward-looking statements.1ARisk Factors that could cause or contribute to these
differences include, but are not limited to, those discussed below and those
listed under "Risks and Uncertainties."
EXECUTIVE LEVEL OVERVIEW
We are a global provider of complete, integrated solutions that provide a
seamless flow of position information both in the field and between the field
and back office. To do this, we utilize advanced positioning technologies
(including GPS, optical, inertial and laser technologies) combined with wireless
communications and applications software, to get data points with accuracies
down to several millimeters. This can increase productivity through time and
cost savings, as the need for labor is reduced, rework from mistakes is less
frequent, and the time to complete a job is shortened.
Our solutions businesses, Engineering and Construction, Field Solutions, and
Mobile Solutions make up over 80% of our revenue. We believe our strength in
these businesses stems from our ability to bring innovative products or
solutions to the market, as well as effectively train and manage a global,
third-party distribution channel that is proficient in selling technology
solutions into markets that have historically utilized manual and low-tech
processes.
In 2003 we extended our market and product capabilities through internal
development, acquisitions, and alliances. In July, we established a joint
venture with Nikon Corporation, which will extend our presence in the global
construction positioning market. Our acquisitions of Applanix in July and MENSI
in December added important new technologies which will enable us to develop new
applications or broaden current application solutions. We also announced an
alliance with CNH Global, which will significantly extend our distribution reach
for our Autopilot agricultural product line.
Our other strategic business, Component Technologies, is different from the
"solution businesses", as it seeks to either provide GPS technology directly to
third parties, such as OEM's and system integrators, or to integrate GPS into
other technologies, such as wireless. These products allow for higher
functionality and therefore, a higher average selling price for our offerings.
Through greater integration we see potential future growth opportunities. For
example, our recently announced TrimTrac product integrates GPS and GSM cellular
technologies into a fully functional location device. It establishes a new asset
tracking or security capability at an aggressive price point and opens up a new
class of customers and applications which were previously not available to us.
In 2003 we positioned ourselves in newer markets that will serve as important
sources of future growth. Our efforts in China, India, Russia, Korea and Eastern
Europe all reflected improving financial results, with the promise of more in
the future.
With our improving profitability, we now have the opportunity to re-emphasize
revenue growth. We expect this growth to come from the continuation of several
trends that we saw in 2003. These trends include further penetrating existing
markets with current and new products, continued geographic expansion into
emerging markets such as Russia, China, India, Korea and Eastern Europe, taking
advantage of market consolidation, improving competitive position due to
offering complete solutions with a proficient dealer channel, and entering new
markets with new products such as our TrimTrac (tm) locator and Recon products,
fleet management services, and our inertial/GPS positioning and orientation
systems acquired as part of Applanix.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements. The preparation of financial statements and
related disclosures in conformity with accounting principles generally accepted
in the United States requires us to make judgments, assumptions, and estimates
that affect the amounts reported in the Consolidated Financial Statements and
accompanying Notes to the Consolidated Financial Statements. We consider the
accounting polices described below to be our critical accounting polices. These
critical accounting policies are impacted significantly by judgments,
assumptions, and estimates used in the preparation of the Consolidated Financial
Statements, and actual results could differ materially from the amounts reported
based on these policies.
Revenue Recognition
We recognize product revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, and collectibility is
reasonably assured. In instances where final acceptance of the product is
specified by the customer or is uncertain, revenue is deferred until all
acceptance criteria have been met. Our total deferred revenue was $7.7 million
and $6.0 million as of January 2, 2004 and January 3, 2003, respectively.
Revenue is reduced by a sales return reserve as described under "Allowance for
Doubtful Accounts and Sales Returns."
Revenue from purchased extended warranty and support agreements is deferred and
recognized ratably over the term of the warranty/support period. Substantially
all technology licenses and research revenue have consisted of initial license
fees and royalties, which were recognized when earned, provided we had no
remaining obligations.
Contracts and customer purchase orders are generally used to determine the
existence of an arrangement. Shipping documents and customer acceptance, when
applicable, are used to verify delivery. We assess whether the fee is fixed or
determinable based on the payment terms associated with the transaction and
whether the sales price is subject to refund or adjustment. We assess
collectibility based primarily on the creditworthiness of the customer as
determined by credit checks and analysis, as well as the customer's payment
history.
Our shipment terms for US orders, and international orders fulfilled from our
European distribution center are typically FCA (Free Carrier) shipping point,
except certain sales to US government agencies which are shipped FOB
destination. FCA shipping point means that we fulfill the obligation to deliver
when the goods are handed over, cleared for export, and into the charge of the
carrier named by the buyer at the named place or point. If no precise point is
indicated by the buyer, we may choose within the place or range stipulated where
the carrier will take the goods into carrier's charge.
Other international orders are shipped FOB destination, which means these
international orders are not recognized as revenue until the product is
delivered and title has transferred to the buyer or FCA shipping point. FOB
destination means that we bear all costs and risks of loss or damage to the
goods up to that point. .
Revenue to distributors and resellers is recognized upon delivery, assuming all
other criteria for revenue recognition have been met. Distributors and resellers
do not have a right of return.
When a sale involves multiple elements, the entire fee from the arrangement is
allocated to each respective element based on its relative fair value and
recognized when revenue recognition criteria for each element are met. The
amount of product revenue allocated to an individual element is limited to the
lesser of its relative fair value or the amount not contingent on our delivery
of other elements under the arrangement, regardless of the probability of our
performance.
Our software arrangements generally consist of a license fee and post-contract
customer support (PCS). We have established vendor-specific objective evidence
(VSOE) of fair value for our PCS contracts based on the renewal rate. The
remaining value of the software arrangement is allocated to the license fee
using the residual method, and revenue is primarily recognized when the software
has been delivered and there are no remaining obligations. Revenue from PCS is
recognized ratably over the term of the PCS agreement.
Allowance for Doubtful Accounts and Sales Returns
Our accounts receivable balance, net of allowance for doubtful accounts, was
$96.2 million as of January 2, 2004, compared with $77.6 million as of January
3, 2003. The allowance for doubtful accounts as of January 2, 2004 was $10.0
million, compared with $9.9 million as of January 3, 2003. We evaluate the
collectibility of our trade accounts receivable based on a number of factors. In
circumstances where we are aware of a specific customer's inability to meet its
financial obligations to us, a specific allowance for bad debts is estimated and
recorded which reduces the recognized receivable to the estimated amount we
believe will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on
our recent past loss history and an overall assessment of past due trade
accounts receivable amounts outstanding.
A reserve for sales returns is established based on historical trends in product
return rates experienced in the ordinary course of business. The reserve for
sales returns as of January 2, 2004 and January 3, 2003 included $3.3 million
and $2.7 million, respectively, for estimated future returns that were recorded
as a reduction of our accounts receivable and revenue. If the actual future
returns were to deviate from the historical data on which the reserve had been
established, our revenue could be adversely affected.
Inventory Valuation
Our inventory balance was $70.8 million as of January 2, 2004, compared with
$61.1 million as of January 3, 2003. Our inventory allowances as of January 2,
2004 were $25.9 million, compared with $25.2 million as of January 3, 2003. Our
inventory is recorded at the lower of cost or market. We use a standard cost
accounting system to value inventory and these standards are reviewed a minimum
of once a year and multiple times a year in our most active manufacturing
plants. We adjust the inventory value for estimated excess and obsolete
inventory based on our assessment of future demand and market conditions. If
actual future demand or market conditions are less favorable than those
projected by us, additional inventory write-downs may be required.
Income Taxes
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when it is
determined to be more likely than not that some portion or all of the deferred
tax assets will not be realized. In evaluating the need for a valuation
allowance, we consider future taxable income, resolution of tax uncertainties
and prudent and feasible tax planning strategies. In fiscal year 2003, we have
recorded a deferred tax asset of $7.6 million that is more likely than not to be
realized. We need to generate $20.0 million of future US income to realize the
deferred tax asset.
If we determine that we would not be able to realize all or part of our deferred
tax assets in the future, an adjustment to the carrying value of the deferred
tax assets would be charged to income in the period in which such determination
is made.
Our effective income tax rates from continuing operations for fiscal years 2003,
2002 and 2001 were (8%), 25% and (9%), respectively. The 2002 and 2001 income
tax rates differ from the US federal statutory rate of 35%, due primarily to
non-US taxes and the inability to realize the benefit of net operating losses.
The 2003 income tax rate is less than the US federal statutory rate, due
primarily to the realization of benefits from net operating losses and other
previously reserved deferred tax assets.
Goodwill Impairment
Goodwill as of January 2, 2004 was $241.4 million, compared with $205.9 million
as of January 3, 2003. We perform goodwill impairment tests on an annual basis
for each reporting unit. Based on impairment tests performed, there was no
impairment of our goodwill in fiscal 2003 and 2002.
For goodwill, the annual impairment evaluation includes a comparison of the
carrying value of the reporting unit (including goodwill) to that reporting
unit's fair value. If the reporting unit's estimated fair value exceeds the
reporting unit's carrying value, no impairment of goodwill exists. If the fair
value of the reporting unit does not exceed the unit's carrying value, then an
additional analysis is performed to allocate the fair value of the reporting
unit to all of the assets and liabilities of that unit as if that unit had been
acquired in a business combination and the fair value of the unit was the
purchase price. If the excess of the fair value of the reporting unit over the
fair value of the identifiable assets and liabilities is less than the carrying
value of the unit's goodwill, an impairment charge is recorded for the
difference.
We cannot predict the occurrence of certain future events that might adversely
affect the reported value of goodwill. Such events include, but are not limited
to, strategic decisions made in response to economic and competitive conditions,
the impact of the economic environment on our customer base, or a material
negative change in our relationships with significant customers.
Accounting for the Long-Lived Assets Including Intangibles Subject to
Amortization
Depreciation and amortization of our long-lived assets is provided using
straight-line methods over their estimated useful lives. Changes in
circumstances such as the passage of new laws or changes in regulations,
technological advances, changes to our business model, or changes in the capital
strategy could result in the actual useful lives differing from initial
estimates. In those cases where we determine that the useful life of a
long-lived asset should be revised, we will depreciate the net book value in
excess of the estimated residual value over its revised remaining useful life.
Factors such as changes in the planned use of equipment, customer attrition,
contractual amendments, or mandated regulatory requirements could result in
shortened useful lives.
Long-lived assets and asset groups are evaluated for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. The estimated future cash flows are based upon, among other
things, assumptions about expected future operating performance and may differ
from actual cash flows. Long-lived assets evaluated for impairment are grouped
with other assets to the lowest level for which identifiable cash flows are
largely independent of the cash flows of other groups of assets and liabilities.
If the sum of the projected undiscounted cash flows (excluding interest) is less
than the carrying value of the assets, the assets will be written down to the
estimated fair value in the period in which the determination is made.
Warranty Costs
The liability for product warranties was $5.1 million as of January 2, 2004,
compared with $6.4 million as of January 3, 2003. (See Note 1 of the Notes to
the Consolidated Financial Statements for further information regarding our
warranty liability.) The warranty periods for our products are generally between
one and three years from date of shipment. Selected military programs may
require extended warranty periods up to 5.5 years, certain TDS products have a
five year or 90-day warranty period, and certain Nikon products have a five year
warranty period. We accrue for warranty costs as part of our cost of sales based
on associated material costs and technical support labor costs. Material cost is
primarily estimated based upon historical trends in the volume of product
returns within the warranty period and the cost to repair or replace the
equipment.
While we engage in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of our component suppliers, our
warranty obligation is affected by product failure rates, 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 our
estimates, revisions to the estimated warranty accrual and related costs may be
required.
Stock Compensation
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related interpretations in accounting for our
stock option plans and stock purchase plan. Accordingly, we do not recognize
compensation cost for stock options granted at a price equal to fair market
value. Note 13 of the Notes to the Consolidated Financial Statements describes
the plans we operate, and Note 1 of the Notes to the Consolidated Financial
Statements contains a summary of the pro forma effects to reported net income
(loss) and earnings (loss) per share for fiscal 2003, 2002, and 2001 as if we
had elected to recognize compensation cost based on the fair value of the
options granted at grant date.
Investment in Joint Ventures
We have adopted the equity method of accounting for our investments in the
Caterpillar and Nikon joint ventures. This requires that we record our share of
the joint ventures' profits or losses in a given fiscal period. See Note 3 of
the Notes to the Consolidated Financial Statements for joint venture accounting.
Upon the formation of our Caterpillar joint venture in April 2002, we received a
cash distribution of $11.0 million. We have elected to treat the cash
distribution as a deferred gain, being amortized to the extent that losses are
attributable from the Caterpillar joint venture under the equity method
described above. When and if the joint venture is profitable on a sustainable
basis and future operating losses are not anticipated, then we will recognize as
a gain, the portion of the $11.0 million, which is unamortized. To the extent
that it is possible that we will have any future-funding obligation relating to
the Caterpillar joint venture, then the relevant amount of the $11.0 million
will be deferred until such time that the funding obligation no longer exists.
As of January 2, 2004, the balance of the unamortized deferred gain was $9.8
million.
RECENT BUSINESS DEVELOPMENTS
Nikon-Trimble Joint Venture
On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to
form a joint venture in Japan, Nikon-Trimble Co., Ltd. ("Nikon-Trimble"), which
would assume the operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of
Nikon Corporation and Trimble Japan KK, our Japanese subsidiary. Nikon-Trimble
began operations in July of 2003.
Under the terms of the Nikon-Trimble agreement, Nikon contributed (Y)1.2 billion
(approximately US$10 million on June 30, 2003) in cash, while we contributed
(Y)500 million (approximately US$4.1 million as of June 30, 2003) in cash and
(Y)700 million of our common stock or 349,251 shares valued at approximately
US$5.9 million on June 30, 2003. Nikon-Trimble purchased certain tangible and
intangible assets from Nikon Geotecs Co., Ltd., and Trimble Japan KK.
Nikon-Trimble is 50% owned by us and 50% owned by Nikon, with equal voting
rights for both. Nikon-Trimble focuses on the design and manufacture of
surveying instruments including mechanical total stations and related products.
In Japan, this joint venture will distribute Nikon's survey products as well as
our GPS survey products and other Engineering and Construction products,
including robotic total stations. Outside Japan, we will be the exclusive
distributor of Nikon survey and construction products.
* We expect the joint venture to enhance our market position in survey
instruments through geographic expansion and market penetration. Nikon's line of
instruments will broaden our survey and construction product portfolio and
enable us to better access emerging markets. It will also provide us with the
ability to sell our GPS and robotic technology to existing Nikon customers.
Additionally, we expect to improve our market position in Japan because of the
Nikon-Trimble distribution network.
Acquisitions
Applanix Corporation
* On July 7, 2003, we acquired privately held Applanix Corporation, a Canadian
developer of systems that integrate inertial navigation system and GPS
technologies. We expect the Applanix acquisition to extend our technology
portfolio and enable increased robustness and capabilities in our future
positioning products. Applanix's performance is reported under our Portfolio
Technologies segment.
MENSI S.A.
* On December 9, 2003, we acquired privately held MENSI S.A., a French developer
of terrestrial 3D laser scanning technology. We expect the MENSI acquisition to
enhance our technology portfolio and expand our product offerings. MENSI's
performance is reported under our Engineering and Construction segment.
The combined purchase price of Applanix and MENSI was approximately $25 million.
TracerNET Corporation
* On March 5, 2004, we acquired privately held TracerNET Corporation of
Virginia, a provider of wireless fleet management solutions. We expect the
TracerNET acquisition to offer more diverse and complete fleet management
solutions. TracerNET's performance will be reported under our Mobile Solutions
segment.
RESULTS OF OPERATIONS
The following table shows revenue and operating income by segment for the
periods indicated and should be read in conjunction with the narrative
descriptions below. Operating income by segment excludes unallocated corporate
expenses which are comprised primarily of general and administrative costs,
amortization of purchased intangibles as well as other items not controlled by
the business segment. Segment operating income for fiscal 2002 and fiscal 2001
have been restated to reflect the allocations of certain corporate expenses so
as to be comparable with the allocation methodology in fiscal 2003.
At the beginning of fiscal 2003, we realigned two of our reportable segments.
The following table shows restated revenue and operating income by segment to
reflect this realignment. The Tripod Data Systems business is now included in
the Engineering and Construction segment and was previously included in the
Portfolio Technologies segment.
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(Dollars in thousands)
Total consolidated revenue $540,903 $466,602 $475,292
Total consolidated operating income $83,586 $62,320 $62,306
Engineering and Construction
Revenue $367,058 $319,615 $317,849
Segment revenue as a percent of total revenue 68% 68% 67%
Operating income 60,664 53,453 49,849
Operating income as a percent of segment revenue 17% 17% 16%
Field Solutions
Revenue 79,879 67,259 68,519
Segment revenue as a percent of total revenue 15% 14% 14%
Operating income 14,500 9,676 11,349
Operating income as a percent of segment revenue 18% 14% 17%
Mobile Solutions
Revenue 12,981 8,486 13,791
Revenue as a percent of total consolidated revenue 2% 2% 3%
Operating loss (6,452) (12,039) (9,990)
Operating loss as a percent of segment revenue (50%) (142%) (72%)
Component Technologies
Revenue 64,193 59,755 58,083
Segment revenue as a percent of total revenue 12% 13% 12%
Operating income 16,560 10,673 10,359
Operating income as a percent of segment revenue 26% 18% 18%
Portfolio Technologies
Revenue 16,792 11,487 17,050
Segment revenue as a percent of total revenue 3% 2% 4%
Operating income (loss) (1,686) 557 738
Operating income (loss) as a percent of segment
revenue (10%) 5% 4%
A reconciliation of our consolidated segment operating income (loss) to
consolidated income before income taxes follows:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(In thousands)
Consolidated segment operating income from
continuing operations $ 83,586 $ 62,320 $ 62,306
Unallocated corporate expense (20,320) (19,098) (29,137)
Amortization of purchased intangible assets (7,312) (8,300) (29,389)
Restructuring charges (2,019) (1,099) (3,599)
Non-operating expense, net (18,350) (19,999) (21,773)
-------- -------- --------
Consolidated income (loss) before income taxes $ 35,585 $ 13,824 $ (21,592)
======== ========= ==========
Basis of Presentation
We have a 52-53 week fiscal year, ending on the Friday nearest to December 31,
which for fiscal 2003 was January 2, 2004. Fiscal 2003 was a 52-week year and
fiscal 2002 a 53-week year. As a result of the extra week in fiscal 2002,
year-over-year results are not exactly comparable. Thus, due to the inherent
nature of adopting a 52-53 week fiscal year, the Company, analysts,
shareholders, investors, and others will have to make appropriate adjustments to
any analysis performed when comparing our activities and results in fiscal years
that contain 53 weeks to those that contain the standard 52 weeks. Fiscal year
2001 comprised 52 weeks.
Impact of Weaker US Dollar on Operating Income in Fiscal 2003
The depreciation of the US dollar versus major European currencies positively
impacted revenues by approximately $15.3 million in fiscal 2003 compared with
fiscal 2002. As a result of our significant manufacturing, distribution,
research and development, and selling expenses incurred outside of the US, the
weaker US dollar negatively impacted our operating income by approximately $5.9
million in fiscal 2003.
Revenue
In fiscal 2003, total revenue increased by $74.3 million or 15.9% to $540.9
million from $466.6 million in fiscal 2002. The increase in fiscal 2003 was
primarily due to stronger performances in all of our operating segments driven
by the new product offerings, increased acceptance of our products in the
markets we serve, expanded distribution and selective acquisitions, as well the
positive impact of the weaker US dollar on revenues generated in foreign
currencies, primarily the Euro. Total revenue in fiscal 2002 decreased by $8.7
million or 1.8% to $466.6 million from $475.3 million in fiscal 2001, primarily
due to the reduction of revenue in Mobile Solutions and Portfolio Technologies
segments.
International Revenues
* Total revenue outside the United States comprised approximately 51% in 2003,
49% in 2002, and 50% in 2001. During the 2003 fiscal year, North and South
America represented 56%, Europe, the Middle East and Africa represented 31%, and
Asia represented 13% of total revenues. In fiscal 2003, the United States
comprised approximately 49% of total revenues. We anticipate that sales to
international customers will continue to account for a significant portion of
our revenue. For this reason, we are subject to the risks inherent in these
foreign sales, including unexpected changes in regulatory requirements, exchange
rates, governmental approval, tariffs, or other barriers. Even though the US
Government announced on March 29, 1996, that it supports and maintains the GPS
system, and on May 1, 2000, stated that it has no intent to restore Selective
Availability, a method of degrading GPS accuracy, there may be reluctance in
certain non-US markets to purchase such products given the control of GPS by the
US Government. Our results of operations could be adversely affected if we were
unable to continue to generate significant sales in locations outside the US.
* No single customer accounted for 10% or more of our total revenues in fiscal
2003, 2002, and 2001. It is possible, however, that in future periods the
failure of one or more large customers to purchase products in quantities
anticipated by us may adversely affect the results of operations.
Gross Margin
Our gross margin varies due to a number of factors including product mix,
international sales mix, customer type, the effects of production volumes and
fixed manufacturing costs on unit product costs, new product start-up costs, and
foreign currency translations. Gross margin as a percentage of total revenues
was 49.6 % in fiscal 2003 and 50.2% in fiscal 2002. The slight decrease in gross
margin percentage for fiscal 2003, compared with fiscal 2002, was due primarily
to the introduction of the Nikon products in the third quarter which generated a
lower consolidated gross margin of approximately 0.8%. This was partially offset
by stronger sales of TDS, GIS, wireless infrastructure, survey products as well
as our ongoing focus on product cost reductions. Shipping and handling costs are
included in cost of goods sold.
Gross margin as a percentage of total revenues was 50.2% in fiscal 2002 and
49.9% in fiscal 2001. The slight increase in gross margin percentage for fiscal
2002, compared with fiscal 2001, was due in part to approximately $3.3 million
of additional charges associated with the write down of obsolete inventory in
fiscal 2001 related to the rationalization and simplification of product lines
and inventories in excess of our forecasted 12-month demand.
* Because of potential product mix changes within and among the industry
markets, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, including increases in component prices and other factors,
current level gross margins cannot be assured. In addition, should the global
economic conditions deteriorate, gross margin could be further adversely
impacted.
Engineering and Construction
Engineering and Construction revenues increased by $47.4 million or 14.8% while
segment operating income increased by $7.2 million or 13.5% for fiscal 2003 as
compared to fiscal 2002. Approximately half of the revenue increase was driven
by new product introductions and our increased marketing efforts. The remaining
increase was split evenly between geographic expansion, especially in Asia and
Russia, and the impact of the weaker US dollar. Segment operating income
increased due to higher revenues that were partially offset by increased
operating expenses outside the United States (largely driven by the weaker US
dollar), increased research and development spending on certain programs as we
continue to invest in developing next generation technology and lower margins
earned on the sale of Nikon products. Overall, segment operating income remained
consistent at 17% of revenues.
Engineering and Construction revenues increased by $1.8 million or 0.6% during
fiscal 2002 as compared to fiscal 2001 primarily due to the LeveLite acquisition
which added $3.6 million of revenues, and strong performance by our machine
control product offering as we continue to penetrate the after-market for
machine guidance on earthmoving equipment. Increased revenues were partially
offset by a reduction in revenues in several product areas due to continued
difficult global economic conditions. Segment operating income increased by $3.6
million or 7.2% in fiscal 2002 over fiscal 2001 primarily due to a reduction of
$4.2 million of operating expenses due to the transfer of employee-related
expenses to Caterpillar Trimble Control Technologies. Higher revenues and lower
operating expenses were partially offset by a reduction in gross margin as a
result of product sales mix during fiscal 2002.
Field Solutions
Field Solutions revenues increased by approximately $12.6 million or 18.8% while
segment operating income increased by $4.8 million or 49.9% for fiscal year 2003
as compared to fiscal 2002. Revenues were up year over year due to continued
strong sales of the GeoExplorer(R) CE series handhelds released at the end of
fiscal 2002, and due to the expansion of our automatic guidance products onto
new agricultural vehicles.
Segment operating income increased in 2003 from the fiscal year 2002 primarily
due to higher revenues. This increase was partially offset by fractionally lower
gross margins and more investment in research and development and sales
functions. This enabled the segment operating income to increase from 14% to 18%
of revenues.
Field Solutions experienced a revenue decline in fiscal 2002 of $1.3 million or
1.8% compared with fiscal 2001 primarily due to the decline in the United States
federal, state, and local government spending and a delay in the release of the
new GeoExplorer(R) CE Series due to component supply issues. This decrease was
partially offset by the increased demand for both the manual and auto guidance
product lines. Segment operating income decreased by $1.7 million or 14.7% in
fiscal 2002 over fiscal 2001 primarily due to the decrease in government
spending described above and lower gross margin due to product sales mix, which
was more weighted toward the relatively lower margin agricultural business area.
Mobile Solutions
Mobile Solutions revenues increased by $4.5 million or 53% in fiscal 2003 over
fiscal 2002 due primarily to an increase in our CrossCheck product sales and
higher fleet management services revenues as a result of an expanded customer
base. Segment operating loss decreased by $5.6 million or 46.4% in fiscal 2003
over fiscal 2002 due to increased revenues and lower operating expenses.
Operating expenses decreased by approximately $3.0 million primarily due to a
reduction in outside services and our personnel related to the completion of our
Telvisant system.
Mobile Solutions revenues decreased by $5.3 million or 38.5% in fiscal 2002 over
fiscal 2001 primarily due to the reduction of approximately $3.0 million in our
satellite communications business as a result of our decision to discontinue the
Galaxy(TM) Inmarsat-C product line in early 2001, a slow down in system
integration projects due to reduced spending at municipalities, and reduced
sales of wireless products of $0.9 million due to a transition from a sensor
provider to a fully integrated service provider. Sales of some product lines
were down as a result of the economic slow down and the shift of technology from
analog to digital.
Segment operating loss increased by $2.0 million or 20.5% in fiscal 2002 over
fiscal 2001 primarily due to the lower revenues as described above, and
increased costs incurred in the development and marketing of a service platform
to enable a range of asset management solutions.
Component Technologies
Component Technologies revenues increased by $4.4 million or 7.4%, while segment
operating income increased by $5.9 million or 55.2% for the fiscal year 2003 as
compared to fiscal 2002. The increase in revenues was primarily due to increased
demand from our existing wireless infrastructure customers. Segment operating
income increased from 18% to 26% of revenues. The increase was primarily due to
a reduction in costs of goods sold due to the transfer of the manufacturing of
our products to China, reduced costs of raw materials, increased revenues and
higher margins aided by favorable product mix.
Component Technologies revenues increased by $1.7 million or 2.9% in fiscal 2002
over fiscal 2001 due primarily to a timing products increase of $4.6 million in
fiscal 2002 over fiscal 2001 due to significant demand during the second half of
fiscal 2002 from new and existing wireless infrastructure customers. IVN revenue
decreased $1.0 million in fiscal 2002 over fiscal 2001 as average selling prices
declined by more than 9%, and license revenue decreased $1.7 million in fiscal
2002 over fiscal 2001 due to an expired license contract. Component Technologies
operating income increased by $0.3 million or 3% in fiscal 2002 over fiscal 2001
as a result of higher gross margins resulting from higher revenues and favorable
product mix, partially offset by higher operating expenses, primarily in
research and development and marketing.
Portfolio Technologies
Portfolio Technologies revenues increased by $5.3 million or 46.2% for the
fiscal year 2003 as compared to fiscal 2002. The increase in revenues was mostly
driven by the inclusion of revenue from Applanix acquired in 2003, while offset
by lower revenue of military-related products. Segment operating income
decreased by $2.2 million or 402.7% for fiscal 2003 as compared to fiscal 2002
due to weaker operating results from military products.
Portfolio Technologies revenues decreased by $5.6 million or 32.6% in fiscal
2002 over fiscal 2001 primarily due to lost revenues of $4.4 million as a result
of the sale of our air transport product line to Honeywell in fiscal 2001.
Portfolio Technologies operating income decreased by $0.2 million or 24.5% in
fiscal 2002 over fiscal 2001 due to the lower revenues which was offset by cost
reduction initiatives.
Operating Expenses
The following table shows operating expenses for the periods indicated and
should be read in conjunction with the narrative descriptions of those operating
expenses below:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(In thousands)
Research and development $ 67,641 $ 61,232 $ 62,881
Sales and marketing 97,870 89,344 103,778
General and administrative 39,253 40,634 37,407
Restructuring charges 2,019 1,099 3,599
Amortization of goodwill and other purchased
intangible assets 7,312 8,300 29,389
----- ----- ------
Total operating expenses $ 214,095 $ 200,609 $ 237,054
========= ========= =========
Research and Development
Research and development expenses increased by $6.4 million to $67.6 million in
fiscal 2003 over fiscal 2002 due to continued investment in next generation
technology primarily in the Engineering and Construction segment, the weakness
of the US dollar versus major European and New Zealand currencies, and also the
inclusion of the research and development expenses from Applanix after the
acquisition in July 2003. Overall spending remained relatively constant at
approximately 13% of revenues. All of our research and development costs have
been expensed as incurred.
Research and development spending decreased by $1.6 million during fiscal 2002
as compared to fiscal 2001 and represented 13% of revenue, consistent with 13%
in fiscal 2001, primarily due to the transfer of employee-related expenses to
our Caterpillar joint venture of approximately $2.8 million, partially offset by
an increase in engineering expenses associated with the introduction of new
products.
* We believe that the development and introduction of new products are critical
to the our future success and we expect to continue active development of new
products.
Sales and Marketing
Sales and marketing expenses increased by $8.5 million to $97.9 million in
fiscal 2003 over fiscal 2002 primarily due to higher revenue, increased sales
efforts mostly in emerging geographic areas such as China and Russia, the impact
of the weaker US dollar in Europe, and the inclusion of Applanix sales and
marketing expenses not applicable in the prior fiscal year. As a percentage of
revenue, sales and marketing expenses decreased from 19% to 18%.
Sales and marketing expenses decreased by $14.4 million in fiscal 2002 and
represented 19% of revenue, compared with 22% in fiscal 2001. During fiscal
2001, we sold off many of our direct sales offices which decreased sales and
marketing expenses by approximately $7.0 million for fiscal 2002, and we
decreased overall compensation, travel, advertising, promotional, and trade show
expenses by approximately $7.4 million for fiscal 2002 compared to the
corresponding period in fiscal 2001.
* Our future growth will depend in part on the timely development and continued
viability of the markets in which we currently compete as well as our ability to
continue to identify and exploit new markets for our products.
General and Administrative
General and administrative expenses in fiscal 2003 decreased by $1.4 million to
$39.3 million and represented 7.3% of revenues compared with 8.7% in fiscal
2002. In fiscal 2002, we experienced higher bad debt expenses, primarily due to
the bankruptcy of a large Japanese distributor. In addition, in fiscal 2003 we
incurred $3.0 million less in information systems expenses. These reductions
were offset in fiscal 2003 by lower sublease income received, expenses from
Applanix after the acquisition in July 2003, and higher compensation costs.
General and administrative expenses increased by $3.2 million in fiscal 2002
representing 9% of revenue, compared with 8% in fiscal 2001 primarily due to an
increase in bad debt provisions related to customers in an uncertain economic
environment and bad debt expenses for accounts written off during the year due
to customer defaults.
Restructuring Charges
Restructuring charges of $2.0 million were recorded in fiscal 2003, $1.1 million
in fiscal 2002, and $3.6 million in fiscal 2001, all of which related to
severance costs, except for $0.3 in 2003 which related to lease costs of our
Japanese office closure due to the Nikon joint venture. As a result of the
restructuring activities, our headcount decreased by 77, 49, and 207 in fiscal
2003, 2002, and 2001, respectively. As of January 2, 2004, the restructuring
accrual balance was approximately $0.4 million which will be paid over the
remaining term of the lease through 2006.
Amortization of Goodwill, Purchased and Other Intangible Assets
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
Amortization of goodwill and purchased
intangibles(1) $ 7,312 $ 8,300 $ 29,389
Amortization of other intangible assets 604 868 917
--- --- ---
Total amortization of goodwill, purchased,
and other intangible assets $ 7,916 $ 9,168 $ 30,306
========= ======== ========
(1) Amortization of goodwill in 2001 only.
Amortization expense of purchased and other intangibles decreased in fiscal 2003
by approximately $1.3 million representing 1.5% of revenue, compared with 2% in
fiscal 2002. The decrease was due to certain Spectra intangibles being fully
amortized during fiscal 2003.
Amortization expense of goodwill, purchased, and other intangibles decreased in
fiscal 2002 by approximately $21.1 million representing 2% of revenue, compared
with 6% in fiscal 2001. The decrease was primarily due to the adoption of FAS
142 in fiscal 2002 that does not require the amortization of goodwill and
intangible assets with indefinite lives.
Non-operating Expense, Net
The following table shows non-operating expense, net for the periods indicated
and should be read in conjunction with the narrative descriptions of those
expenses below:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
Interest income $ 465 $ 659 $ 1,118
Interest expense (11,938) (14,710) (22,224)
Foreign exchange loss (592) (823) (237)
Expenses for affiliated operations, net (6,403) (3,954) -
Other income (expense) 118 (1,171) (430)
--- ------ ----
Total non-operating expense, net $ (18,350) $(19,999) $ (21,773)
========= ======== =========
Non-operating expense, net decreased by $1.6 million or 8% during fiscal 2003 as
compared with fiscal 2002 primarily due to a reduction in interest expense of
$2.8 million offset by an increase in expenses for affiliated operations. The
increase in expenses for affiliated operations is primarily due to the full year
impact of transfer pricing effects on transactions between us and our
Caterpillar joint venture, which commenced operations in April 2002. (See Note 3
of the Notes to the Consolidated Financial Statements for financial information
regarding joint ventures). In addition, we recorded approximately $0.3 million
relating to our share of the losses in our Nikon joint venture established in
2003.
In fiscal 2003, interest expense decreased by approximately $2.8 million due to
continued debt repayment during the year of approximately $51.8 million,
combined with the effect of lower interest rates. Offsetting the lower debt
interest, during the year, we recorded approximately $3.6 million of interest
expense due to the write off of $2.3 million of unamortized debt issuance costs
as a result of our debt refinancing in June 2003, as well as $1.3 million
related to the unamortized portion of warrants associated with the principal
balance of our Subordinated Note. (See Note 9 of the Notes to the Consolidated
Financial Statements for financial information regarding our Subordinated Note.)
Non-operating expense, net decreased by $1.8 million during fiscal 2002 as
compared with fiscal 2001, as a result of a decrease in net interest expense of
$7.1 million due to significant repayment of debt balances during the year of
approximately $52 million, combined with the effect of lower interest rates.
This was partially offset by expenses recorded for affiliated operations of $4.0
million as a result of transfer pricing effects on transactions between us and
our Caterpillar joint venture, an increase in foreign exchange loss of $0.6
million, and a write-down of minority investment of $1.5 million.
Income Tax Provision
Our effective income tax rates from continuing operations for fiscal years 2003,
2002, and 2001 were (8%), 25% and (9%), respectively. The fiscal 2002 and 2001
income tax rates differ from the US federal statutory rate of 35% due primarily
to non-US taxes and the inability to realize the benefit of net operating
losses. The 2003 income tax rate is less than the US federal statutory rate,
primarily due to the realization of benefits from net operating losses and other
previously reserved deferred tax assets.
Litigation Matters
* From time to time, we are involved in litigation arising out of the ordinary
course of our business. There are no known claims or pending litigation that are
expected to have a material effect on our overall financial position, results of
operations, or liquidity.
Off-balance Sheet Financings and Liabilities
Other than lease commitments incurred in the normal course of business, we do
not have any off-balance sheet financing arrangements or liabilities, guarantee
contracts, retained or contingent interests in transferred assets, or any
obligation arising out of a material variable interest in an unconsolidated
entity. We do not have any majority-owned subsidiaries that are not included in
the consolidated financial statements. Additionally, we do not have any interest
in, or relationship with, any special purpose entities.
LIQUIDITY AND CAPITAL RESOURCES
January 2, January 3, December 28,
As of and for the Fiscal Year Ended 2004 2003 2001
- ----------------------------------- ---- ---- ----
(dollars in thousands)
Cash and cash equivalents $ 45,416 $ 28,679 $ 31,078
As a percentage of total assets 8.3% 6.5% 7.4%
Accounts receivable days sales outstanding (DSO) 60 58 53
Inventory turns per year 4 5 4
Total debt $ 90,486 $ 138,525 $ 190,565
Cash provided by operating activities $ 36,460 $ 32,316 $ 26,370
Cash used by investing activities $(22,653) $ (5,766) $(11,441)
Cash provided (used) by financing activities $ 54 $(31,729) $(23,450)
Net increase/(decrease) in cash and cash equivalents $ 16,737 $ (2,399) $ (9,798)
Cash and Cash Equivalents
In fiscal 2003, our cash and cash equivalents increased by $16.7 million from
fiscal 2002. The increase was primarily due to cash generated by operating
activities, partially offset by cash used in investing activities.
In fiscal 2003, cash provided by operating activities was $36.5 million, as
compared to $32.3 million in fiscal 2002. The increase of $4.1 million was
primarily driven by the $28.2 million increase in net income during fiscal 2003
compared to fiscal 2002 offset by an increase in accounts receivable and
inventory and a decrease in accounts payable. Also, fiscal 2002 was positively
impacted by a special one-time distribution of $11.0 million to us from our
Caterpillar joint venture. Our ability to continue to generate cash from
operations will depend in large part on profitability, the rate of collections
of accounts receivable, our inventory turns, and our ability to manage other
areas of working capital. Our accounts receivable days for sales outstanding
increased from 58 days at the end of fiscal 2002 to 60 days at the end of fiscal
2003. Our inventory turns decreased from five at the end of fiscal 2002 to four
at the end of fiscal 2003.
Cash used in investing activities were $22.7 million in fiscal 2003 as compared
to $5.8 million in fiscal 2002. The increase was primarily due to approximately
$4.8 million invested in our Nikon joint venture upon its formation, $2.2
million and $4.3 million cash outlays related to our acquisitions of Applanix
and MENSI, respectively, certain earn-out payments made as a result of our
previous LeveLite acquisition, and increased expenditure on capital equipment.
During fiscal 2003, we spent approximately $10.9 million on capital
expenditures.
Cash provided by financing activities, net, was neutral in fiscal 2003, as
compared to $31.7 million cash used in fiscal 2002. However during fiscal 2003,
we repaid approximately $69 million of debt-related to our previous Subordinated
Note and Credit Facility. These debt payments were funded primarily by proceeds
from the issuance of common stock to employees pursuant to our stock option plan
and employee stock purchase plan of approximately $13.9 million, as well as
issuance of common stock under a private equity placement of $38.3 million. On
April 14, 2003, we sold 3,148,000 shares of our common stock, no par value per
share, to an investor at a price of $12.17 per share in an offering pursuant to
our shelf registration statement. The offering resulted in net proceeds to us of
approximately $36.6 million, approximately $31 million of which was used to pay
down the principal balance on the Subordinated Note and $5.6 million was used to
pay down the accrued interest on that Note.
* We believe that our cash and cash equivalents, together with our credit
facilities, will be sufficient to meet our anticipated operating cash needs for
at least the next twelve months. At January 2, 2004, we had $45.4 million of
cash and cash equivalents as well as access to $81 million of cash under the
terms of our revolver loans.
* We expect fiscal 2004 capital expenditures to be approximately $12 million to
$14 million, primarily for computer equipment, software, manufacturing tools and
test equipment, and leasehold improvements associated with business expansion.
Decisions related to how much cash is used for investing are influenced by the
expected amount of cash to be provided by operations.
Debt
At the end of fiscal 2003, our total debt was approximately $90.5 million as
compared with approximately $138.5 million at the end of fiscal 2002. This
balance primarily consists of $43.8 million outstanding under a term loan and
$44.0 million outstanding under a senior secured revolving credit facility. On
June 25, 2003, we obtained a new Credit Facility (comprising of a term loan and
revolver) in the amount of $109 million that enabled us to pay off our
indebtedness under our previous credit facility and the Subordinated Note.
The new Credit Facility is secured by all material assets of our Company, except
for a portion of assets that are not pledged due to foreign tax considerations.
Financial covenants of the Credit Facility include leverage, fixed charge, and
minimum net worth tests. At January 2, 2004 and as of the date of this report,
we are in compliance with all debt covenants. The amortized principal, interest,
and commitment fees due under the Credit Facility are paid quarterly. Under the
four-year term loan portion of the Credit Facility, we are due to make payments
(excluding interest) of approximately $12.5 million in each of the next three
fiscal years (2004, 2005, and 2006), and $6.3 million in fiscal 2007.
Under the terms of the Credit Facility, we are allowed to pay dividends and
repurchase shares of our common stock up to 25% of net income in the previous
fiscal year. For additional discussion of our debt, see Note 9 of Notes to the
Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The following table summarizes our future payment obligations:
Less than 1-3 3-5 More than
Contractual Obligations Total 1 year Years years 5 years
- ----------------------- ----- ------ ----- ----- -------
(in thousands)
Total debt including $ 99,941 $ 17,310 $ 73,570 $ 7,851 $ 1,210
interest
Operating leases 28,141 10,129 11,723 3,132 3,157
Purchase obligations 33,062 31,485 1,577 - -
------ ------ -----
Total $ 161,144 $ 58,924 $ 86,870 $ 10,983 $ 4,367
========== ========== ========== ========= =========
* As of January 2, 2004, $65.9 million of our total debt was subject to variable
quarterly interest rates. Per our loan agreement, we pay a three-month LIBOR
rate plus a certain spread that depends on our leverage ratio. Our spread is
expected to be 1.5% over the remaining life of our obligation of the debt. We
have assumed a three-month LIBOR rate of 1.20% for each quarter in fiscal 2004
and have forecasted an increase of 25 basis points quarter over quarter to a
maximum of 3.25%. (See Note 9 of the Notes to the Consolidated Financial
Statements for further financial information regarding long-term debt)
Purchase obligations represent open purchase orders for material purchases with
our customers. Our pension obligation which is not included in the table above,
and is included in "Other non-current liabilities" on our Consolidated Balance
Sheets, is disclosed at Note 14 of the Notes to the Consolidated Financial
Statements.
New Accounting Standards
In November of 2002, the Emerging Issues Task Force (EITF) reached a consensus
on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF
Issue No. 00-21 provides guidance on how to account for arrangements that
involve the delivery or performance of multiple products, services, and/or
rights to use assets. The provisions of EITF Issue No. 00-21 apply to revenue
arrangements entered into in fiscal periods beginning after June 15, 2003.
Adoption of EITF Issue No. 00-21 did not have a material effect on our results.
Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," was issued in January 2003, and a
revised interpretation of FIN 46 (FIN 46-R) was issued in December 2003. FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The provisions of FIN 46 are
effective immediately for all arrangements entered into after January 31, 2003.
Since January 31, 2003, we have not obtained any variable interests in any
entities we believe are variable interest entities. For arrangements entered
into prior to February 1, 2003, we are required to adopt the provisions of FIN
46-R in the first quarter of fiscal 2004. We are in the process of determining
the effect, if any, the adoption of FIN 46-R will have on our financial
statements.
In April 2003, the FASB issued Statement of Financial Accounting Standard (SFAS)
No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging
Activities." SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities under SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is effective for contracts entered into or
modified after June 30, 2003, and for hedging relationships designated after
June 30, 2003. The adoption of this Statement did not have an effect on our
financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. Many
of these instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise was effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this Statement did not have an
effect on our financial statements.
RISKS AND UNCERTAINTIES
You should carefully consider the following risk factors, in addition to the other information contained in this Form 10-K and in any other documents to which we refer you in this Form 10-K, before purchasing our securities. The risks and uncertainties described below are not the only ones we face.
Our Inability to Accurately Predict Orders and Shipments May Affect Our Revenue, Expenses and Earnings per Share.
Share.
We have not been able in the past to consistently predict when our customers will place orders and request shipments so that we cannot always accurately plan our manufacturing requirements. As a result, if orders and shipments differ from what we predict, we may incur additional expenses and build excess inventory, which may require additional reserves and allowances. Any significant change in our customers'customers’ purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular quarter.
Our Operating Results in Each Quarter May Be Affected by Special Conditions, Such As Seasonality, Late Quarter Purchases, Weather, and Other Potential Issues.
Due in part to the buying patterns of our customers, a significant portion of our quarterly revenues occurs from orders received and immediately shipped to customers in the last few weeks and days of each quarter, although our operating expenses tend to remain fairly predictable. Engineering and construction purchases tend to occur in early spring, and governmental agencies tend to utilize funds available at the end of the government'sgovernment’s fiscal year for additional purchases at the end of our third fiscal quarter in September of each year. Concentrations of orders sometimes also occur at the end of our other two fiscal quarters. Additionally, a majority of our sales force earns commissions on a quarterly basis which may cause concentrations of orders at the end of any fiscal quarter. If for any reason expected sales are deferred, orders are not received, or shipments are delayed a few days at the end of a quarter, our operating results and reported earnings per share for that quarter could be significantly impacted.
We Are Dependent on a SoleSpecific Manufacturer and Assembler for Many of Our Products and on SoleSpecific Suppliers of Critical Parts for Our Products.
We are substantially dependent upon Solectron Corporation in California, China and Mexico as the exclusiveour preferred manufacturing partner for many of our GPS products previously manufactured out of our Sunnyvale facilities. Under the agreement with Solectron, we provide to Solectron a twelve-month product forecast and place purchase orders with Solectron at least thirty calendar days in advance of the scheduled delivery of products to our customers depending on production lead time. Although purchase orders placed with Solectron are cancelable, the terms of the agreement would require us to purchase from Solectron all inventory not returnable or usable by other Solectron customers. Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate manufacturing capacity from Solectron to meet customers'customers’ delivery requirements or we may accumulate excess inventories, if such inventories are not usable by other Solectron customers.
Our current contract with Solectron continues in effect until either party gives the other ninety days written notice.
Solectron is assembling all of our Component Technologies products in China.
Although this initiative in China has brought cost savings over assembling in
California, we may experience quality control issues, shipping delays, or other
problems associated with manufacturing in China.
In addition, we rely on solespecific suppliers for a number of our critical components. We have experienced shortages of components in the past. Our current reliance on solespecific or a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing. Any inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply or to manufacture such components internally could significantly delay our ability to ship our products, which could damage relationships with current and prospective customers and could harm our reputation and brand, and could have a material adverse effect on our business.
Our Annual and Quarterly Performance May Fluctuate.
Our operating results have fluctuated and can be expected to continue to fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Results in any period could be affected by:
o changes in market demand,
o competitive market conditions,
o market acceptance of existing or new products,
o fluctuations in foreign currency exchange rates,
o the cost and availability of components,
o our ability to manufacture and ship products,
o the mix of our customer base and sales channels,
o the mix of products sold,
o our ability to expand our sales and marketing organization
effectively,
o our ability to attract and retain key technical and managerial
employees,
o the timing of shipments of products under contracts and sale of
licensing rights, and
o general global economic conditions.
| · | changes in market demand, |
| · | competitive market conditions, |
| · | market acceptance of existing or new products, |
| · | fluctuations in foreign currency exchange rates, |
| · | the cost and availability of components, |
| · | our ability to manufacture and ship products, |
| · | the mix of our customer base and sales channels, |
| · | the mix of products sold, |
| · | our ability to expand our sales and marketing organization effectively, |
| · | our ability to attract and retain key technical and managerial employees, |
| · | the timing of shipments of products under contracts and |
| · | general global economic conditions. |
In addition, demand for our products in any quarter or year may vary due to the seasonal buying patterns of our customers in the agricultural and engineering and construction industries. Due to the foregoing factors, our operating results in one or more future periods are expected to be subject to significant fluctuations. The price of our common stock could decline substantially in the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, which are based primarily on historical models that are not necessarily accurate representations of the future.
Our Gross Margin Is Subject to Fluctuation.
Our gross margin is affected by a number of factors, including product mix, product pricing, cost of components, foreign currency exchange rates and manufacturing costs. For example, sales of NikonNikon-branded products generally have lower gross margins as compared to our GPS survey products. Absent other factors, a shift in sales towards NikonNikon-branded products would lead to a reduction in our overall gross marginsmargins. A decline in gross margin could potentially negatively impact our earnings per share.
Our Business is Subject
Failure to Disruptions and Uncertainties Caused by War or
Terrorism.
Actsmaintain effective internal controls in compliance with Section 404 of war or acts of terrorismthe Sarbanes-Oxley Act could have a material adverse impact on our
business, operating results, and financial condition. The threat of terrorism
and war and heightened security and military response to this threat, or any
future acts of terrorism, may cause further disruption to our economy and create
further uncertainties. To the extent that such disruptions or uncertainties
result in delays or cancellations of orders, or the manufacture or shipment of
our products, our business, operating results, and financial condition could be
materially and adversely affected.
Our Substantial Indebtedness Could Materially Restrict Our Operations and
Adversely Affect Our Financial Condition.
We now have, and for the foreseeable future expect to have, a significant level
of indebtedness. Our substantial indebtedness could:
o increase our vulnerability to general adverse economic and industry
conditions;
o limit our ability to fund future working capital, capital
expenditures, research and development and other general corporate
requirements, or to make certain investments that could benefit us;
o require us to dedicate a substantial portion of our cash flow to
service interest and principal payments on our debt;
o limit our flexibility to react to changes in our business and the
industry in which we operate; and
o limit our ability to borrow additional funds.
Our Credit Agreement Contains Financial Covenants.
On June 25, 2003, we executed a Credit Agreement with Scotia Capital and certain
other banks which provides for financial commitments totaling up to $175
million. This credit facility contains financial covenants regarding minimum
fixed charge coverage and maximum leverage ratio which are extremely sensitive
to changes in earnings before interest, taxes, depreciation and amortization, or
EBITDA. In turn, EBITDA is highly correlated to revenues and costs. If we
default on one or more covenants, we will have to obtain either negotiated
waivers or amendments to the Credit Agreement. If we were unable to obtain such
waivers or amendments, the banks would have the right to accelerate the payment
of our outstanding obligations under the Credit Agreement which would have a
materialan adverse effect on our business and stock price.
Section 404 of the Sarbanes-Oxley Act requires us to include an internal control report of management in our Annual Report on Form 10-K. For fiscal 2004 and 2005 we satisfied the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial conditionreporting and viability as an operating
company.a report by our independent auditors addressing these assessments.
A system of controls, however well designed and operated, cannot provide absolute assurance that the objectives of the system will be met. In addition, the design of a default under onecontrol system is based in part upon certain assumptions about the likelihood of our debt instruments may also
trigger cross defaults under our other debt instruments. An eventfuture events. Because of default
under any debt instrument, if not cured or waived, could have a material adverse
effect on us.
We Rely on Key Customers.
We generate a portionthe inherent limitations of our revenue from large original equipment manufacturers
such as Siemens VDO Automotive AG and Nortel. A reduction or loss of business
with these customers could have a material adverse effect on our financial
condition and results of operations. There can be nocontrol systems, there is only reasonable assurance that weour controls will be
able to continue to realize value from these relationshipssucceed in the future.
achieving their stated goals under all potential future conditions.
We Are Dependent on New Products.
Our future revenue stream depends to a large degree on our ability to bring new products to market on a timely basis. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance of such products. We may incur problems in the future in innovating and introducing new products. Our development stage products may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we were unable to successfully define, develop and introduce competitive new products, and enhance existing products, our future results of operations would be adversely affected. Development and manufacturing schedules for technology products are difficult to predict, and we might not achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. A delay in new product introductions could have a significant impact on our results of operations.
We May Not Be Able to Enter Into or Maintain Important Alliances.
We believe that in certain business opportunities our success will depend on our
ability to form and maintain alliances with industry participants, such as
Caterpillar, Nikon, McNeilus, and CNH Global. Our failure to form and maintain
such alliances, or the pre-emption of such alliances by actions of other
competitors or us, will adversely affect our ability to penetrate emerging
markets. No assurances can be given that we will not experience problems from
current or future alliances or that we will realize value from any such
strategic alliances.
We Are Dependent on the Availability of Allocated Bands Within the Radio
Frequency Spectrum.
Our GPS technology is dependent on the use of the Standard Positioning Service
("SPS") provided by the US Government's GPS. The GPS SPS operates in radio
frequency bands that are globally allocated for radio navigation satellite
services. International allocations of radio frequency are made by the
International Telecommunications Union ("ITU"), a specialized technical agency
of the United Nations. These allocations are further governed by radio
regulations that have treaty status and which may be subject to modification
every two to three years by the World Radio Communication Conference.
Any ITU reallocation of radio frequency bands, including frequency band
segmentation or sharing of spectrum, may materially and adversely affect the
utility and reliability of our products, which would, in turn, cause a material
adverse effect on our operating results. Many of our products use other radio
frequency bands, together with the GPS signal, to provide enhanced GPS
capabilities, such as real-time kinematics precision. The continuing
availability of these non-GPS radio frequencies is essential to provide enhanced
GPS products to our precision survey markets. Any regulatory changes in spectrum
allocation or in allowable operating conditions may materially and adversely
affect the utility and reliability of our products, which would, in turn, cause
a material adverse effect on our operating results.
In addition, unwanted emissions from mobile satellite services and other
equipment operating in adjacent frequency bands or in-band from licensed and
unlicensed devices may materially and adversely affect the utility and
reliability of our products, which could result in a material adverse effect on
our operating results. The FCC continually receives proposals for novel
technologies and services, such as ultra-wideband technologies, which may seek
to operate in, or across, the radio frequency bands currently used by the GPS
SPS and other public safety services. Adverse decisions by the FCC that result
in harmful interference to the delivery of the GPS SPS and other radio frequency
spectrum also used in our products may materially and adversely affect the
utility and reliability of our products, which could result in a material
adverse effect on our business and financial condition.
We Are Subject to the Adverse Impact of Radio Frequency Congestion.
We have certain products, such as GPS RTK systems, surveying and mapping
systems, and Robotic Total Stations, that use integrated radio communication
technology requiring access to available radio frequencies allocated by the FCC
(or the NTIA in the case of federal government users of this equipment) for
which the end user is required to obtain a license in order to operate their
equipment. In addition, access to these frequencies by state agencies is under
management by state radio communications coordinators. Some bands are
experiencing congestion that excludes their availability for access by state
agencies in some states, including the State of California. To reduce
congestion, the FCC announced that it will require migration of radio technology
from wideband to narrowband operations in these bands. In December 2003, the FCC
stayed the effectiveness of its new rules until it acts on petitions requesting
a reconsideration of this new requirement. The stay is indefinite at this point
and the outcome of this proceeding is unknown at this time. An inability to
obtain access to these radio frequencies by end users, and for new products to
comply with FCC requirements, could have an adverse effect on our operating
results.
Many of Our Products Rely on the GPS Satellite System.
The GPS satellites and their ground support systems are complex electronic
systems subject to electronic and mechanical failures and possible sabotage. The
satellites were originally designed to have lives of 7.5 years and are subject
to damage by the hostile space environment in which they operate. However, of
the current deployment of 28 satellites in place, some have already been in
operation for 13 years. To repair damaged or malfunctioning satellites is
currently not economically feasible. If a significant number of satellites were
to become inoperable, there could be a substantial delay before they are
replaced with new satellites. A reduction in the number of operating satellites
may impair the current utility of the GPS system and the growth of current and
additional market opportunities.
In addition, there can be no assurance that the US Government will remain
committed to the operation and maintenance of GPS satellites over a long period,
or that the policies of the US Government for the use of GPS without charge will
remain unchanged. However, a 1996 Presidential Decision Directive marks the
first time in the evolution of GPS that access for civilian use free of direct
user fees is specifically recognized and supported by Presidential policy. In
addition, Presidential policy has been complemented by corresponding
legislation, signed into law. Because of ever-increasing commercial applications
of GPS, other US Government agencies may become involved in the administration
or the regulation of the use of GPS signals. Any of the foregoing factors could
affect the willingness of buyers of our products to select GPS-based systems
instead of products based on competing technologies.
Many of our products also use signals from systems that augment GPS, such as the
Wide Area Augmentation System (WAAS) and national Differential GPS System
(NDGPS). Many of these augmentation systems are operated by the federal
government and rely on continued funding and maintenance of these systems. Any
curtailment of the operating capability of these systems could result in
decreased user capability thereby impacting our markets.
Any resulting change in market demand for GPS products could have a material
adverse effect on our financial results. For example, European governments have
expressed interest in building an independent satellite navigation system, known
as Galileo. Depending on the as yet undetermined design and operation of this
system, there may be interference to the delivery of the GPS SPS and may
materially and adversely affect the utility and reliability of our products
which could result in a material adverse effect on our business and operating
results.
We Face Risks in Investing in and Integrating New Acquisitions.
Acquisitions of companies, divisions of companies, or products entail numerous
risks, including:
o potential inability to successfully integrate acquired operations and
products or to realize cost savings or other anticipated benefits from
integration;
o diversion of management's attention;
o loss of key employees of acquired operations;
o the difficulty of assimilating geographically dispersed operations and
personnel of the acquired companies;
o the potential disruption of our ongoing business;
o unanticipated expenses related to such integration;
o the correct assessment of the relative percentages of in-process
research and development expense that can be immediately written off
as compared to the amount which must be amortized over the appropriate
life of the asset;
o the impairment of relationships with employees and customers of either
an acquired company or our own business;
o the potential unknown liabilities associated with acquired business;
and
o inability to recover strategic investments in development stage
entities.
As a result of such acquisitions, we have significant assets that include
goodwill and other purchased intangibles. The testing of these intangibles under
established accounting guidelines for impairment requires significant use of
judgment and assumptions. Changes in business conditions could require
adjustments to the valuation of these assets. In addition, losses incurred by a
company in which we have an investment may have a direct impact on our financial
statements or could result in our having to write-down the value of such
investment. Any such problems in integration or adjustments to the value of the
assets acquired could harm our growth strategy and have a material adverse
effect on our business, financial condition and compliance with debt covenants.
We Face Competition in Our Markets.
Our markets are highly competitive and we expect that both direct and indirect
competition will increase in the future. Our overall competitive position
depends on a number of factors including the price, quality and performance of
our products, the level of customer service, the development of new technology
and our ability to participate in emerging markets. Within each of our markets,
we encounter direct competition from other GPS, optical and laser suppliers and
competition may intensify from various larger US and non-US competitors and new
market entrants, some of which may be our current customers. The competition in
the future, may, in some cases, result in price reductions, reduced margins or
loss of market share, any of which could materially and adversely affect our
business, operating results and financial condition. We believe that our ability
to compete successfully in the future against existing and additional
competitors will depend largely on our ability to execute our strategy to
provide systems and products with significantly differentiated features compared
to currently available products. We may not be able to implement this strategy
successfully, and our products may not be competitive with other technologies or
products that may be developed by our competitors, many of whom have
significantly greater financial, technical, manufacturing, marketing, sales and
other resources than we do.
We Are Dependent on Proprietary Technology.
Our future success and competitive position is dependent upon our proprietary technology, and we rely on patent, trade secret, trademark and copyright law to protect our intellectual property. The patents owned or licensed by us may be invalidated, circumvented, and challenged. The rights granted under these patents may not provide competitive advantages to us. Any of our pending or future patent applications may not be issued within the scope of the claims sought by us, if at all.
Others may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents owned by us. In addition, effective copyright, patent and trade secret protection may be unavailable, limited or not applied for in certain countries. The steps taken by us to protect our technology might not prevent the misappropriation of such technology.
The value of our products relies substantially on our technical innovation in fields in which there are many current patent filings. We recognize that as new patents are issued or are brought to our attention by the holders of such patents, it may be necessary for us to withdraw products from the market, take a license from such patent holders, or redesign our products. We do not believe any of our products currently infringe patents or other proprietary rights of third parties, but we cannot be certain they do not do so. In addition, the legal costs and engineering time required to safeguard intellectual property or to defend against litigation could become a significant expense of operations. Such events could have a material adverse effect on our revenues or profitability.
Our products may contain errors or defects, which could result in damage to our reputation, lost revenues, diverted development resources and increased service costs, warranty claims and litigation.
Our devices are complex and must meet stringent requirements. We warrant that our products will be free of defect for various periods of time, depending on the product. In addition, certain of our contracts include epidemic failure clauses. If invoked, these clauses may entitle the customer to return or obtain credits for products and inventory, or to cancel outstanding purchase orders even if the products themselves are not defective.
We must develop our products quickly to keep pace with the rapidly changing market, and we have a history of frequently introducing new products. Products and services as sophisticated as ours could contain undetected errors or defects, especially when first introduced or when new models or versions are released. In general, our products may not be free from errors or defects after commercial shipments have begun, which could result in damage to our reputation, lost revenues, diverted development resources, increased customer service and support costs and warranty claims and litigation which could harm our business, results of operations and financial condition.
We Are Dependent on the Availability of Allocated Bands within the Radio Frequency Spectrum.
Our GPS technology is dependent on the use of the Standard Positioning Service (“SPS”) provided by the US Government’s GPS. The GPS SPS operates in radio frequency bands that are globally allocated for radio navigation satellite services. International allocations of radio frequency are made by the International Telecommunications Union (“ITU”), a specialized technical agency of the United Nations. These allocations are further governed by radio regulations that have treaty status and which may be subject to modification every two to three years by the World Radio Communication Conference.
Any ITU reallocation of radio frequency bands, including frequency band segmentation or sharing of spectrum, may materially and adversely affect the utility and reliability of our products. Many of our products use other radio frequency bands, together with the GPS signal, to provide enhanced GPS capabilities, such as real-time kinematic precision. The continuing availability of these non-GPS radio frequencies is essential to provide enhanced GPS products to our precision survey and construction machine controls markets. Any regulatory changes in spectrum allocation or in allowable operating conditions may cause a material adverse effect on our operating results.
In addition, unwanted emissions from mobile satellite services and other equipment operating in adjacent frequency bands or in-band from licensed and unlicensed devices may materially and adversely affect the utility and reliability of our products. The FCC continually receives proposals for novel technologies and services, such as ultra-wideband technologies, which may seek to operate in, or across, the radio frequency bands currently used by the GPS SPS and other public safety services. Adverse decisions by the FCC that result in harmful interference to the delivery of the GPS SPS and other radio frequency spectrum also used in our products may result in a material adverse effect on our business and financial condition.
Many of Our Products Rely on the GPS Satellite System.
The GPS satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites currently in orbit were originally designed to have lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. However, of the current deployment of 29 satellites in place, some have already been in operation for 12 years. To repair damaged or malfunctioning satellites is currently not economically feasible. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites may impair the current utility of the GPS system and the growth of current and additional market opportunities.
In 2004, a Presidential policy affirmed a 1996 Presidential Decision Directive that marked the first time in the evolution of GPS that access for civilian use free of direct user fees. In addition, Presidential policy has been complemented by corresponding legislation, that was signed into law. However, there can be no assurance that the US Government will remain committed to the operation and maintenance of GPS satellites over a long period, or that the policies of the US Government for the use of GPS without charge will remain unchanged. Because of ever-increasing commercial applications of GPS, other US Government agencies may become involved in the administration or the regulation of the use of GPS signals. Any of the foregoing factors could affect the willingness of buyers of our products to select GPS-based systems instead of products based on competing technologies.
Many of our products also use signals from systems that augment GPS, such as the Wide Area Augmentation System (WAAS) and National Differential GPS System (NDGPS). Many of these augmentation systems are operated by the federal government and rely on continued funding and maintenance of these systems. In addition, some of our products also use satellite signals from the Russian Glonass System. Any curtailment of the operating capability of these systems could result in decreased user capability thereby impacting our markets.
The European governments have begun development of an independent satellite navigation system, known as Galileo. We believe we will have access to the signal design to develop compatible receivers. However, if access to the signal structure is delayed it may have a materially adverse effect on our business and operating results.
We may be Materially Affected by New Regulatory Requirements.
We are subject to various federal, state and local environmental laws and regulations that govern our operations, including the handling and disposal of non-hazardous and hazardous wastes, and emissions and discharges into the environment. Failure to comply with such laws and regulations could result in costs for corrective action, penalties, or the imposition of other liabilities.
In particular, under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating hazardous substances or petroleum products on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. In addition, we face increasing complexity in our product design and procurement operations as we adjust to new and upcoming requirements relating to the materials composition of many of our products. The European Union (“EU”) has adopted new directives to facilitate the recycling of electrical and electronic equipment sold in the EU. One of these is the Restriction on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) directive. The RoHS directive restricts the use of lead, mercury and certain other substances in electrical and electronic products placed on the market in the European Union after September 30, 2006.
Similar laws and regulations have been or may be enacted in other regions, including in the United States, China and Japan. Other environmental regulations may require us to reengineer our products to utilize components which are more environmentally compatible and such reengineering and component substitution may result in additional costs to us. Although we do not anticipate any material adverse effects based on the nature of our operations and the effect of such laws, there is no assurance that such existing laws or future laws will not have a material adverse effect on our business.
Our Business is Subject to Disruptions and Uncertainties Caused by War or Terrorism.
Acts of war or acts of terrorism could have a material adverse impact on our business, operating results, and financial condition. The threat of terrorism and war and heightened security and military response to this threat, or
any future acts of terrorism, may cause further disruption to our economy and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of orders, or the manufacture or shipment of our products, our business, operating results, and financial condition could be materially and adversely affected.
We Are Exposed to Fluctuations in Currency Exchange Rates.
A significant portion of our business is conducted outside the US, and as such, we face exposure to movements in non-US currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Fluctuation in currency impacts our operating results.
Currently, we hedge only those currency exposures associated with certain assets and liabilities denominated in non-functional currencies. The hedging activities undertaken by us are intended to offset the impact of currency fluctuations on certain non-functional currency assets and liabilities. Our attempts to hedge against these risks may not be successful resulting in an adverse impact on our net income.
We Face Risks in Investing in and Integrating New Acquisitions.
We have recently acquired several companies and may in the future acquire other companies. Acquisitions of companies, divisions of companies, or products entail numerous risks, including:
| · | potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration; |
| · | diversion of management’s attention; |
| · | loss of key employees of acquired operations; |
| · | the difficulty of assimilating geographically dispersed operations and personnel of the acquired companies; |
| · | the potential disruption of our ongoing business; |
| · | unanticipated expenses related to such integration; |
| · | the correct assessment of the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount which must be amortized over the appropriate life of the asset; |
| · | the impairment of relationships with employees and customers of either an acquired company or our own business; |
| · | the potential unknown liabilities associated with acquired business; and |
| · | inability to recover strategic investments in development stage entities. |
As a result of such acquisitions, we have significant assets that include goodwill and other purchased intangibles. The testing of these intangibles under established accounting guidelines for impairment requires significant use of judgment and assumptions. Changes in business conditions could require adjustments to the valuation of these assets. In addition, losses incurred by a company in which we have an investment may have a direct impact on our financial statements or could result in our having to write-down the value of such investment. Any such problems in integration or adjustments to the value of the assets acquired could harm our growth strategy and have a material adverse effect on our business, financial condition and compliance with debt covenants.
We May Not Be Able to Enter Into or Maintain Important Alliances.
We believe that in certain business opportunities our success will depend on our ability to form and maintain alliances with industry participants, such as Caterpillar, Nikon, and CNH Global. Our failure to form and maintain such alliances, or the pre-emption of such alliances by actions of other competitors or us, will adversely affect our ability to penetrate emerging markets. No assurances can be given that we will not experience problems from current or future alliances or that we will realize value from any such strategic alliances.
We Face Competition in Our Markets.
Our markets are highly competitive and we expect that both direct and indirect competition will increase in the future. Our overall competitive position depends on a number of factors including the price, quality and performance of our products, the level of customer service, the development of new technology and our ability to participate in emerging markets. Within each of our markets, we encounter direct competition from other GPS, optical and laser suppliers and competition may intensify from various larger US and non-US competitors and new market entrants, some of which may be our current customers. The competition in the future may, in some cases, result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. We believe that our ability to compete successfully in the future against existing and additional competitors will depend largely on our ability to execute our strategy to provide systems and products with significantly differentiated features compared to currently available products. We may not be able to implement this strategy successfully, and our products may not be competitive with other technologies or products that may be developed by our competitors, many of whom have significantly greater financial, technical, manufacturing, marketing, sales and other resources than we do.
We Must Carefully Manage Our Future Growth.
Growth in our sales or continued expansion in the scope of our operations could strain our current management, financial, manufacturing and other resources, and may require us to implement and improve a variety of operating, financial and other systems, procedures, and controls. SpecificallyWe have recently implemented a new enterprise resource planning software system and we have experienced strainmay experience in our financial and order management system. We are expanding our sales,
accounting, manufacturing, and other information systems to meetprocessing as a result of new procedures. Problems associated with any improvement or expansion of these
challenges. These systems, procedures or controls may not be adequate to
supportadversely affect our operations and these systems, procedures or controls may not be designed, implemented or improved in a cost-effective and timely manner. Any failure to implement, improve and expand such systems, procedures, and controls in a timely and efficient manner could harm our growth strategy and adversely affect our financial condition and ability to achieve our business objectives.
We Are Dependent on Retaining and Attracting Highly Skilled Development and Managerial Personnel.
Our ability to maintain our competitive technological position will depend, in a large part, on our ability to attract, motivate, and retain highly qualified development and managerial personnel. Competition for qualified employees in our industry and
locationlocations is intense, and there can be no assurance that we will be able to attract, motivate, and retain enough qualified employees necessary for the future continued development of our business and products.
We May Encounter Problems Associated With International Operations and Sales.
Our customers are located throughout the world. Sales to unaffiliated customers
in non-US locations represented approximately 51% of our revenues in our fiscal
year 2003, 49% in our fiscal year 2002 and 50% in our fiscal year 2001. In
addition, we have significant international operations, including manufacturing
facilities, sales personnel and customer support operations. We have sales
offices outside the US. Our non-US manufacturing facilities are in Sweden and
Germany, and we have a regional fulfillment center in the Netherlands. Our
non-US presence exposes us to risks not faced by wholly US companies.
Specifically, we have experienced issues relating to integration of non-US
operations, greater difficulty in accounts receivable collection, longer payment
cycles, and currency fluctuations. Additionally, we face the following risks,
among others:
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o political, legal and economic instability in non-US markets,
particularly in those markets in which we maintain manufacturing and
research facilities;
o difficulties in staffing and management;
o language and cultural barriers;
o seasonal reductions in business activities in the summer months in
Europe and some other countries;
o war and acts of terrorism; and
o potentially adverse tax consequences.
In certain non-US markets, there may be reluctance to purchase products based on
GPS technology, given the control of GPS by the US Government.
We Are Exposed to Fluctuations in Currency Exchange Rates.
A significant portion of our business is conducted outside the United States,
and as such, we face exposure to adverse movements in non-US currency exchange
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on our financial results and cash flows. In
fiscal 2003, the US dollar weakened against several major currencies in which we
do business, adversely impacting our financial results.
Currently, we hedge only those currency exposures associated with certain assets
and liabilities denominated in non-functional currencies and periodically will
hedge anticipated foreign currency cash flows. The hedging activities undertaken
by us are intended to offset the impact of currency fluctuations on certain
non-functional currency assets and liabilities. Our attempts to hedge against
these risks may not be successful resulting in an adverse impact on our net
income.
We Are Subject to the Impact of Governmental and Other Similar Certifications.
We market certain products that are subject to governmental and similar certifications before they can be sold. For example, CE certification for radiated emissions is required for most GPS receiver and data communications products sold in the European Union. An inability to obtain such certifications in a timely manner could have an adverse effect on our operating results. Also, some of our products that use integrated radio communication technology require an end user to obtain licensing from the Federal Communications Commission (FCC) for frequency-band usage. These are secondary licenses that are subject to certain restrictions. During the fourth quarter of 1998, the FCC temporarily suspended
the issuance of licenses for certain of our real-time kinematics products
because of interference with certain other users of similar radio frequencies. An inability or delay in obtaining such certifications or changes to the rules by the FCC could adversely affect our ability to bring our products to market which could harm our customer relationships and have a material adverse effect on our business.
We Are Subject to the Adverse Impact of Radio Frequency Congestion.
We have certain products, such as GPS RTK systems, and surveying and mapping systems that use integrated radio communication technology requiring access to available radio frequencies allocated by the FCC (or the NTIA in the case of federal government users of this equipment) for which the end user is required to obtain a license in order to operate their equipment. In addition, access to these frequencies by state agencies is under management by state radio communications coordinators. Some bands are experiencing congestion that excludes their availability for access by state agencies in some states. To reduce congestion, the FCC announced that it will require migration of radio technology from wideband to narrowband operations in these bands. The rules require migration of users to narrowband channels by 2011. In the meantime congestion could cause FCC coordinators to restrict or refuse licenses. An inability to obtain access to these radio frequencies by end users could have an adverse effect on our operating results.
The Volatility of Our Stock Price Could Adversely Affect Your Investment in Our Common Stock.
The market price of our common stock has been, and may continue to be, highly volatile. During fiscal
2003,2005, our stock price ranged from
$8.68$44.55 to
$25.60.$26.64. We believe that a variety of factors could cause the price of our common stock to fluctuate, perhaps substantially, including:
o announcements and rumors of developments related to our business or
the industry in which we compete;
o quarterly fluctuations in our actual or anticipated operating results
and order levels;
o general conditions in the worldwide economy, including fluctuations in
interest rates;
o announcements of technological innovations;
o new products or product enhancements by us or our competitors;
o developments in patents or other intellectual property rights and
litigation;
o developments in our relationships with our customers and suppliers;
and
o any significant acts of terrorism against the United States.
| · | announcements and rumors of developments related to our business or the industry in which we compete; |
| · | quarterly fluctuations in our actual or anticipated operating results and order levels; |
| · | general conditions in the worldwide economy, including fluctuations in interest rates; |
| · | announcements of technological innovations; |
| · | new products or product enhancements by us or our competitors; |
| · | developments in patents or other intellectual property rights and litigation; |
| · | developments in our relationships with our customers and suppliers; and |
| · | any significant acts of terrorism against the United States. |
In addition, in recent years the stock market in general and the markets for shares of "high-tech" companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common stock may decline.
We are Subject to Environmental Laws and Potential Exposure to Environmental
Liabilities.
We are subject to various federal, state and local environmental laws and
regulations that govern our operations, including the handling and disposal of
non-hazardous and hazardous wastes, and emissions and discharges into the
environment. Failure to comply with such laws and regulations could result in
costs for corrective action, penalties, or the imposition of other liabilities.
We also are subject to laws and regulations that impose liability and clean-up
responsibility for releases of hazardous substances into the environment. Under
certain of these laws and regulations, a current or previous owner or operator
of property may be liable for the costs of remediating hazardous substances or
petroleum products on or from its property, without regard to whether the owner
or operator knew of, or caused, the contamination, as well as incur liability to
third parties impacted by such contamination. The presence of, or failure to
remediate properly, such substances could adversely affect the value and the
ability to transfer or encumber such property. Based on currently available
information, although there can be no assurance, we believe that such
liabilities will not have a material impact on our business.
Provisions in Our Charter Documents and Under California Law Could Prevent or Delay a Change of Control, which Could Reduce the Market Price of Our Common Stock.
Certain provisions of our articles of incorporation, as amended and restated, our bylaws, as amended and restated, and the California General Corporation Law may be deemed to have an anti-takeover effect and could discourage a third party from acquiring, or make it more difficult for a third party to acquire, control of us without approval of our board of directors. These provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock.
We have adopted a Preferred Shares Rights Agreement, commonly known as a "poison pill." The provisions described above, our poison pill and provisions of the California General Corporation Law may discourage, delay or prevent a third party from acquiring us.
Item 1BUnresolved Staff Comments
None
Item 2Properties
The following table sets forth the significant real property that we own or lease:
| Location | Segment(s) served | Size in Sq. Feet | Commitment |
| Sunnyvale, California | All | 160,000 | Leased, expiring 2012 3 buildings |
| Huber Heights (Dayton), Ohio | Engineering & Construction Field Solutions Distribution | 150,000 57,200 35,600 | Owned, no encumbrances Leased, expiring in 2011 Leased, month to month |
| Westminster, Colorado | Engineering & Construction, Field Solutions | 73,000 | Leased, expiring 2011 2 buildings |
| Corvallis, Oregon | Engineering & Construction | 20,000 21,000 | Owned, no encumbrances Leased, expiring 2006 |
| Richmond Hill, Canada | Portfolio Technologies | 50,200 | Leased, expiring 2007 |
| Danderyd, Sweden | Engineering & Construction | 93,900 | Leased, expiring 2010 |
| Christchurch, New Zealand | Engineering & Construction, Mobile Solutions, Field Solutions | 65,000 | Leased, expiring 2010 2 buildings |
| New Carlisle, Ohio | Engineering & Construction | 30,000 | Leased, expiring 2013 |
| Jena, Germany | Engineering & Construction | 28,700 | Leased, no expiration date 12 months notice |
| Kaiserslautern, Germany | Engineering & Construction | 26,000 | Leased, expiring 2010 |
| Raunheim, Germany | Sales | 28,700 | Leased, expiring 2011 |
In addition, we lease a number of smaller offices around the world primarily for sales functions. For financial information regarding obligations under leases, see Note 10 of the Notes to the Consolidated Financial Statements.
* We believe that our facilities are adequate to support current and near-term operations.
Item 3Legal Proceedings
* We are from time to time a party to disputes or litigation incidental to our business. We believe that our ultimate liability as a result of such disputes, if any, would not be material to our overall financial position, results of operations, or liquidity.
Item 4Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth quarter of 2005.
PART II
Item 5.Market for Registrant's Common Equity and Related Stockholder Matters
Our common stock is traded on the NASDAQ National Market under the symbol "TRMB." The table below sets forth, during the periods indicated, the high and low per share sale prices for our common stock as reported on the NASDAQ National Market.
| | 2005 | 2004 |
| | Sales Price | Sales Price |
| Quarter Ended | High | Low | High | Low |
| First quarter | $38.24 | $30.04 | $28.78 | $20.15 |
| Second quarter | 41.11 | 30.07 | 29.50 | 22.43 |
| Third quarter | 44.55 | 31.15 | 32.16 | 21.55 |
| Fourth quarter | 37.96 | 26.64 | 34.45 | 24.56 |
As of December 30, 2005, there were approximately 1,044 holders of record of our common stock.
Dividend Policy
We have not declared or paid any cash dividends on our common stock during any period for which financial information is provided in this Annual Report on Form 10-K. At this time, we intend to retain future earnings, if any, to fund the development and growth of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Under the existing terms of our credit facility, we are allowed to pay dividends and repurchase shares of our common stock in any twelve (12) month period, in an aggregate amount equal to fifty percent (50%) of net income (plus to the extent deducted in determining net income for such period, non-cash expenses in respect of stock options) for the previous twelve month period. Also, we are allowed to spend an additional $50 million to pay dividends and repurchase shares if we are in compliance with our fixed charge coverage ratio.
Equity Compensation Plan Information
The following table sets forth, as of December 30, 2005, the total number of securities outstanding under our stock option plans, the weighted average exercise price of such options, and the number of options available for grant under such plans. See Note 15 of the Notes to the Consolidated Financial Statements for a summary of our plans.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
| | (a) | (b) | (c) |
| Stock Option Plans | 6,413,995 | $18.70 | 1,513,119 |
| Total | 6,413,995 | $18.70 | 1,513,119 |
Item 6.Selected Financial Data
The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this annual report. Historical results are not necessarily indicative of future results. In particular, because the results of operations and financial condition related to our acquisitions are included in our Consolidated Statements of Income and Consolidated Balance Sheets data commencing on those respective acquisition dates, comparisons of our results of operations and financial condition for periods prior to and subsequent to those acquisitions are not indicative of future results.
| | | December 30, | | December 31, | | January 2, | | January 3, | | December 28, |
| As of And For the Fiscal Years Ended | | 2005 | | 2004 | | 2004 | | 2003 | | 2001 |
(Dollar in thousands, except per share data) | | | | | | | | | | |
| | | | | | | | | | | |
| Revenue | $ | 774,913 | $ | 668,808 | $ | 540,903 | $ | 466,602 | $ | 475,292 |
| Gross margin | $ | 389,805 | $ | 324,810 | $ | 268,030 | $ | 234,432 | $ | 237,235 |
| Gross margin percentage | | 50% | | 49% | | 50% | | 50% | | 50% |
| Income (loss) from continuing operations (1) | $ | 84,855 | $ | 67,680 | $ | 38,485 | $ | 10,324 | $ | (23,492) |
| Gain on disposal of discontinued operations (net of tax) | $ | - | $ | - | $ | - | $ | - | $ | 613 |
| Net income (loss) | $ | 84,855 | $ | 67,680 | $ | 38,485 | $ | 10,324 | $ | (22,879) |
| Per common share: | | | | | | | | | | |
| Income (loss) from continuing operations | | | | | | | | | | |
| - Basic | $ | 1.59 | $ | 1.32 | $ | 0.81 | $ | 0.24 | $ | (0.63) |
| - Diluted | $ | 1.49 | $ | 1.23 | $ | 0.77 | $ | 0.24 | $ | (0.63) |
| Gain on disposal of discontinued operations (net of tax) | | | | | | | | | | |
| - Basic | $ | - | $ | - | $ | - | $ | - | $ | 0.01 |
| - Diluted | $ | - | $ | - | $ | - | $ | - | $ | 0.01 |
| Net income (loss) | | | | | | | | | | |
| - Basic | $ | 1.59 | $ | 1.32 | $ | 0.81 | $ | 0.24 | $ | (0.62) |
| - Diluted | $ | 1.49 | $ | 1.23 | $ | 0.77 | $ | 0.24 | $ | (0.62) |
| Shares used in calculating basic earnings per share | | 53,216 | | 51,163 | | 47,505 | | 42,860 | | 37,091 |
| Shares used in calculating diluted earnings per share | | 56,819 | | 54,948 | | 50,012 | | 43,578 | | 37,091 |
| Cash dividends per share | $ | - | $ | - | $ | - | $ | - | $ | - |
| | | | | | | | | | | |
| Total assets | $ | 743,088 | $ | 653,978 | $ | 552,602 | $ | 447,704 | $ | 425,475 |
| Non-current portion of long term debt and other liabilities | $ | 19,474 | $ | 38,226 | $ | 85,880 | $ | 114,051 | $ | 131,759 |
| (1) | We have significant intangible assets on our Consolidated Balance Sheets that include goodwill and other purchased intangibles related to acquisitions. At the beginning of fiscal 2002, we adopted Statement of Financial Accounting Standards No. 141 (“SFAS 141”), Business Combinations, and No. 142, Goodwill and Other Intangible Assets (“SFAS 142”). Application of the non-amortization provisions of SFAS 142 significantly reduced amortization expense of purchased intangibles and goodwill to approximately $8.3 million for the fiscal year 2002 from $29.4 million in fiscal year 2001. |
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed under "Risks Factors."
EXECUTIVE LEVEL OVERVIEW
Trimble’s foundation remains positioning technology. We have augmented this technology with wireless communication and application capabilities in order to enable us to participate in a wider number of markets and to play a more central role in those markets. Our efforts to market these technologies can generally be characterized as falling into the categories of either end user markets or component markets. The Engineering and Construction, Field Solutions, and Mobile Solutions segments can be broadly described as end user markets and the Component Technologies and Portfolio Technologies segments can be described as components markets. In the end user markets we provide a value added solution to the end user. Typically this requires a solution that includes a hardware platform and customer support. In the components businesses, we typically sell to another company that adds significant value and brings the solution to the end user.
The segments constituting the end user, solutions activities, make up over 80% of our revenue. The critical success factors in these businesses center around attaining a significant understanding of the end users’ needs, applying that knowledge to create highly innovative products, integrating those products into an effective system, and establishing a proficient global, third-party distribution.
The components businesses require different characteristics to be successful. The customer is typically an OEM, system integrator, or other third party that integrates our components into a system. To satisfy this customer group, our focus is on price, product functionality, and quality. With recent product introductions we have begun to add higher functionality into our products in order to provide greater value and potentially capture higher average selling prices for our offerings. Worldwide applications for the product range from vehicle tracking to remote asset management, including by way of example monitoring and tracking of construction materials, truck trailers and off-road equipment.
During 2005 we continued to execute our strategy with a series of actions that can be summarized in four categories.
Reinforcing our position in existing markets
Generally, we believe that our markets provide us with additional, substantial potential for substituting our technology for traditional methods. In 2005 we continued to develop new products and to strengthen our distribution channels to realize these opportunities. The acquisitions of Pacific Crest and Apache provided us with additional hardware competencies and applications knowledge. A number of new products like Trimble S6 and machine control products strengthened our competitive position and created new value for the user.
Extend our position in existing markets through new product categories
We are utilizing the strength of the Trimble brand in our markets to expand our revenues by bringing new products to existing users. A 2005 example was the introduction of Ag GPS Steer System.
Bring existing technology to new markets
* We continue to reinforce our position in existing markets, and positioned ourselves in newer markets that will serve as important sources of future growth. Our efforts in China, India, Russia, Korea and Eastern Europe all reflected improving financial results, with the promise of more in the future.
Entered completely new markets
* In fiscal 2005 we acquired Advanced Public Safety, Inc. (APS), a software development company that provides mobile and handheld software products used by law enforcement, fire-rescue and other public safety agencies. With this acquisition, we plan to leverage our rugged mobile computing devices and fleet management systems to provide complete mobile resource solutions for the public safety industry. The APS acquisition opens up a new vertical
segment in which we can offer public safety agencies complete mobile computing and resource management solutions. In addition, we acquired MobileTech Solutions, Inc., a provider of field workforce automation solutions and that has a leading market position in the direct store delivery (DSD) market. We expect the MobileTech Solutions acquisition to extend our portfolio of fleet management and field workforce applications.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our accounting policies are more fully described in Note 2 of the Notes to the Consolidated Financial Statements. The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements. We consider the accounting polices described below to be our critical accounting polices. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.
Revenue Recognition
We recognize revenue in accordance with US GAAP. The accounting rules related to revenue recognition are complex and are impacted by interpretations of the rules and an understanding of industry practices, both of which are subject to change.
We recognize product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product is specified by the customer or is uncertain, revenue is deferred until all acceptance criteria have been met. Revenue is reduced by a sales return reserve as described under “Allowance for Doubtful Accounts and Sales Returns.”
Contracts and customer purchase orders are generally used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer’s payment history.
Our shipment terms for US orders, and international orders fulfilled from our European distribution center are typically FCA (Free Carrier) shipping point, except certain sales to US government agencies which are shipped FOB destination. FCA shipping point means that we fulfill the obligation to deliver when the goods are handed over, cleared for export, and into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, we may choose within the place or range stipulated where the carrier will take the goods into carrier’s charge.
Other international orders are shipped FOB destination, which means these international orders are not recognized as revenue until the product is delivered and title has transferred to the buyer or FCA shipping point. FOB destination means that we bear all costs and risks of loss or damage to the goods up to that point.
Revenue to distributors and resellers is recognized upon delivery, assuming all other criteria for revenue recognition have been met. Distributors and resellers do not have a right of return.
Revenue from purchased extended warranty and support agreements is deferred and recognized ratably over the term of the warranty/support period.
In accordance with Emerging Issues Task Force (EITF) Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” when a sale involves multiple elements, the entire fee from the arrangement is allocated to each respective element based on its relative fair value and recognized when revenue recognition criteria for each element are met.
Software revenue is recognized in accordance with Statement of Position (SOP) No. 97-2, “Software Revenue Recognition” and Statement of Position (SOP) No. 98-9, “Modification of SOP 97-2.” Our software arrangements generally consist of a perpetual license fee and post-contract customer support (PCS). We have established vendor-specific objective evidence (VSOE) of fair value for our PCS contracts based on the renewal rate. The remaining value of the software arrangement is allocated to the license fee using the residual method, and revenue is primarily recognized when the software has been delivered and there are no remaining obligations. Revenue from PCS is recognized ratably over the term of the PCS agreement.
Allowance for Doubtful Accounts and Sales Returns
Our accounts receivable balance, net of allowance for doubtful accounts, was $145.1 million as of December 30, 2005, compared with $123.9 million as of December 31, 2004. The allowance for doubtful accounts as of December 30, 2005 was $5.2 million, compared with $9.0 million as of December 31, 2004. We make ongoing assumptions relating to the collectibility of our accounts receivable in our calculation of the allowance for doubtful accounts. We evaluate the collectibility of our trade accounts receivable based on a number of factors such as age of the accounts receivable balances, credit quality, historical experience, and current economic conditions that may affect a customer’s ability to pay. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, a specific allowance for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.
A reserve for sales returns is established based on historical trends in product return rates experienced in the ordinary course of business. The reserve for sales returns as of December 30, 2005 and December 31, 2004 included $1.5 million and $2.2 million, respectively, for estimated future returns that were recorded as a reduction of our accounts receivable and revenue. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.
Inventory Valuation
Our inventories, net balance was $107.9 million as of December 30, 2005, compared with $87.7 million as of December 31, 2004. Our inventory allowances as of December 30, 2005 were $23.2 million, compared with $26.2 million as of December 31, 2004. Our inventory is recorded at the lower of standard cost or market (net realizable value). We generally use a standard cost accounting system to value inventory and these standards are reviewed a minimum of once a year and multiple times a year in our most active manufacturing plants. We perform an in depth excess and obsolete analysis of our inventory based upon assumptions about future demand and current market conditions. We adjust the inventory value based on estimated excess and obsolete inventories determined primarily by future demand forecasts. If actual future demand or market conditions are less favorable than those projected by us, additional inventory write-downs may be required.
Income Taxes
Judgments and estimates occur in the calculation of income tax and deferred tax assets and liabilities.
Income taxes are accounted for under the liability method whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
The valuation allowance decreased by $7.1 million in fiscal 2005, $21.8 million in fiscal 2004 and $13.1 million in fiscal 2003. Approximately, $1.2 million, $8.0 million and $14.1 million of the valuation allowance at December 30, 2005, December 31, 2004 and January 2, 2004 respectively relate to the tax benefit of stock option deduction, which will be credited to equity if and when realized. In evaluating the need for a valuation allowance, we consider future taxable income, resolution of tax uncertainties and prudent and feasible tax planning strategies.
Goodwill Impairment
Goodwill as of December 30, 2005 was $286.1 million, compared with $259.5 million as of December 31, 2004. We performed goodwill impairment tests at the end of the fiscal third quarter of 2005 and 2004 for each reporting unit and found there was no impairment of our goodwill. We will continue to evaluate our goodwill for impairment on an annual basis at the end of each fiscal third quarter and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.
The process of evaluating the potential impairment of goodwill is subjective and requires significant assumptions. For goodwill, the annual impairment evaluation includes a comparison of the carrying value of the reporting unit
(including goodwill) to that reporting unit’s fair value. If the reporting unit’s estimated fair value exceeds the reporting unit’s carrying value, no impairment of goodwill exists. If the fair value of the reporting unit does not exceed the unit’s carrying value, then an additional analysis is performed to allocate the fair value of the reporting unit to all of the assets and liabilities of that unit as if that unit had been acquired in a business combination and the fair value of the unit was the purchase price. If the excess of the fair value of the reporting unit over the fair value of the identifiable assets and liabilities is less than the carrying value of the unit’s goodwill, an impairment charge is recorded for the difference.
We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill. Such events include, but are not limited to, strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our customer base, or a material negative change in our relationships with significant customers.
Accounting for Long-Lived Assets Including Intangibles Subject to Amortization
Depreciation and amortization of our long-lived assets is provided using straight-line methods over their estimated useful lives. Changes in circumstances such as the passage of new laws or changes in regulations, technological advances, changes to our business model, or changes in the capital strategy could result in the actual useful lives differing from initial estimates. In those cases where we determine that the useful life of a long-lived asset should be revised, we will depreciate the net book value in excess of the estimated residual value over its revised remaining useful life. Factors such as changes in the planned use of equipment, customer attrition, contractual amendments, or mandated regulatory requirements could result in shortened useful lives.
Long-lived assets and asset groups are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made.
Warranty Costs
The liability for product warranties was $7.5 million as of December 30, 2005, compared with $6.4 million as of December 31, 2004. (See Note 2 of the Notes to the Consolidated Financial Statements for further information regarding our warranty liability.) The warranty periods for our products are generally between one and three years. Selected military programs may require extended warranty periods up to 5.5 years and certain Nikon products have a five year warranty period. We accrue for warranty costs as part of our cost of sales based on associated material costs, technical support labor costs, and costs incurred by third parties performing warranty work on our behalf. Our expected future cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment.
While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, 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 our estimates, revisions to the estimated warranty accrual and related costs may be required.
Guarantees, Including Indirect Guarantees of Indebtedness of Others
In the normal course of business to facilitate sales of its products, we indemnify other parties, including customers, lessors, and parties to other transactions with us, with respect to certain matters. We have agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification obligations to our agents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements were not material and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets as of December 30, 2005 and December 31, 2004.
Stock Compensation
We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for our stock option plans and stock purchase plan. Accordingly, we do not recognize compensation cost for stock options granted at a price equal to fair market value.
In accordance with the provisions of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), "Accounting for Stock-Based Compensation" and “Statement of Financial Accounting Standards No. 148” (“SFAS 148”), “Accounting for Stock-Based Compensation - Transition and Disclosure,” we estimated the fair value of the options and purchases under the employee stock purchase plan, and determined the expense, net of related tax effects, that would have been included in the determination of net income if the fair value based method had been applied to all awards. Stock-based compensation net of tax was $8.7 million, $8.6 million and $9.8 million for fiscal 2005, fiscal 2004 and fiscal 2003.
For options granted prior to October 1, 2005, the fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model. For stock options granted on or after October 1, 2005, the fair value of each award is estimated on the date of grant using a binomial valuation model. Similar to the Black-Scholes model, the binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For these reasons, we believe that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using the Black-Scholes model. Below is a comparison of assumptions used in under each valuation model in fiscal 2005:
| | Average Assumptions for Q1-Q3 FY05 using Black-Scholes | Assumptions for Q4 FY05 using Binomial |
| Expected dividend yield | - | - |
| Expected stock price volatility | 52% | 42% |
| Risk free interest rate | 4.1% | 4.5% |
| Expected life of options after vesting | 1.7 years | 1.6 years |
Note 15 of the Notes to the Consolidated Financial Statements describes the plans we operate, and Note 2 of the Notes to the Consolidated Financial Statements contains a summary of the pro forma effects to reported net income and earnings per share for fiscal 2005, 2004, and 2003 as if we had elected to recognize compensation cost based on the fair value of the options granted at grant date.
Investment in Joint Ventures
We have adopted the equity method of accounting for our investments in the Caterpillar and Nikon joint ventures. This requires that we record our share of the joint ventures’ profits or losses in a given fiscal period. See Note 5 of the Notes to the Consolidated Financial Statements for joint venture accounting.
RECENT BUSINESS DEVELOPMENTS
XYZ of GPS, Inc. (XYZ)
* On February 26, 2006, we acquired the assets of XYZ of Dickerson, Maryland. XYZ develops real-time GNSS reference station, integrity monitoring and dynamic positioning software for meter, decimeter and centimeter applications. The purchase of XYZ’s intellectual property is expected to extend our product portfolio of infrastructure solutions by providing software that enhances differential GNSS correction systems used in marine aides to navigation, surveying, civil engineering, hydrography, mapping and Geographic Information System (GIS), and scientific applications.
Advanced Public Safety, Inc. (APS)
* On December 30, 2005, we acquired APS of Deerfield Beach, Florida. APS provides mobile and handheld software products used by law enforcement, fire-rescue and other public safety agencies. With the APS acquisition, we plan to leverage our rugged mobile computing devices and our fleet management systems to provide complete mobile resource solutions for the public safety industry. APS will be reported within our Mobile Solutions business segment.
MobileTech Solutions, Inc.
* On October 25, 2005, we acquired MobileTech Solutions, Inc. of Plano, Texas. MobileTech Solutions provides field workforce automation solutions and has a leading market position in the Direct Store Delivery (DSD) market. We expect the MobileTech Solutions acquisition to extend our portfolio of fleet management and field workforce applications. MobileTech Solutions’ performance is reported under our Mobile Solutions business segment.
Apache Technologies, Inc.
On April 19, 2005, we acquired Apache Technologies Inc. of Dayton, Ohio. Apache is a leading developer of laser detection technology. With the acquisition, we extended our laser product portfolio for handheld laser detectors and entry-level machine displays and control systems, as well as our distribution network in the United States. Apache’s performance is reported under our Engineering and Construction business segment.
Pacific Crest Corporation
On January 10, 2005 we acquired Pacific Crest Corporation of Santa Clara, California, a supplier of wireless data communication systems for positioning and environmental monitoring applications. The Pacific Crest acquisition has enhanced our wireless data communications capabilities in the Engineering and Construction business segment.
RESULTS OF OPERATIONS
Overview
The following table is a summary of revenue, gross margin and operating income for the periods indicated and should be read in conjunction with the narrative descriptions below.
| | December 30, | December 31, | January 2, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
(Dollars in thousands) | | | |
| | | | |
| Total consolidated revenue | $774,913 | $668,808 | $540,903 |
| Gross Margin | $389,805 | $324,810 | $268,030 |
| Gross Margin % | 50.3% | 48.6% | 49.6% |
| Total consolidated operating income | $124,944 | $85,625 | $53,935 |
| Operating Income % | 16.1% | 12.8% | 10.0% |
Basis of Presentation
We have a 52-53 week fiscal year, ending on the Friday nearest to December 31, which for fiscal 2005 was December 30, 2005. Fiscal 2005 was a 53-week year and fiscal 2004 and fiscal 2003 were 52-week years. As a result of the extra week in fiscal 2005, year-over-year results are not exactly comparable. Thus, due to the inherent nature of adopting a 52-53 week fiscal year, the Company, analysts, shareholders, investors, and others will have to make appropriate adjustments to any analysis performed when comparing our activities and results in fiscal years that contain 53 weeks to those that contain the standard 52 weeks.
Revenue
In fiscal 2005, total revenue increased by $106.1 million or 15.9% to $774.9 million from $668.8 million in fiscal 2004. The increase in fiscal 2005 was primarily due to stronger performances across all our operating segments with the exception of Component Technologies. The Engineering and Construction, Field Solutions and Mobile Solutions segments increased 19%, 21% and 34%, respectively, compared to fiscal 2004. Revenue growth within these segments was driven by new product introductions and increased penetration of existing markets. Both the Engineering and Construction and Mobile Solutions operating segments also benefited from the impact of the Pacific Crest, Apache and MobileTech acquisitions.
In fiscal 2004, total revenue increased by $127.9 million or 23.6% to $668.8 million from $540.9 million in fiscal 2003. This increase was primarily due to stronger performances in most of our operating segments driven by new product offerings and increased penetration of the markets we serve (primarily Engineering and Construction and Field Solutions), expanded distribution and selective acquisitions (primarily Mobile Solutions and Portfolio Technologies), as well as the positive impact of the weaker US dollar on revenues generated in foreign currencies, primarily the Euro.
* During the 2005 fiscal year, sales to customers in the United States represented 54%, Europe represented 25%, Asia Pacific represented 11% and other regions represented 10% of our total revenues. During the 2004 fiscal year, sales to customers in the United States represented 50%, Europe represented 28%, Asia Pacific represented 13% and other regions represented 9% of our total revenues. We anticipate that sales to international customers will continue to account for a major portion of our revenues.
* No single customer accounted for 10% or more of our total revenues in fiscal 2005, 2004, and 2003. It is possible, however, that in future periods the failure of one or more large customers to purchase products in quantities anticipated by us may adversely affect the results of operations.
Gross Margin
Our gross margin varies due to a number of factors including product mix, pricing, distribution channel used, the effects of production volumes, new product start-up costs, and foreign currency translations. Gross margin as a percentage of total revenues was 50.3% in fiscal 2005 and 48.6% in fiscal 2004. The increase in gross margin percentage for fiscal 2005, compared with fiscal 2004, was due to the success of our market segmentation strategy, higher service revenues, cost reductions, and introduction of higher margin products.
Gross margin as a percentage of total revenues was 48.6 % in fiscal 2004 and 49.6% in fiscal 2003. The decrease in gross margin percentage for fiscal 2004, compared with fiscal 2003, was due to changes in the mix of products sold, principally related to increased sales of lower margin Nikon-branded survey and construction products, our agriculture products, pricing pressure in our Component Technologies business (which typically demonstrates increased unit volumes coupled with declining unit prices), the impact of the weaker US dollar on our non US manufacturing, and distribution costs.
* Because of potential product mix changes within and among the industry markets, market pressures on unit selling prices, fluctuations in unit manufacturing costs, including increases in component prices and other factors, current level gross margins cannot be assured.
Operating Income
Operating income as a percentage of total revenue was 16.1% in fiscal 2005 compared to 12.8% in fiscal 2004 and 10.0% in fiscal 2003. The increase is driven by improvement in revenues, in gross margins, and greater leverage of operating expenses. Operating expenses represented 34.2% of total revenue in fiscal 2005 as compared to 35.8% in fiscal 2004.
Results by Segment
To achieve distribution, marketing, production, and technology advantages in our targeted markets, we manage our operations in the following five segments: Engineering and Construction, Field Solutions, Component Technologies, Mobile Solutions, and Portfolio Technologies. Segment operating income (loss) is net revenue less operating expenses, excluding general corporate expenses, amortization of purchased intangibles, restructuring charges, non-operating income (expense), and income taxes.
The following table is a breakdown of revenue and operating income by segment for the periods indicated and should be read in conjunction with the narrative descriptions below.
| | December 30, | December 31, | January 2, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
(Dollars in thousands) | | | |
| | | | |
| Engineering and Construction | | | |
| Revenue | $524,461 | $440,478 | $367,058 |
| Segment revenue as a percent of total revenue | 68% | 66% | 68% |
| Operating income | 117,993 | 79,505 | 60,664 |
| Operating income as a percent of segment revenue | 22% | 18% | 17% |
| Field Solutions | | | |
| Revenue | 127,843 | 105,591 | 79,879 |
| Segment revenue as a percent of total revenue | 16% | 16% | 15% |
| Operating income | 32,527 | 25,151 | 14,500 |
| Operating income as a percent of segment revenue | 25% | 24% | 18% |
| Component Technologies | | | |
| Revenue | 53,902 | 65,522 | 64,193 |
| Segment revenue as a percent of total revenue | 7% | 9% | 12% |
| Operating income | 8,034 | 13,880 | 16,560 |
| Operating income as a percent of segment revenue | 15% | 21% | 26% |
| Mobile Solutions | | | |
| Revenue | 31,481 | 23,531 | 12,981 |
| Revenue as a percent of total consolidated revenue | 4% | 4% | 2% |
| Operating loss | (3,072) | (5,997) | (6,452) |
| Operating loss as a percent of segment revenue | (10%) | (25%) | (50%) |
| Portfolio Technologies | | | |
| Revenue | 37,226 | 33,686 | 16,792 |
| Segment revenue as a percent of total revenue | 5% | 5% | 3% |
| Operating income (loss) | 5,178 | 4,866 | (1,686) |
| Operating income (loss) as a percent of segment revenue | 14% | 14% | (10%) |
A reconciliation of our consolidated segment operating income to consolidated income before income taxes follows:
Fiscal Years Ended | December 30, 2005 | December 31, 2004 | January 2, 2004 |
(In thousands) | | | |
| | | | |
| Consolidated segment operating income | $160,660 | $117,405 | $83,586 |
| Unallocated corporate expense | (27,483) | (22,901) | (20,320) |
| Restructuring charges | (278) | (552) | (2,019) |
| Amortization of purchased intangible assets | (6,855) | (8,327) | (7,312) |
| In-process research and development | (1,100) | - | - |
| Non-operating expense, net | (156) | (10,701) | (18,350) |
| Consolidated income before income taxes | $124,788 | $74,924 | $35,585 |
Engineering and Construction
Engineering and Construction revenues increased by $84.0 million or 19% while segment operating income increased by $38.5 million or 48.4% for fiscal 2005 as compared to fiscal 2004. The revenue growth was driven by the introduction of products such as the Trimble S6 and machine control products, and growth of existing products such as the Trimble R8 GPS System. Revenue growth was also attributed to the acquisitions for fiscal 2005. Segment operating income increased as a result of higher revenues and increased sales of higher margin products.
Engineering and Construction revenues increased by $73.4 million or 20% while segment operating income increased by $18.8 million or 31.1% for fiscal 2004 as compared to fiscal 2003. The relatively strong environment of fiscal 2003 continued into fiscal 2004, resulting in continued robust demand for survey, machine control, and laser products. In addition, the full year effects for Nikon-branded products contributed to the year over year increase. Targeted new product introductions, such as the 5500 Servo Driven Total Station, provided improved market penetration. The weaker US dollar also contributed to increased revenues in this operating segment. Operating income increased at a higher rate than revenue growth due to greater operating leverage on expenses.
Field Solutions
Field Solutions revenues increased by approximately $22.3 million or 21.1% while segment operating income increased by $7.4 million or 29.3% for fiscal year 2005 as compared to fiscal 2004. Revenue increased primarily due to successful new products such as the AgGPS EZ-Guide System and AgGPS EZ-Steer System in our agriculture product line and as a result of higher demand for both automated and manual guidance products into the agricultural market in the first quarter of the fiscal year.
Field Solutions revenues increased by approximately $25.7 million or 32.2% while segment operating income increased by $10.7 million or 73.5% for fiscal year 2004 as compared to fiscal 2003. Revenues increased primarily as a result of higher demand for both automated and manual guidance products in the agricultural market. In particular, revenues were enhanced by the introduction of EZ-Guide Plus. We saw increases in our GIS product lines due to increases in our dealer and distributor business. Additionally, programs designed to expand our distribution channel by supplementing value-added, solutions focused business partners to our traditional dealer profile were successful. In addition, we saw improved results in Europe and increased opportunities in China. Increases in this segment’s operating income were primarily due to higher revenues.
Component Technologies
Component Technologies revenues decreased by $11.6 million or 17.7% and segment operating income decreased by $5.8 million or 42.1% for the fiscal year 2005 as compared to fiscal 2004. Revenues decreased primarily due to the decline in demand for our in-vehicle navigation products as a result of changes in buying strategies among certain automotive manufacturers, and softness in the timing businesses. The decrease was partially offset by an increase in the OEM board business. Operating income decreased primarily due to lower revenue and unfavorable product mix.
Component Technologies revenues increased by $1.3 million or 2.1%, while segment operating income decreased by $2.7 million or 16.2% for the fiscal year 2004 as compared to fiscal 2003. Revenues increased primarily due to higher demand from vehicle navigation and tracking customers, partially offset by the decline in demand from wireless infrastructure customers. The segment operating income decrease was primarily due to pricing pressures from the embedded and in-vehicle navigation product lines, a less favorable product mix, and increased spending for development of new categories of products.
Mobile Solutions
Mobile Solutions revenues increased by $8.0 million or 33.8% in fiscal 2005 over fiscal 2004 due to increased subscriber growth, an increase in sales into the ready-mix suppliers, and increased sales from our dealer channel as we continue to develop and extend this channel. Operating loss decreased in fiscal 2005 compared to fiscal 2004 primarily attributable to an increase in revenues and increase in gross margins due higher recurring service revenue.
Mobile Solutions revenues increased by $10.6 million or 81.3% in fiscal 2004 over fiscal 2003 due primarily to increases sales into the construction materials market, higher dealer sales and a significant enterprise sale. During the first quarter of fiscal 2004, we completed the acquisition of TracerNET to strengthen our presence in this segment. The benefits of the integration were not fully reflected until the fourth quarter of fiscal 2004 and the full year impact of these activities were not realized until fiscal 2005. Segment operating loss decreased by $0.5 million or 7.1% in fiscal 2004 over fiscal 2003 due to increased revenues which was largely offset by increased expenses related to the integration of the TracerNET acquisition.
Portfolio Technologies
Portfolio Technologies revenues increased by $3.5 million or 10.5% while segment operating income increased by $0.3 million or 6.4% for fiscal 2005 as compared to fiscal 2004. The increase in revenue and operating income was primarily due to stronger performance in our Applanix airborne business which was offset by an increase in marketing expenses related to our Trimble Outdoors initiative.
Portfolio Technologies revenues increased by $16.9 million or 100.6% while segment operating income increased by $6.6 million or 388.6% for fiscal 2004 as compared to fiscal 2003. The increases in revenues and operating income were primarily due to the inclusion of full year results of Applanix, acquired in July 2003, and higher sales of our military and advanced systems products.
Research and Development, Sales and Marketing, and General and Administrative Expenses
The following table shows research and development (“R&D”), sales and marketing, and general and administrative (“G&A”) expenses in absolute dollars and as a percentage of total net revenues for the fiscal years ended 2005, 2004 and 2003 and should be read in conjunction with the narrative descriptions of those operating expenses below.
| | | December 30, 2005 | | December 31, 2004 | | January 2, 2004 |
| Fiscal Years Ended | | | |
(In thousands) | | | | | | | | | |
| Research and development | | $ 84,276 | 11% | | $ 77,558 | 11% | | $ 67,641 | 13% |
| Sales and marketing | | 120,215 | 15% | | 108,054 | 16% | | 97,870 | 18% |
| General and administrative | | 52,137 | 7% | | 44,694 | 7% | | 39,253 | 7% |
| | | $ 256,628 | 33% | | $ 230,306 | 34% | | $ 204,764 | 38% |
Overall, R&D, sales and marketing, and G&A increased by approximately $26.3 million in fiscal 2005 compared to fiscal 2004.
Research and development expenses increased by $6.7 million in fiscal 2005 compared to fiscal 2004 primarily due to the inclusion of expenses from acquisitions not applicable in the prior year in the amount of $2.8 million and increase in compensation of $2.8 million. All of our R&D costs have been expensed as incurred. Cost of software developed for external sale subsequent to reaching technical feasibility were not considered material and were expensed as incurred.
Research and development expenses increased by $9.9 million in fiscal 2004 compared to fiscal 2003 primarily due to sustaining engineering expenses and costs incurred related to new product development, continued investment in next generation technologies, and the effect of foreign currency fluctuations.
* Overall research and development spending remained relatively constant at approximately 11% of revenues. We expect to continue to devote resources to the development of new products and the enhancement of existing products. We believe that research and development is critical to our strategic product development objectives and that to leverage our leading technology and meet the changing requirements of our customers, we will need to fund investments in several development projects in parallel.
Sales and marketing expenses increased by $12.2 million in fiscal 2005 compared to fiscal 2004, but decreased as a percent of total revenues. The increase was primarily due to advertising and promotion costs associated with the launch of new products of $5.4 million, the inclusion of expenses from acquisitions not applicable in the prior year of $1.5 million, increase in travel expenses of $1.4 million, increase in compensation of $1.7 million and an increase $0.6 million foreign currency transaction loss.
Sales and marketing expenses increased by $10.2 million in fiscal 2004 compared to fiscal 2003, but decreased as a percent of total revenues. The majority of the increase was due to the increase in revenue, promotional programs associated with new products, and the foreign exchange impact on expenses in our non US operations.
* We intend to continue to focus and expand our sales and marketing efforts across all the geographies and markets we serve in order to increase market awareness of our products and to better support our existing customers worldwide. Our future growth will depend in part on the timely development and continued viability of the markets in which we currently compete as well as our ability to continue to identify and exploit new markets for our products.
General and administrative expenses increased by $7.4 million in fiscal 2005 compared to fiscal 2004 primarily due to an increase in compensation expense of $5.9 million, increase in rent expense of $1.0 million as we were making duplicate payments during our move to our new headquarters, the inclusion of expenses from acquisitions not applicable in the prior year of $1.8 million, and increase of $0.8 million in patent expense. This was partially offset by a decrease in bad debt expense of $1.7 million and an increase of $0.4 million foreign currency transaction gain. Spending overall remained relatively constant at approximately 7% of revenues.
General and administrative expenses increased by $5.4 million in fiscal 2004 compared to fiscal 2003 primarily due to the inclusion of G&A expenses from acquisitions, expenses related to compliance with the Sarbanes-Oxley Act, and bad debt expenses of $1.2 million.
Other Operating Expenses
Restructuring Charges
Restructuring charges of $0.3 million, $0.6 million, and $2.0 million were recorded in fiscal years 2005, 2004 and 2003, respectively. The charges in fiscal 2005 were primarily related to office closure costs due to integration efforts of the Mensi acquisition. The charges in fiscal 2004 were primarily related to severance costs due to the realignment of Trimble Mobile Solutions Inc. while charges in fiscal 2003 were primarily related to our Japanese office relocation due to the Nikon-Trimble joint venture formation. As a result of these actions, the headcount of the affected operations decreased by 36 and 77 in fiscal 2004, and 2003, respectively. As of December 30, 2005, the remaining accrual balance of $0.3 million is related to the office closure expected to be paid over the next several years.
In-Process Research and Development
We recorded In-process research and development (IPR&D) expense of $1.1 million related to acquisitions made in fiscal 2005. We did not record any IPR&D expense in fiscal 2004 and fiscal 2003. At the date of each acquisition, the projects associated with the IPR&D efforts had not yet reached technological feasibility and the research and development in process had no alternative future uses. The value of the IPR&D was determined using a discounted cash flow model similar to the income approach, focusing on the income producing capabilities of the in-process technologies. Accordingly, the value assigned to these IPR&D amounts were charged to expense on the respective acquisition date of each of the acquired companies.
Amortization of Purchased and Other Intangible Assets
| | December 30, | December 31, | January 2, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
(in thousands) | | | |
| Amortization of purchased intangibles | $ 6,855 | $ 8,327 | $ 7,312 |
| Amortization of other intangible assets | 165 | 183 | 604 |
| Amortization of purchased and other intangible assets | $ 7,020 | $ 8,510 | $ 7,916 |
Amortization expense of purchased and other intangibles represented 0.9% of revenue in fiscal 2005, a decrease of $1.5 million from fiscal 2004 when it represented 1.3% of revenue. Although we had acquisitions in the current fiscal year, amortization decreased due to the fact our Spectra Precision Group intangibles were fully amortized in the second quarter of fiscal 2005. Amortization expense of purchased and other intangibles represented 1.3% of revenue in fiscal 2004, an increase of $0.6 million from fiscal 2003 when it represented 1.5% of revenue.
Non-operating Expense, Net
The following table shows non-operating expense, net for the periods indicated and should be read in conjunction with the narrative descriptions of those expenses below:
| | December 30, | December 31, | January 2, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
(in thousands) | | | |
| | | | |
| Interest income | $ 836 | $ 436 | $ 465 |
| Interest expense | (2,331) | (3,888) | (11,938) |
| Foreign exchange gain (loss) | 1,022 | (859) | (592) |
| Expenses for affiliated operations, net | (291) | (7,590) | (6,403) |
| Other income (expense) | 608 | 1,200 | 118 |
| Total non-operating expense, net | $ (156) | $ (10,701) | $ (18,350) |
Non-operating expense, net decreased by $10.5 million or 98.5% during fiscal 2005 as compared with fiscal 2004 primarily due to a decrease in net interest expense of $2.0 million as a result of the repayment of debt and interest earned on higher cash balances offset by a $0.9 million write-off of debt issuance costs relating to the 2003 Credit Facility, an increase of $1.9 million in foreign currency transaction gain and a $7.3 million decrease in expenses for affiliated operations as a result of increased profits from our joint ventures and recognition of the remaining deferred gain from the Caterpillar joint venture. This was partially offset by a decrease in other income primarily due to the absence of a non-recurring gain in investments of approximately $1.0 million in fiscal year 2004.
* Expenses for affiliated operation decreased by $7.3 million in fiscal 2005 compared to fiscal 2004 due to the recognition of the remaining $9.2 million deferred gain related to the Caterpillar joint venture. Since the joint venture is now profitable on a sustainable basis, future operating losses are not anticipated and there are no future outstanding financial obligations by us to the joint venture, we recognized the gain. This amount was offset by an increased impact from the incremental transfer pricing effects due to growth in our construction product sales of $2.6 million. (See Note 5 of the Notes to the Consolidated Financial Statements for financial information regarding joint ventures). Furthermore, we recorded our share of profits in the Caterpillar joint venture which increased by $2.5 million. This was partially offset by a decrease in our share of profits in our Nikon-Trimble joint venture of $1.1 million.
Non-operating expense, net decreased by $7.6 million or 42% during fiscal 2004 as compared with fiscal 2003 primarily due to lower interest expense after the repayment of the principal balance of a subordinated note in June 2003, the write off of $2.3 million of debt issuance costs as a result of our debt refinancing in June 2003 and $1.3 million related to the write off of the remaining unamortized portion of the warrants issued to Spectra-Physics Holdings USA, Inc. The increases in expense for affiliated operations were primarily due to our higher construction machine control revenues which led to increased impact from the pricing effects of transactions between us and the Caterpillar joint venture. This was partially offset by an increase of $1.1 million related to our share of profits in the Nikon-Trimble joint venture. The increase in other income (expense) was primarily due to a net gain related to the sale of an investment.
Income Tax Provision
Our effective income tax rates for fiscal years 2005, 2004 and 2003 were 32%, 10% and (8%), respectively. The 2004 and 2003 income tax rates are less than the US federal statutory rate of 35%, primarily due to the realization of benefits from net operating losses and other previously reserved deferred tax assets. Our 2005 income tax rate is less than US federal statutory rate, primarily due to the benefit from the US incentive repatriation of undistributed foreign subsidiary earnings provided by the American Jobs Creation Act of 2004.
Repatriation of foreign earnings. The American Jobs Creation Act of 2004 (the Act) provides for a special one-time elective dividends received deduction on the repatriation of certain foreign earnings to a U.S. taxpayer equal to 85% of the eligible distribution. During the fourth quarter of 2005, the Company repatriated $39.5 million, of which $24 million qualified for the special one-time elective dividends received deduction and $15.5 million constituted earnings that do not qualify under the Act; previously taxed income and return of capital. The company recorded a $6.4 million tax benefit from these foreign earnings.
Litigation Matters
* From time to time, we are involved in litigation arising out of the ordinary course of our business. There are no known claims or pending litigation that are expected to have a material effect on our overall financial position, results of operations, or liquidity.
OFF-BALANCE SHEET ARRANGEMENTS
Other than lease commitments incurred in the normal course of business (see Contractual Obligation table below), we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the consolidated financial statements. Additionally, we do not have any interest in, or relationship with, any special purpose entities.
LIQUIDITY AND CAPITAL RESOURCES
As of and for the Fiscal Year Ended | December 30, 2005 | December 31, 2004 | January 2, 2004 |
(dollars in thousands) | | | |
| | | | |
| Cash and cash equivalents | $ 73,853 | $ 71,872 | $ 45,416 |
| As a percentage of total assets | 9.9% | 11.0% | 8.3% |
| Accounts receivable days sales outstanding (DSO) | 66 | 63 | 65 |
| Inventory turns per year | 4 | 4 | 4 |
| Total debt | $ 649 | $ 38,996 | $ 90,486 |
| | | | |
| Cash provided by operating activities | $ 92,880 | $ 74,576 | $ 29,565 |
| Cash used in investing activities | $ (74,918) | $ (25,133) | $ (22,653) |
| Cash provided (used) by financing activities | $ (13,402) | $ (24,159) | $ 54 |
| Net increase in cash and cash equivalents | $ 1,981 | $ 26,456 | $ 16,737 |
Cash and Cash Equivalents
Our financial condition further strengthened at December 30, 2005. Cash and cash equivalents totaled $73.9 million with essentially no debt compared to cash and cash equivalents of $71.9 million and debt of $39.0 million at December 31, 2004.
In fiscal 2005, cash provided by operating activities was $92.9 million, as compared to $74.6 million in fiscal 2004. The increase of $18.3 million was primarily driven by the $17.2 million increase in net income during fiscal 2005 compared to fiscal 2004. Our ability to continue to generate cash from operations will depend in large part on profitability, the rate of collections of accounts receivable, our inventory turns, and our ability to manage other areas of working capital. Our accounts receivable days for sales outstanding increased from 63 days at the end of fiscal 2004 to 66 days at the end of fiscal 2005. The increase is due to acquisitions, delayed payments from some government contracts, and past due accounts from a couple of key customers. Our inventory turns was unchanged at four at the end of fiscal 2005 and 2004.
In fiscal 2004, cash provided by operating activities was $74.6 million, as compared to $29.6 million in fiscal 2003. The increase of $45.0 million was primarily driven by the $29.2 million increase in net income during fiscal 2004 compared to fiscal 2003 and better management of working capital. Our accounts receivable days for sales outstanding decreased from 65 days at the end of fiscal 2003 to 63 days at the end of fiscal 2004. Our inventory turns was unchanged at four at the end of fiscal 2005 and 2004.
Cash used in investing activities was $74.9 million in fiscal 2005 as compared to $25.1 million in fiscal 2004. The $49.8 million increase was primarily due to an increase of $40.0 million in cash acquisitions and an increase of $10.6 million in investment in capital equipment of which $6.6 million was related to the relocation of our Sunnyvale headquarters.
Cash used in investing activities was $25.1 million in fiscal 2004 as compared to $22.7 million in fiscal 2003. The increase was primarily due to cash acquisitions and investment in capital equipment. During fiscal 2004, we spent approximately $12.8 million on capital expenditures.
Cash used in financing activities was $13.4 million in fiscal 2005 as compared to $24.2 million in fiscal 2004. The $10.8 million decrease was primarily due to a $12.9 million decrease in repayment of net debt as we repaid our entire debt balance in the second fiscal quarter of 2005. This was partially offset by a $2.3M decrease in proceeds received from issuance of common stock and warrants.
Cash used in financing activities was $24.2 million in fiscal 2004 as compared to $54,000 in fiscal 2003. However, during fiscal 2004, we repaid approximately $65.2 million of debt related to our previous 2003 Credit Facility. These debt payments were funded by cash provided by operating activities, and the issuance of common stock to employees pursuant to our stock option plan and employee stock purchase plan of approximately $26.8 million.
* We believe that our cash and cash equivalents, together with our credit facilities ($200 million as of December 30, 2005), will be sufficient to meet our anticipated operating cash needs for at least the next twelve months.
* We expect fiscal 2006 capital expenditures to be approximately $15 million to $20 million, primarily for computer equipment, software upgrades, manufacturing tools and test equipment, and leasehold improvements associated with business expansion. Decisions related to how much cash is used for investing are influenced by the expected amount of cash to be provided by operations.
Debt
At the end of fiscal 2005, our total debt was comprised of government loans to foreign subsidiaries in amount of approximately $649,000 as compared with approximately $39.0 million at the end of fiscal 2004.
On July 28, 2005, we entered into a $200 million unsecured revolving credit agreement (“2005 Credit Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent. The 2005 Credit Facility replaces our $175 million secured 2003 Credit Facility. The funds available under the new 2005 Credit Facility may be used for our general corporate purposes and up to $25 million of the 2005 Credit Facility may be used for letters of credit. We incur a commitment fee if the 2005 Credit Facility is not used. The commitment fee is not material to our results during all periods presented. At December 30, 2005 and as of the date of this report, the Company has a zero balance outstanding and was in compliance with all financial debt covenants. For additional discussion of our debt, see Note 9 of Notes to the Consolidated Financial Statements.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations at December 30, 2005:
| | | Payments Due By Period |
| | | | | | Less than | | 2-3 | | 4-5 | | More than |
| | | | Total | | 1 year | | Years | | years | | 5 years |
(in thousands) | | | | | | | | | | |
| | | | | | | | | | | | |
| Total debt including interest | $ | 649 | $ | 216 | $ | 104 | $ | 329 | $ | - |
| Operating leases | | 42,024 | | 9,664 | | 15,021 | | 11,560 | | 5,779 |
| Other purchase obligations and commitments | | 3,100 | | 3,100 | | - | | - | | - |
| Total | | $ | 45,773 | $ | 12,980 | $ | 15,125 | $ | 11,889 | $ | 5,779 |
Total debt consists of government loans to foreign subsidiaries. (See Note 9 of the Notes to the Consolidated Financial Statements for further financial information regarding long-term debt)
Other purchase obligations and commitments represent open non-cancelable purchase orders for material purchases with our vendors and a forecasted commitment with a supplier for outsourced services as described in Note 10 of the Notes to the Consolidated Financial Statements. Our pension obligation which is not included in the table above, and is included in “Other non-current liabilities” on our Consolidated Balance Sheets, is disclosed at Note 16 of the Notes to the Consolidated Financial Statements.
NEW ACCOUNTING STANDARDS
In May 2005, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (FASB) No. 154, "Accounting Changes and Error Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to be adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that the adoption of SFAS 154 will have on its consolidated results of operations and financial condition but does not expect it to have a material impact.
In March 2005, the FASB issued FASB Interpretation Number (FIN) 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" ("FIN 47"). FIN 47 requires an entity to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company was not impacted by the adoption of FIN 47 in fiscal 2005.
In December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment.” SFAS No. 123R requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25, and allowed under the original provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service periods. The requirements of SFAS No. 123R are effective for fiscal years beginning after June 15, 2005. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or only to interim periods in the year of adoption. The Company will use the prospective method for future fiscal period after the SFAS No. 123R effective date of 12/31/05. As a result, financial statements for fiscal periods after our SFAS No. 123R effective date will include stock-based compensation expenses that are not comparable to financial statements of fiscal periods prior to the SFAS No. 123R effective date. Due to constant fluctuations to the expected volatility, expected term, risk free interest rate, and expected forfeiture assumptions used in valuating stock-based compensation, expected stock-based compensation expense in future fiscal periods is not predictable.
Item 7A.Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We use certain derivative financial instruments to manage these risks. We do not use derivative financial instruments for speculative or trading purposes. All financial instruments are used in accordance with policies approved by our board of directors.
Market Interest Rate Risk
We
aremay be exposed to market risk
due toin the
possibility of changing interest rates
underevent we borrow against our
secured2005 Credit Facility.
Our Credit Facility is comprised of a
three-year, US dollar-only revolver that expires on June 25, 2006, and a
four-year term loan that expires on June 25, 2007. Borrowings under the
2005 Credit Facility have interest payments based on a floating rate of LIBOR plus a number of basis points tied to a formula based on our Leverage Ratio. The
revolver
matures on June 25, 2006 and has an2005 Credit Facility had outstanding principal
balancebalances of
$44
million, while the term loan matures on June 25, 2007 and has an outstanding
principal balance of $43.8 million,zero as of
January 2, 2004 (all in US currency
only). The three-month LIBOR effective rate at January 2, 2004 was 1.155%. A
hypothetical 10% increase in three-month LIBOR rates could result in
approximately $101,790 annual increase in interest expense on the existing
principal balances. We have hedged the market risk with an interest rate swap on
50% of our term loan. The rate on that interest rate swap is 2.517%.
* The hypothetical changes and assumptions made above will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by our management should the hypothetical
market changes actually occur over time. As a result, actual earnings effects in
the future will differ from those quantified above.
December 30, 2005.
Foreign Currency Exchange Rate Risk
We enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on certain trade and inter-company receivables and payables, primarily denominated in Australian, Canadian, New Zealand, and Swedish currencies, the Euro, and the British pound. These contracts reduce the exposure to fluctuations in exchange rate movements as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the forward contracts. These instruments are marked to market through earnings every period and generally range from one to three months in original maturity. We do not enter into foreign exchange forward contract for trading purposes.
Foreign exchange forward contracts outstanding as of January 2,December 30, 2005 and December 31, 2004 and January
3, 2003 are summarized as follows (in thousands):
January 2, 2004 January 3, 2003
--------------- ---------------
Nominal Amount Fair Value Nominal Amount Fair Value
-------------- ---------- -------------- ----------
Forward contracts:
Purchased $ 15,767 $ (1,666) $ 24,414 $ (658)
Sold $ 44,236 2,994 24,539 955
| | | December 30, 2005 | | December 31, 2004 |
| | | Nominal Amount | | Fair Value | | Nominal Amount | | Fair Value |
| Forward contracts: | | | | | | | | | | | |
| | Purchased | $ | (14,426) | | $ | 249 | | $ | (15,875) | | $ | 431 |
| | Sold | $ | 27,726 | | $ | 328 | | $ | 22,750 | | $ | (970) |
* We do not anticipate any material adverse effect on our consolidated financial position utilizing our current hedging strategy.
From time to time, we may also utilize forward foreign exchange contracts
designated as cash flow hedges of operational exposures represented by firm
backlog orders to specific accounts over a specific period of time. We record
changes in the fair value of cash flow hedges in accumulated, other
comprehensive income (loss), until the firm backlog transaction ships. Upon
recognition of revenue, we reclassify the gain or loss on the cash flow hedge to
the statement of operations. The critical terms of the cash flow hedging
instruments are the same as the underlying forecasted transactions. The changes
in fair value of the derivatives are intended to offset changes in the expected
cash flow from the forecasted transactions. All forward contracts have
maturities of less than 12 months. For the fiscal year ended January 3, 2003, we
recorded a gain of $57,000 reflecting the net change and ending balance in
relation to a firm backlog hedge. We did not hedge against backlog orders during
fiscal 2003.
TRIMBLE NAVIGATION LIMITED
INDEX TO FINANCIAL STATEMENTS
Consolidated Balance Sheets at January 2, 2004 and January 3, 2003...........45
Consolidated Statements of Operations for each of the three fiscal years
in the period ended January 2, 2004.......................................46
Consolidated Statement of Shareholders' Equity for each of the three
fiscal years in the period ended January 2, 2004..........................47
Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended January 2, 2004.......................................48
Notes to Consolidated Financial Statements...................................49
Report of Ernst & Young LLP, Independent Auditors............................74
| Consolidated Balance Sheets at December 30, 2005 and December 31, 2004 | 43 |
| |
| Consolidated Statements of Income for each of the three fiscal years | |
| in the period ended December 30, 2005 | 44 |
| |
| Consolidated Statement of Shareholders' Equity for each of the three fiscal years | |
| in the period ended December 30, 2005, | 45 |
| |
| Consolidated Statements of Cash Flows for each of the three fiscal years | |
| in the period ended December 30, 2005 | 46 |
| |
| Notes to Consolidated Financial Statements | 47 |
| |
| Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm | 72 |
Item 8.Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
January 2, January 3,
As at 2004 2003
- ----- ---- ----
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 45,416 $ 28,679
Accounts receivable, less allowance for doubtful accounts of $9,953
and $9,900, respectively 103,350 79,645
Inventories, net 70,826 61,144
Deferred income taxes 4,380 76
Other current assets 5,659 8,401
----- -----
Total current assets 229,631 177,945
Property and equipment, at cost less accumulated depreciation 27,379 22,037
Goodwill 241,425 205,933
Other purchased intangible assets, less accumulated amortization 19,741 23,238
Deferred income taxes 4,173 417
Other assets 22,554 12,086
------ ------
Total non-current assets 315,272 263,711
------- -------
Total assets $ 544,903 $ 441,656
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank and other short-term borrowings $ - $ 6,556
Current portion of long-term debt 12,885 24,104
Accounts payable 26,019 30,669
Accrued compensation and benefits 25,950 17,728
Accrued liabilities 15,599 21,000
Accrued warranty expense 5,147 6,394
Deferred income taxes 1,136 -
Income taxes payable 9,969 6,450
----- -----
Total current liabilities 96,705 112,901
Non-current portion of long-term debt 77,601 107,865
Deferred gain on joint venture 9,845 10,792
Deferred income tax 4,229 2,561
Other non-current liabilities 8,279 6,186
----- -----
Total liabilities 196,659 240,305
------- -------
Commitments and Contingencies
Shareholders' equity:
Preferred stock no par value; 3,000 shares authorized; none outstanding - -
Common stock, no par value; 90,000 shares authorized; 49,988, and 43,965
shares outstanding, respectively 303,015 225,872
Retained earnings (accumulated deficit) 14,990 (23,495)
Accumulated other comprehensive income (loss) 30,239 (1,026)
------ ------
Total shareholders' equity 348,244 201,351
------- -------
Total liabilities and shareholders' equity $ 544,903 $ 441,656
=========== =========
| | | December 30, | | | | December 31, |
| As at | | 2005 | | | | 2004 |
(in thousands) | | | | | | |
| | | | | | | |
| ASSETS | | | | | | |
Current assets: | | | | | | |
| Cash and cash equivalents | $ | 73,853 | | | $ | 71,872 |
Accounts receivable, less allowance for doubtful accounts of $5,230 and $8,952, and sales return reserve of $1,500 and $2,210, respectively | | 145,100 | | | | 123,938 |
| Other receivables | | 6,489 | | | | 4,182 |
| Inventories, net | | 107,851 | | | | 87,745 |
| Deferred income taxes | | 18,504 | | | | 21,852 |
| Other current assets | | 8,580 | | | | 7,878 |
| Total current assets | | 360,377 | | | | 317,467 |
| Property and equipment, net | | 42,664 | | | | 30,991 |
| Goodwill | | 286,146 | | | | 259,522 |
| Other purchased intangible assets, net | | 27,310 | | | | 13,835 |
| Deferred income taxes | | 3,580 | | | | 8,019 |
| Other assets | | 23,011 | | | | 24,144 |
| Total non-current assets | | 382,711 | | | | 336,511 |
| Total assets | $ | 743,088 | | | $ | 653,978 |
| | | | | | | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | |
| Current liabilities: | | | | | | |
| Current portion of long-term debt | $ | 216 | | | $ | 12,500 |
| Accounts payable | | 45,206 | | | | 43,551 |
| Accrued compensation and benefits | | 36,083 | | | | 31,202 |
| Accrued liabilities | | 16,189 | | | | 11,510 |
| Deferred revenues | | 12,588 | | | | 9,317 |
| Accrued warranty expense | | 7,466 | | | | 6,425 |
| Deferred income taxes | | 4,087 | | | | 2,521 |
| Income taxes payable | | 24,922 | | | | 11,951 |
| Total current liabilities | | 146,757 | | | | 128,977 |
| Non-current portion of long-term debt | | 433 | | | | 26,496 |
| Deferred gain on joint venture | | - | | | | 9,179 |
| Deferred income tax | | 5,602 | | | | 5,435 |
| Other non-current liabilities | | 19,041 | | | | 11,730 |
| Total liabilities | | 171,833 | | | | 181,817 |
| Commitments and contingencies | | | | | | |
| Shareholders' equity: | | | | | | |
Preferred stock no par value; 3,000 shares authorized; none outstanding | | -- | | | | -- |
Common stock, no par value; 90,000 shares authorized; 53,910 and 52,213 shares issued and outstanding at December 30, 2005 and December 31, 2004, respectively | | 384,196 | | | | 345,127 |
| Retained earnings | | 167,525 | | | | 82,670 |
| Accumulated other comprehensive income | | 19,534 | | | | 44,364 |
| Total shareholders' equity | | 571,255 | | | | 472,161 |
| Total liabilities and shareholders' equity | $ | 743,088 | | | $ | 653,978 |
See accompanying Note to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
| | | | December 30, | | | | December 31, | | | January 2, |
| Fiscal Years Ended | | | 2005 | | | | 2004 | | | 2004 |
(in thousands, except per share amounts) | | | | | | | | | | |
| | | | | | | | | | | |
| Revenue (1) | | $ | 774,913 | | | $ | 668,808 | | $ | 540,903 |
| Cost of sales (1) | | | 385,108 | | | | 343,998 | | | 272,873 |
| Gross margin | | | 389,805 | | | | 324,810 | | | 268,030 |
| | | | | | | | | | | |
| Operating expenses | | | | | | | | | | |
| Research and development | | | 84,276 | | | | 77,558 | | | 67,641 |
| Sales and marketing | | | 120,215 | | | | 108,054 | | | 97,870 |
| General and administrative | | | 52,137 | | | | 44,694 | | | 39,253 |
| Restructuring charges | | | 278 | | | | 552 | | | 2,019 |
| Amortization of purchased intangible assets | | | 6,855 | | | | 8,327 | | | 7,312 |
| In-process research and development | | | 1,100 | | | | - | | | - |
| Total operating expenses | | | 264,861 | | | | 239,185 | | | 214,095 |
| Operating income | | | 124,944 | | | | 85,625 | | | 53,935 |
| Non-operating income (expense), net | | | | | | | | | | |
| Interest income | | | 836 | | | | 436 | | | 465 |
| Interest expense | | | (2,331) | | | | (3,888) | | | (11,938) |
| Foreign currency transaction gain (loss), net | | | 1,022 | | | | (859) | | | (592) |
| Expenses for affiliated operations, net | | | (291) | | | | (7,590) | | | (6,403) |
| Other income | | | 608 | | | | 1,200 | | | 118 |
| Total non-operating expense, net | | | (156) | | | | (10,701) | | | (18,350) |
| Income before taxes | | | 124,788 | | | | 74,924 | | | 35,585 |
| Income tax provision (benefit) | | | 39,933 | | | | 7,244 | | | (2,900) |
| Net income | | $ | 84,855 | | | $ | 67,680 | | $ | 38,485 |
| | | | | | | | | | | |
| Basic earnings per share | | $ | 1.59 | | | $ | 1.32 | | $ | 0.81 |
| Shares used in calculating basic earnings per share | | | 53,216 | | | | 51,163 | | | 47,505 |
| | | | | | | | | | | |
| Diluted earnings per share | | $ | 1.49 | | | $ | 1.23 | | $ | 0.77 |
| Shares used in calculating diluted earnings per share | | | 56,819 | | | | 54,948 | | | 50,012 |
(1) Sales to related parties were $9.1 million, $7.6 million, and $4.0 million in fiscal 2005, 2004 and 2003, respectively, while cost of sales to those related parties were $4.0 million, $3.8 million, and $1.9 million in fiscal 2005, 2004 and 2003, respectively. See Note 5 to these Consolidated Financial Statements for a discussion of related parties.
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTSSTATEMENT OF OPERATIONS
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands, except per share data)
Revenue (1) $ 540,903 $ 466,602 $ 475,292
Cost of revenue 272,873 232,170 238,057
------- ------- -------
Gross margin 268,030 234,432 237,235
Operating expenses
Research and development 67,641 61,232 62,881
Sales and marketing 97,870 89,344 103,778
General and administrative 39,253 40,634 37,407
Restructuring charges 2,019 1,099 3,599
Amortization of purchased intangible assets and goodwill 7,312 8,300 29,389
----- ----- ------
Total operating expenses 214,095 200,609 237,054
------- ------- -------
Operating income from continuing operations 53,935 33,823 181
Non-operating income (expense), net
Interest income 465 659 1,118
Interest expense (11,938) (14,710) (22,224)
Foreign currency transaction loss, net (592) (823) (237)
Expenses for affiliated operations, net (6,403) (3,954) -
Other income (expense), net 118 (1,171) (430)
--- ------ ----
Total non-operating expense, net (18,350) (19,999) (21,773)
------- ------- -------
Income (loss) before income taxes from continuing operations 35,585 13,824 (21,592)
Income tax provision (benefit) (2,900) 3,500 1,900
------- ----- -----
Income (loss) from continuing operations 38,485 10,324 (23,492)
Gain on disposal of discontinued operations (net of tax) - - 613
---
Net income (loss) $ 38,485 $ 10,324 $ (22,879)
========== ========== ==========
Basic earnings (loss) per share from continuing operations $ 0.81 $ 0.24 $ (0.63)
Basic earnings per share from discontinued operations - 0.01
====
Basic earnings (loss) per share $ 0.81 $ 0.24 $ (0.62)
========== ========== ==========
Shares used in calculating basic earnings per share 47,505 42,860 37,091
Diluted earnings (loss) per share from continuing operations $ 0.77 $ 0.24 $ (0.63)
Diluted earnings per share from discontinued operations - - 0.01
====
Diluted earnings (loss) per share $ 0.77 $ 0.24 $ (0.62)
========== ========== ==========
Shares used in calculating diluted earnings per share 50,012 43,578 37,091
(1) Includes sales to related parties of $4.0 million for fiscal 2003. None in
fiscal 2001 and 2002.
SHAREHOLDERS’ EQUITY
| | | | Common stock | | Accumulative | |
| | | | Retained | Other | Total |
| | | | | | | Earnings | Comprehensive | Shareholders' |
| | | | Shares | | Amount | (Deficit) | Income/(Loss) | Equity |
(in thousands) | | | | | | |
| | | | | | | | | |
| Balance at January 3, 2003 | 43,965 | | $ 225,872 | $ (23,495) | $ (1,026) | $ 201,351 |
| | Components of comprehensive income: | | | | | | |
| | | Net income | | | | 38,485 | | 38,485 |
| | | Loss on interest rate swap | | | | | (7) | (7) |
| | | Unrealized gain on investments | | | | | 74 | 74 |
| | | Foreign currency translation adjustments | | | | | 31,198 | 31,198 |
| | Total comprehensive income | | | | | | 69,750 |
| | Issuance of common stock in connection with acquisitions and joint venture, net | 1,282 | | 25,795 | | | 25,795 |
| | Issuance of common stock under employee plans and exercise of warrants | 1,593 | | 13,929 | | | 13,929 |
| | Issuance of warrants | | | 836 | | | 836 |
| | Issuance of common stock in private placement | 3,148 | | 36,583 | | | 36,583 |
| Balance at January 2, 2004 | 49,988 | | 303,015 | 14,990 | 30,239 | 348,244 |
| | Components of comprehensive income: | | | | | | |
| | | Net income | | | | 67,680 | | 67,680 |
| | | Loss on interest rate swap | | | | | 106 | 106 |
| | | Unrealized loss on investments | | | | | (6) | (6) |
| | | Foreign currency translation adjustments, net of tax | | | | | 14,025 | 14,025 |
| | Total comprehensive income | | | | | | 81,805 |
| | Issuance of common stock in connection with acquisitions, net | 294 | | 899 | | | 899 |
| | Issuance of common stock under employee plans and exercise of warrants | 1,930 | | 26,805 | | | 26,805 |
| | Tax benefit from stock option exercises | | | 14,408 | | | 14,408 |
| Balance at December 31, 2004 | 52,213 | | 345,127 | 82,670 | 44,364 | 472,161 |
| | Components of comprehensive income: | | | | | | |
| | | Net income | | | | 84,855 | | 84,855 |
| | | Loss on interest rate swap | | | | | (106) | (106) |
| | | Unrealized loss on investments | | | | | (34) | (34) |
| | | Foreign currency translation adjustments, net of tax | | | | | (24,690) | (24,690) |
| | Total comprehensive income | | | | | | 60,025 |
| | Issuance of common stock in connection with acquisitions, net | 10 | | | | | - |
| | Issuance of common stock under employee plans and exercise of warrants | 1,687 | | 24,582 | | | 24,582 |
| | Tax benefit from stock option exercises | | | 14,487 | | | 14,487 |
| Balance at December 30, 2005 | 53,910 | | $ 384,196 | $ 167,525 | $ 19,534 | $ 571,255 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTSTATEMENTS OF SHAREHOLDERS' EQUITY
Common stock and warrants Accumulative
Retained Other Total
Earnings Comprehensive Shareholders'
Shares Amount (Deficit) Income/(Loss) Equity
------ ------ --------- ------------- ------
(in thousands)
Balance at December 29, 2000 36,243 $154,846 $(10,940) $(8,963) $134,943
Components of comprehensive income (loss):
Net loss (22,879) (22,879)
Loss on interest rate swap (203) (203)
Unrealized gain on investments 16 16
Foreign currency translation adjustments (9,766) (9,766)
------ ------
Comprehensive loss (32,832)
-------
Subtotal 102,111
Issuance of stock under employee plans
and exercise of warrants 1,376 11,344 11,344
Issuance of stock in private placement 2,675 25,034 25,034
----- ------ ------
Balance at December 28, 2001 40,294 191,224 (33,819) (18,916) 138,489
Components of comprehensive income (loss):
Net income 10,324 10,234
Gain on interest rate swap 210 210
Unrealized loss on investments (17) (17)
Foreign currency translation adjustments 17,697 17,697
------ ------
Comprehensive income 28,214
------
Subtotal 166,703
Issuance of stock for
acquisition 1,190 12,033 12,033
Issuance of stock under employee plans
exercise of warrants 561 4,091 4,091
Issuance of warrants 1,528 1,528
Issuance of stock in private placement 1,920 16,996 16,996
----- ------ ------
Balance at January 3, 2003 43,965 225,872 (23,495) (1,026) 201,351
Components of comprehensive income (loss):
Net income 38,485 38,485
Gain on interest rate swap (7) (7)
Unrealized gain on investments 74 74
Foreign currency translation adjustments 31,198 31,198
------ ------
Comprehensive income 69,750
------
Subtotal 271,101
Issuance of stock for
acquisition 825 18,524 18,524
Issuance of stock for Joint Venture with
Nikon 350 5,922 5,922
Issuance of stock under employee plans
and exercise of warrants 1,593 13,929 13,929
Issuance of stock for Levelite 107 1,349 1,349
Issuance of warrants 836 836
Issuance of stock in private placement 3,148 36,583 36,583
----- ------ ------
Balance at January 2, 2004 49,988 $303,015 $ 14,990 $ 30,239 $348,244
====== ======== ========= ======== ========
CASH FLOWS
| | | December 30, | | | | December 31, | | | January 2, |
| Fiscal Years Ended | | 2005 | | | | 2004 | | | 2004 |
(In thousands) | | | | | | | | | |
| | | | | | | | | | |
| Cash flows from operating activities: | | | | | | | | | |
| Net income | $ | 84,855 | | | $ | 67,680 | | $ | 38,485 |
| Adjustments to reconcile net income to net cash | | | | | | | | | |
| provided by operating activities: | | | | | | | | | |
| Depreciation | | 10,671 | | | | 8,874 | | | 8,864 |
| Amortization | | 7,020 | | | | 8,510 | | | 7,916 |
| Provision for doubtful accounts | | (502) | | | | 1,210 | | | (32) |
| Deferred gain on joint venture | | (9,180) | | | | (665) | | | (947) |
| Amortization of debt issuance cost | | 1,270 | | | | 487 | | | 3,515 |
| Deferred income taxes | | 14,242 | | | | (1,482) | | | (6,532) |
| In-process research and development | | 1,100 | | | | - | | | - |
| Other | | (466) | | | | (21) | | | 2,533 |
| Decrease (increase) in assets and liabilities: | | | | | | | | | |
| Accounts receivable, net | | (19,017) | | | | (17,245) | | | (13,944) |
| Deferred revenues | | 2,406 | | | | 1,619 | | | 1,650 |
| Other receivables | | (2,108) | | | | 2,231 | | | (4,389) |
| Inventories, net | | (17,888) | | | | (15,529) | | | (4,862) |
| Other current and non-current assets | | (2,294) | | | | (69) | | | (792) |
| Accounts payable | | 1,078 | | | | 14,668 | | | (6,387) |
| Accrued compensation and benefits | | 3,408 | | | | 4,847 | | | 6,723 |
| Accrued liabilities | | 6,232 | | | | (1,757) | | | (6,437) |
| Income taxes payable | | 12,054 | | | | 1,218 | | | 4,201 |
| Net cash provided by operating activities | | 92,880 | | | | 74,576 | | | 29,565 |
| | | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | | |
| Acquisition of property and equipment | | (23,436) | | | | (12,750) | | | (10,901) |
| Proceeds from sale of assets | | - | | | | 546 | | | 334 |
| Cost of acquisitions, net of cash acquired | | (51,379) | | | | (11,388) | | | (6,606) |
| Cost of joint venture and equity investments | | - | | | | (1,500) | | | (4,810) |
| Costs of capitalized patents | | (103) | | | | (41) | | | (670) |
| Net cash used in investing activities | | (74,918) | | | | (25,133) | | | (22,653) |
| | | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | | |
| Issuance of common stock and warrants | | 24,463 | | | | 26,805 | | | 50,514 |
| Collection of notes receivable | | 385 | | | | 271 | | | 1,326 |
| Proceeds from long-term debt and revolving credit lines | | 6,000 | | | | 14,000 | | | 138,288 |
| Payments on long-term debt and revolving credit lines | | (44,250) | | | | (65,235) | | | (190,074) |
| Net cash provided by (used in) financing activities | | (13,402) | | | | (24,159) | | | 54 |
| | | | | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | (2,579) | | | | 1,172 | | | 9,771 |
| | | | | | | | | | |
| Net increase in cash and cash equivalents | | 1,981 | | | | 26,456 | | | 16,737 |
| Cash and cash equivalents, beginning of fiscal year | | 71,872 | | | | 45,416 | | | 28,679 |
| Cash and cash equivalents, end of fiscal year | $ | 73,853 | | | $ | 71,872 | | $ | 45,416 |
| | | | | | | | | | |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(In thousands)
Cash flow from operating activities:
Net income (loss) $ 38,485 $ 10,324 $(22,879)
Adjustments to reconcile net income (loss) to cash
flows provided by operating activities:
Depreciation expense 8,864 9,850 11,218
Amortization expense 7,916 9,168 30,306
Provision for doubtful accounts (32) 5,443 5,077
(Gain) loss on sale of fixed assets - 423 (135)
Amortization of deferred gain - (1,061) (1,584)
Amortization of debt issuance cost 3,515 1,197 960
Deferred income taxes (6,532) 1,464 (887)
Other 2,533 193 (508)
Decrease (increase) in assets:
Accounts receivable (16,683) (10,615) 6,842
Inventories (4,862) (7,649) 7,442
Other current and non-current assets (792) (3,920) 2,393
Effect of foreign currency translation adjustment 6,895 438 (3,261)
Increase (decrease) in liabilities:
Accounts payable (6,387) 8,593 (4,954)
Accrued compensation and benefits 6,723 3,452 (3,112)
Deferred gain on joint venture (947) 10,792 -
Accrued liabilities (6,437) (4,823) (2,946)
Income taxes payable 4,201 (953) 2,398
----- ---- -----
Net cash provided by operating activities 36,460 32,316 26,370
------ ------ ------
Effect of exchange rate changes on cash and cash 2,876 2,780 (1,277)
equivalents
Cash flow from investing activities:
Acquisition of property and equipment (10,901) (7,157) (7,254)
Proceeds from sale of assets 334 1,407 1,177
Acquisitions, net of cash acquired (6,606) 1,718 (4,430)
Investment in Nikon-Trimble Joint Venture (4,810) - -
Costs of capitalized patents (670) (1,734) (934)
----- ------- -----
Net cash used by investing activities (22,653) (5,766) (11,441)
-------- ------- --------
Cash flow from financing activities:
Issuance of common stock and warrants 50,514 21,393 36,378
(Payment)/collection of notes receivable 1,326 (1,082) 872
Proceeds from long-term debt and revolving credit lines 138,288 18,000 30,062
Payments on long-term debt and revolving credit lines (190,074) (70,040) (90,762)
--------- -------- --------
Net cash provided (used) by financing activities 54 (31,729) (23,450)
-- -------- --------
Net increase (decrease) in cash and cash equivalents 16,737 (2,399) (9,798)
Cash and cash equivalents, beginning of period 28,679 31,078 40,876
------ ------ ------
Cash and cash equivalents, end of period $ 45,416 $ 28,679 $ 31,078
======== ======== =========
See accompanying Notes to the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary
NOTE 1: DESCRIPTION OF BUSINESS
Trimble Navigation Limited began operations in 1978 and incorporated in California in 1981. Trimble provides advanced positioning product solutions, most typically to commercial and government users. The principal applications served include surveying, construction, agriculture, machine guidance, asset and fleet management, and telecommunications infrastructure. The Company’s products typically provide its customers benefits that can include lower costs, and higher productivity. Examples of Significant Accounting Policies:
products include systems that guide agricultural and construction equipment, surveying instruments, systems that track fleets of vehicles, and data collection systems that enable the management of large amounts of geo referenced information. In addition, the Company also manufactures components for in vehicle navigation and telematics systems, and timing modules used in the synchronization of wireless networks.
NOTE 2: ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Due to the inherent nature of those estimates,Estimates are used for revenue recognition, allowances for doubtful accounts, sales returns reserve, allowances for inventory valuation, warranty costs, investments, goodwill impairments, and income taxes among others. The actual results couldexperienced by the Company may differ materially from expectations.
management’s estimates.
Basis of Presentation
Trimble has a 52-53 week fiscal year endingthat ends on the Friday nearest to December 31, which for31. Fiscal 2005, a 53-week year, ended on December 30, 2005 and fiscal 2004 and fiscal 2003, was52-week years, ended on December 31, 2004 and January 2, 2004. Fiscal 2002 was a 53-week year.
The financial results of fiscal year 2002 have an extra week, and therefore will
not be exactly comparable to the prior and subsequent 52-week fiscal years.
Fiscal year 2001 comprised 52 weeks.
The consolidated financial statements2004, respectively.
These Consolidated Financial Statements include the results of Trimble and its subsidiaries. Inter-company accounts and transactions have been eliminated. Certain amounts from prior years have been reclassified to conform to the current year presentation.
In 2005 the Company revised its statements of cash flows for 2004 and 2003. The changes relate to the Company’s classification of the foreign exchange impact on its cash and cash equivalents that was erroneously included in cash flows from operations. These corrections have been made retrospectively modifying the presentation for 2004 and 2003. The changes resulted in an increase to cash flows from operations of $1.5 million and a decrease of $6.9 million in 2004 and 2003, respectively. These revisions to the statements of cash flows had no impact on the Company’s cash and cash equivalents, balance sheet, or income statement.
Foreign Currency Translation
Assets and liabilities of the Company's non-USnon-U.S. subsidiaries that operate in local currencies are translated into
USto U.S. dollars at year-end exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income. Income and revenues and expensesexpense accounts are translated at average exchange rates prevailing during the year. Local currencies are considered to
beWhere the U.S. dollar is the functional currencies for the Company's non-US subsidiaries. Translationcurrency, translation adjustments are includedrecorded in shareholders'foreign currency transaction adjustments, net of tax in accumulated other comprehensive income within the shareholders’ equity insection of the consolidated balance sheet caption "Accumulated other comprehensive income (loss)." Foreign currency
transaction gains and losses are included in results of operations as incurred
and have not been significant to the Company's operating results in any fiscal
year presented. The effect of foreign currency rate changes on cash and cash
equivalents is not material. Cumulative translation adjustment increased by
approximately $31.2 million due to weakening US dollar against other currencies
affecting the translation of our assets dominated in non-US currencies.
sheets.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and highly liquid investments with insignificant interest rate risk and maturities of three months or less at the date of purchase. The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments.
Fair Value of Financial Instruments
The fair value of certain of the Company’s financial instruments, including cash and cash equivalents, and other accrued liabilities approximate cost because of their short maturities. The fair value of investments is determined using quoted market prices for those securities or similar financial instruments.
Concentration of Risk
In entering into forward foreign exchange contracts, Trimble has assumed
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the risk that might arise from the possible inabilityamount of counter-parties to meet the
termsinsurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of their contracts. The counter-parties to these contracts are major
multinational investmentreputable credit and commercial banks, and the Company does not expect
any losses as a result of counter-party defaults (see Note 6 of the Notes to the
Consolidated Financial Statements). therefore bear minimal credit risk.
The Company is also exposed to credit risk in the Company'sCompany’s trade receivables, which are derived from sales to end user customers in diversified industries as well as various resellers. Trimble performs ongoing credit evaluations of its customers'customers’ financial condition and limits the amount of credit extended when deemed necessary but generally does not require collateral.
With the selection of Solectron Corporation in August 1999 as an exclusive manufacturing partner for many of its GPS products, Trimble became substantially dependent upon a sole supplier for the manufacture of many of its products. In addition, the Company relies on sole suppliers for a number of its critical components.
Many of Trimble's products use GPS as the positioning technology. GPS is a
system of 24 orbiting satellites established and funded by the US Government,
which has been fully operational since March 1995. A significant reduction in
the number of operating satellites would impair the current utility of the GPS
system and the growth of current and additional market opportunities. In
addition, the US Government may not remain committed to the operation and
maintenance of GPS satellites over a long period, and the policy of the US
Government for the use of GPS without charge may change.
Allowance for Doubtful Accounts
Trimble maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
Trimble evaluates the collectibility of its trade accounts receivable based on a number of factors.factors such as age of the accounts receivable balances, credit quality, historical experience, and current economic conditions that may affect a customer’s ability to pay. In circumstances where the Company is aware of a specific customer'scustomer’s inability to meet its financial obligations to the Company, a specific allowance for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount Trimble believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company'sCompany’s recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding. The amount was not significant in fiscal 2003 and the expenses
recorded for doubtful accounts were $5.4 million in fiscal 2002 and $5.1 million
in fiscal 2001.
Inventories
Inventories are stated at the lower of standard cost or market (net realizable value). Standard costs approximate average actual costs.costs, which are generally on a first-in, first-out basis. The Company uses a standard cost accounting system to value inventory and these standards are reviewed at a minimum of once a year and multiple times a year in the most active manufacturing plants. The Company provides for the inventory value for
estimatedallowances based on excess and obsolete inventory, based on management's assessment ofinventories determined primarily by future demand and market conditions.forecasts. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required.
Software Development Costs
The Company capitalizes material software development costs for internal use pursuant to Statement of Position No. 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.”
Goodwill, Purchased Intangible Assets and Non-CurrentLong-Lived Assets
Intangible assets include goodwill, assembled workforce, distribution channels, patents, licenses, technology, acquired backlog and trademarks which are capitalized at cost. Intangible assets with definite lives are amortized on the straight-line basis. Useful lives generally range from fivethree to seven years with weighted average useful life of 5.75.2 years. Prior to December 29, 2001, goodwill was amortized
over 20 years, except for goodwill from the Grid Data purchase, which was
amortized over five years.
If facts and circumstances indicate that the goodwill, other intangible assets or property and equipment may be impaired, an evaluation of continuing value would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with these assets would be compared to their carrying amount to determine if a write-down to fair market value or discounted cash flow value is required. Trimble performed an annual impairment test of goodwill
upon transition to FAS No. 142 on December 29, 2001, and an annual impairment
test at the end of the third fiscal quarter of 20022005, 2004 and 2003, respectively, and found there was no impairment.impairment of goodwill. Trimble will continue to evaluate its goodwill for impairment on an annual basis at the end of each fiscal third quarter and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable.
Trimble adopted SFAS No. 142 on December 29, 2001. As a result, goodwill is no
longer amortized and intangible assets with indefinite lives were reclassified
to goodwill.
Revenue Recognition
Trimble's
Trimble’s revenues are recorded in accordance with the Securities and Exchange Commission'sCommission’s (SEC) Staff Accounting Bulletin (SAB) No. 104, "Revenue“Revenue Recognition."” The Company recognizes product revenue when
persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product is specified by the customer or is uncertain, revenue is deferred until all acceptance criteria have been met.
Revenues from purchased extended warranty and support agreements are deferred
and recognized ratably over the term of the warranty/support period.
Substantially all technology licenses and research revenue have consisted of
initial license fees and royalties, which were recognized when earned, provided
we had no remaining obligations.
Contracts and customer purchase orders are generallytypically used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis, as well as the customer'scustomer’s payment history.
Trimble's
Trimble’s shipment terms for US orders, and international orders fulfilled from its European distribution center are typically FCA (Free Carrier) shipping point, except certain sales to US government agencies which are shipped FOB destination. FCA shipping point means that Trimble fulfills the obligation to deliver when the goods are handed over, cleared for export, and into the charge of the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, Trimble may choose within the place or range stipulated where the carrier will take the goods into carrier'scarrier’s charge. Shipping and handling costs are included in the cost of goods sold.
Other international orders are shipped FOB destination, which means these international orders are not recognized as revenue until the product is delivered and title has transferred to the buyer or FCA shipping point. FOB destination means that Trimble bears all costs and risks of loss or damage to the goods up to that point.
Revenue to distributors and resellers is recognized upon delivery, assuming all other criteria for revenue recognition have been met. Distributors and resellers do not have a right of return.
When
Revenues from purchased extended warranty and support agreements are deferred and recognized ratably over the term of the warranty/support period.
In accordance with Emerging Issues Task Force (EITF) Issue 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables,” when a sale involves multiple elements the entire fee from the arrangement is allocated to each respective element based on its relative fair value and recognized when revenue recognition criteria for each element are met. The
amount
Software revenue is recognized in accordance with Statement of product revenue allocated to an individual element is limited to the
lesserPosition (SOP) No. 97-2, “Software Revenue Recognition” and Statement of its relative fair value or the amount not contingent on the Company's
deliveryPosition (SOP) No. 98-9, “Modification of other elements under the arrangement, regardless of the probability
of the Company's performance.
Trimble'sSOP 97-2.” Trimble’s software arrangements generally consist of a perpetual license fee and post contract customer support (PCS). Trimble has established vendor-specific objective evidence (VSOE) of fair value for its PCS contracts based on the renewal rate. The remaining value of the software arrangement is allocated to the license fee using the residual method, which revenue is primarily recognized when the software has been delivered and there are no remaining obligations. Revenue from PCS is recognized ratably over the term of the PCS agreement.
Support
A reserve for sales returns is established based on historical trends in product return rates experienced in the ordinary course of business. The reserve for estimated future returns is recorded as a reduction of our accounts receivable and revenue. If the actual returns were to deviate from the historical data on which the sales reserve had been established, the Company’s revenue could be adversely affected.
Warranty
The Company accrues for warranty periods for the Company'scosts as part of its cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on Trimble’s behalf. The products sold are generally between one andcovered by a warranty for periods ranging from 90 days to three years, from date of shipment. Selected military programs may require
extended warranty periodsand in some instances up to 5.5 years, certain TDS products have a five year
or 90-day warranty period, and certain Nikon products have a five year warranty
period. Trimble supports its GPS products through a circuit board replacement
program from locations in the United Kingdom, Germany, Japan, and the United
States. The repair and calibration of Trimble's non-GPS products are available
from company- owned or authorized facilities. The Company reimburses dealers and
distributors for all authorized warranty repairs they perform.
years.
While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, 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 the estimates, revisions to the estimated warranty accrual and related costs may be required.
Changes in the
Company'sCompany’s product warranty liability during the 12 months ended
January 2,December 30, 2005 and December 31, 2004,
and January 3, 2003, are as follows:
January 2, January 3,
Fiscal Years Ended 2004 2003
- ------------------ ---- ----
(In thousands)
Beginning balance $ 6,394 $ 6,827
Warranties accrued 4,417 2,821
Warranty claims (5,664) (3,254)
------ ------
Ending Balance $ 5,147 $ 6,394
========== ==========
| | | December 30, | | December 31, |
| Fiscal Years Ended | | 2005 | | 2004 |
(In thousands) | | | | |
| | | | | |
| Beginning balance | $ | 6,425 | $ | 5,147 |
| Warranties accrued | | 7,960 | | 7,333 |
| Warranty claims | | (6,919) | | (6,055) |
| Ending Balance | $ | 7,466 | $ | 6,425 |
Guarantees, Including Indirect Guarantees of Indebtedness of Others
In addition to product warranties, the Company, from time to time, in the normal course of business to facilitate sales of its products, the Company indemnifies other parties, with whom it enters into
contractual relationships, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against specified losses such as those arising from a breach of representations or covenants, third party claims that
the Trimble's products when used for their intended purpose(s) infringe theor out of intellectual property rights of such third partyinfringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents.
It is not possible to determine the maximum potential amount of
liability under these indemnification obligationsagreements due to the limited history of prior indemnification claims and the unique facts and circumstances that are
likely to be involved in each particular claim.agreement. Historically, payments made by the Company under these obligationsagreements were not material and no liabilities have been recorded for these obligations on the balance sheetsConsolidated Balance Sheets as of January 2, 2004December 30, 2005 and January 3, 2003.
December 31, 2004.
Advertising Costs
Trimble
The Company expenses all advertising costs as incurred. Advertising expenses were approximately $9.2$14.8 million, $6.3$9.5 million, and $6.8$9.2 million in fiscal 2005, 2004, and 2003, 2002,
and 2001, respectively.
Research and Development Costs
Research and development costs are charged to expense as incurred. TrimbleCost of software developed for external sale subsequent to reaching technical feasibility were not considered material and were expensed as incurred. The Company received third party funding of approximately $4.9$9.0 million, $5.3$7.7 million, and $4.1$4.9 million in fiscal 2003, 2002,2005, 2004, and 2001,2003 respectively. The Company offsets research and development expenses with any third party funding received. The Company retains the rights to any technology developed.
Stockdeveloped under such arrangements.
Stock-Based Compensation
In accordance with the provisions of Statement of Financial Accounting Standards No. 123 ("(“SFAS 123"123”), "Accounting for Stock-Based Compensation" and "Statement“Statement of Financial Accounting Standards No. 148" ("148” (“SFAS 148"148”), "Accounting“Accounting for Stock-Based Compensation - Transition and Disclosure,"” Trimble applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("(“APB 25"25”) and related interpretations in accounting for its stock
option plans and stock purchase plan.stock-based compensation. Accordingly, the Company does not recognize compensation cost for stock options granted at fair market value. Note 1315 of the Consolidated Financial Statements describe the plans operated by Trimble.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period, and the estimated fair value of purchases under the employee stock purchase plan is expensed in the year of purchase as well as the stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value based method had been applied to all awards. The
effects on pro forma disclosure of applying SFAS No. 123 are not likely to be
representative of the effects on pro forma disclosure of future years.
Pro forma information regarding net income
(loss) and earnings
(loss) per share is required by SFAS
No. 123 and has been determined as if Trimble had accounted for its employee stock options and purchases under the employee stock purchase
plan using the fair value method of SFAS No.123. The123.
Options
For options granted prior to October 1, 2005, the fair value for these options was estimated at the date of grant using athe Black-Scholes option-pricing model. For stock options granted on or after October 1, 2005, the fair value of each award is estimated on the date of grant using a binomial valuation model. Similar to the Black-Scholes model, the binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For these reasons, Trimble believes that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using the Black-Scholes model.
Under the Black-Scholes and binomial models, the estimated values of employee stock options granted during fiscal years 2005, 2004, and 2003 were $14.53, $13.85, and $10.03, respectively. The value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model and binomial model with the following weighted-averageassumptions:
| | December 30, 2005 | December 31, 2004 | January 2, 2004 |
| Expected dividend yield | - | - | - |
| Expected stock price volatility | 47% | 56% | 60% |
| Risk free interest rate | 4.3% | 3.5% | 3.3% |
| Expected life of options after vesting | 1.7 years | 1.6 years | 1.6 years |
An analysis of historical information is used to determine the Company’s assumptions, to the extent that historical information is relevant, based on the terms of the grants being issued in any given period. The expected life for options granted reflects options granted to existing employees that generally vest ratably over five years from the date of grant.
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, rights to purchase shares are granted during the second and fourth quarter of each year. The fair value of rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using the Black-Scholes option-pricing model. The estimated weighted average value of rights granted under the Employee Stock Purchase Plan during fiscal years 2005, 2004, and 2003 2002,were $9.88, $7.31, and 2001:
January 2, January 3, December 28,$3.57 respectively. The fair value of rights granted during 2005, 2004, and 2003 2001
---- ---- ----
Expected dividend yield - - -
Expectedwas estimated at the date of grant using the following assumptions:
| Fiscal years ended | December 30, 2005 | December 31, 2004 | January 2, 2004 |
| Expected dividend yield | - | - | - |
| Expected stock price volatility | 47% | 46% | 60% |
| Risk free interest rate | 3.5% | 1.7% | 1.1% |
| Expected life of purchase | 0.5 years | 0.5 years | 0.5 years |
Trimble's pro forma information is as follows:
| | | | December 30, | | | | December 31, | | | January 2, |
(in thousands, except per share amounts) | | | 2005 | | | | 2004 | | | 2004 |
| | | | | | | | | | | |
| Net income, as reported | | $ | 84,855 | | | $ | 67,680 | | $ | 38,485 |
| Compensation expense, net of tax | | | 8,682 | | | | 8,617 | | | 9,817 |
| Pro-forma net income | | $ | 76,173 | | | $ | 59,063 | | $ | 28,668 |
| | | | | | | | | | | |
| Reported basic earnings per share | | $ | 1.59 | | | $ | 1.32 | | $ | 0.81 |
| Pro-forma basic earnings per share | | $ | 1.43 | | | $ | 1.15 | | $ | 0.60 |
| | | | | | | | | | | |
| Reported diluted earnings per share | | $ | 1.49 | | | $ | 1.23 | | $ | 0.77 |
| Pro-forma diluted earnings per share | | $ | 1.34 | | | $ | 1.07 | | $ | 0.57 |
SFAS 123 requires the use of option pricing models that were not developed for use in valuing employee stock
price volatility 59.87% 52.70% 69.59%
Risk free interest rate 3.34% 3.13% 4.15%
Expected life of options after vesting 1.56 1.18 1.20options. The Black-Scholes option
valuationpricing model
waswere developed for use in estimating the fair value of
tradedshort-lived exchange-traded options that have no vesting restrictions and are fully transferable. In addition,
option valuationthe models require the input of highly subjective
assumptions includingassumptions. Because the
expected stock price volatility. Because
Trimble's employee stock options haveCompany’s stock-based compensation has characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in
management'sthe opinion
of management, the existing models do not necessarily provide a reliable single measure of
itsthe fair value of employee
stock options.
Trimble's pro forma information is as follows:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(dollars in thousands)
Net income (loss) - as reported $ 38,485 $ 10,324 $(22,879)
Stock-based employee compensation expense
determined under fair value method based for all
awards, net of related tax effects 11,549 11,641 12,718
------ ------ ------
Net earnings (loss) - pro forma $ 26,936 $ (1,317) $(35,597)
Basic earnings (loss) per share - as reported 0.81 0.24 (0.62)
Basic earnings (loss) per share - pro forma 0.57 (0.03) (0.96)
Diluted earnings (loss) per share - as reported 0.77 0.24 (0.62)
Diluted earnings (loss) per share - pro forma 0.54 (0.03) (0.96)
stock-based compensation. Depreciation
Depreciation of property and equipment owned or under capitalized leases is computed using the straight-line method over the shorter of the estimated useful lives or the lease terms. Useful lives include a range from two to six years for machinery and equipment, five years for furniture and fixtures, two to five years for computer equipment and software, and the life of the lease for leasehold improvements. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Depreciation expense was $10.7 million in fiscal 2005, $8.9 million in fiscal 2004, and $8.9 million in fiscal 2003.
Income Taxes
Income taxes are accounted for under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
Computation of Earnings (Loss) Per Share
Number of shares used in calculation of basic earnings per share represents the weighted average common shares outstanding during the period and excludes any dilutive effects of options, warrants, and convertible securities. The dilutive effects of options, warrants, and convertible securities are included in diluted earnings per share. (See Note 21 to the Consolidated Financial Statements
regarding a 3 for 2 stock split subsequent to year end.)
New Accounting Standards
In NovemberMay 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections" ("SFAS 154") which replaces Accounting Principles Board Opinions No. 20 "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim Financial Statements-An Amendment of 2002, the EITF reached a consensus on IssueAPB Opinion No. 00-21, "Revenue
Arrangements with Multiple Deliverables.28." EITF Issue No. 00-21SFAS 154 provides guidance on howthe accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005 and is required to account for arrangementsbe adopted by the Company in the first quarter of fiscal 2006. The Company is currently evaluating the effect that involve the delivery or performance of
multiple products, services and/or rights to use assets. The provisions of EITF
Issue No. 00-21 apply to revenue arrangements entered into after June, 2003. The
effect of adoption of EITF Issue No. 00-21SFAS 154 will have on Trimble'sits consolidated results of operations and financial condition was immaterial.
Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," wasbut does not expect it to have a material impact.
In March 2005, the FASB issued in January 2003, and a
revisedFIN 47, "Accounting for Conditional Asset Retirement Obligations, an interpretation of FASB Statement No. 143" ("FIN 46 (FIN 46-R) was issued in December 2003.47"). FIN 4647 requires certain variable interest entitiesan entity to be consolidated byrecognize a liability for the primary
beneficiaryfair value of the entitya conditional asset retirement obligation when incurred if the equity investors in the entity doliability's fair value can be reasonably estimated. FIN 47 is effective for fiscal years ending after December 15, 2005. The Company was not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The provisions of FIN 46 are
effective immediately for all arrangements entered into after January 31, 2003.
Since January 31, 2003, Trimble has not obtained any variable interests in any
entities it believes are variable interest entities. For arrangements entered
into prior to February 1, 2003, Trimble would be required to adopt the
provisions of FIN 46-R in the first quarter of fiscal 2004. Trimble is in the
process of determining the effect, if any,impacted by the adoption of FIN 46-R will have on
its financial statements.
47 in fiscal 2005.
In April 2003,December 2004, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities."123R, “Share-Based Payment.” SFAS No. 149 amends123R requires employee stock options and clarifies financial accountingrights to purchase shares under stock participation plans to be accounted for under the fair value method, and reportingeliminates the ability to account for derivativethese instruments including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives)under the intrinsic value method prescribed by APB Opinion No. 25, and for hedging activitiesallowed under the original provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."123. SFAS No. 149123R requires the use of an option pricing model for estimating fair value, which is amortized to expense over the service periods. The requirements of SFAS No. 123R are effective for contracts entered into or modified after June 30, 2003,
and for hedging relationships designated after June 30, 2003. The adoption of
this Statement did not have an effect on Trimble's financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. Many
of these instruments were previously classified as equity. SFAS No. 150 is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise was effective at the beginning of the first interim periodfiscal years beginning after June 15, 2003,2005. SFAS No. 123R allows for either prospective recognition of compensation expense or retrospective recognition, which may be back to the original issuance of SFAS No. 123 or only to interim periods in the year of adoption. The Company will use the prospective method for Trimble, wasfuture fiscal periods after the fourth quarterSFAS No. 123R effective date of 2003. 12/31/05. As a result, financial statements for fiscal periods after our SFAS No. 123R effective date will include stock-based compensation expenses that are not comparable to financial statements of fiscal periods prior to the SFAS No. 123R effective date. Due to constant fluctuations to the expected volatility, expected term, risk free interest rate, and expected forfeiture assumptions used in valuating stock-based compensation, expected stock-based compensation expense in future fiscal periods is not predictable.
NOTE 3: EARNINGS PER SHARE
The adoption of this Statement did not have anfollowing data show the amounts used in computing earnings per share and the effect on Trimble's
financial statements.
Note 2 - Acquisitions:
the weighted-average number of shares of potentially dilutive common stock.
| | | | December 30, | | | | December 31, | | | January 2, |
| Fiscal Years Ended | | | 2005 | | | | 2004 | | | 2004 |
(In thousands, except per share data) | | | | | | | | | | |
| | | | | | | | | | | |
| Numerator: | | | | | | | | | | |
| Income available to common shareholders: | | | | | | | | | | |
| Used in basic and diluted earnings per share | | $ | 84,855 | | | $ | 67,680 | | $ | 38,485 |
| | | | | | | | | | | |
| Denominator: | | | | | | | | | | |
| Weighted average number of common shares used in basic earnings per share | | | 53,216 | | | | 51,163 | | | 47,505 |
| Effect of dilutive securities (using treasury stock method): | | | | | | | | | | |
| Common stock options | | | 2,950 | | | | 2,947 | | | 2,058 |
| Common stock warrants | | | 653 | | | | 838 | | | 449 |
| Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share | | | 56,819 | | | | 54,948 | | | 50,012 |
| | | | | | | | | | | |
| Basic earnings per share | | $ | 1.59 | | | $ | 1.32 | | $ | 0.81 |
| Diluted earnings per share | | $ | 1.49 | | | $ | 1.23 | | $ | 0.77 |
3-for-2 Stock Split
Trimble’s Board of Directors approved a 3-for-2 split of all outstanding shares of the Company’s Common Stock, payable March 4, 2004 to stockholders of record on February 17, 2004. Cash was paid in lieu of fractional shares. All shares and per share information presented has been adjusted to reflect the stock split on a retroactive basis for all periods presented.
NOTE 4: BUSINESS COMBINATIONS
Acquisitions
The following is a summary of acquisitions made by Trimble during fiscal 2003,
2002,2005, 2004 and 2001,2003 all of which were accounted for as purchases:
Acquisition Primary Service or Product Acquisition Date
- ----------- -------------------------- ----------------
Grid Data Wireless application service provider April 2, 2001
LeveLite Low-end construction instrument products August 15, 2002
Applanix Inertial navigation systems and GPS July 7, 2003
MENSI 3D laser scanning technology December 9, 2003
| Acquisition | Primary Service or Product | Operating Segment | Acquisition Date |
| Advanced Public Safety | Mobile and handheld software for public safety | Mobile Solutions | December 30, 2005 |
| MobileTech Solutions | Field workforce automation solutions | Mobile Solutions | October 25, 2005 |
| Apache Technologies | Laser detection technology | Engineering & Construction | April 19, 2005 |
| Pacific Crest Corporation | Wireless data communication systems | Engineering & Construction | January 10, 2005 |
| GeoNav GmbH | Customized field data collection solutions | Engineering and Construction | July 5, 2004 |
| TracerNET Corp. | Wireless fleet management solutions | Mobile Solutions | March 5, 2004 |
| MENSI S.A. | 3D laser scanning technology | Engineering & Construction | December 9, 2003 |
| Applanix | Inertial navigation systems and GPS | Portfolio Technologies | July 7, 2003 |
The
consolidated financial statementsConsolidated Financial Statements include the
operating results of
operations of
acquired companies commencing oneach business from the date of acquisition. Pro forma
information
isresults of operations have not
been presented
asbecause the effects of each of these acquisitions
didwere not
have a material
effect onto the
Company's results of operations.
Allocation of Purchase Consideration
Company’s results.
The total purchase consideration for each of the above acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition.
The followingAcquisition costs directly related to the acquisitions are capitalized. Assets acquired and liabilities assumed for certain acquisitions in the fourth quarter of fiscal 2005 were allocated based on preliminary estimates. Trimble is
a summaryin the process of
purchase price, acquisition costs and purchase price allocation of the Grid
Data, and LeveLite, Applanix, and MENSI acquisitions:
Grid Data LeveLite Applanix MENSI
--------- -------- -------- -----
(In thousands)
Purchase price $ 8,248 $ 7,506 $ 17,401 $ 4,273
Acquisition costs 50 144 438 372
Restructuring costs - 555 - -
---
Total purchase price $ 8,298 $ 8,205 $ 17,839 $ 4,645
======== ======== ======== ========
Purchase price allocation:
Fair value of tangible net assets
acquired (141) 6,115 3,742 1,434
Deferred tax - - (1,153) -
Identified intangible assets:
Existing technology - - 3,440 -
Goodwill 8,439 2,090 11,810 3,211
----- ----- ------ -----
Total $ 8,298 $ 8,205 $ 17,839 $ 4,645
======== ======== ======== ========
Grid Data, Inc.
On April 2, 2001, Trimble acquired certain assets of Grid Data, an Arizona
corporation, for approximately $3.5 million in cash and the assumption of
certain liabilities. In addition, the purchase agreement provided for Trimble to
make earn-out payments based uponfinalizing these estimates pending the completion of
certain business milestones.
In June 2002, Trimble issued 402,528 sharesfair value assessments and asset appraisals on identified intangible assets. Final changes to the value of
common stockestimated intangible assets will also adjust the amounts attributable from goodwill.
At the date of each acquisition, the projects associated with in-process research and development (IPR&D) efforts had not yet reached technological feasibility and the research and development in
settlementprocess had no alternative future uses. Accordingly, the value assigned to these IPR&D amounts were charged to expense on the respective acquisition date of
all
earn-out payments, which resulted in additional goodwill of $4.8 million, with a
final purchase price of approximately $8.3 million.
LeveLite Technology, Inc.
On August 15, 2002, Trimble acquired LeveLite Technology, Inc., a California
corporation, for approximately $5.7 million. This strategic acquisition
complements Trimble's entry-level construction instrument product line. The
purchase price consisted of 655,626 shares of common stock. The merger agreement
provides for Trimble to make additional earn-out payments not to exceed $3.9
million (in common stock and cash payment) based on future revenues derived from
existing product sales to a certain customer and a shareeach of the
payments
received fromacquired companies. Trimble recorded IPR&D expense of $1.1 million relating to acquisitions made in fiscal 2005. As mentioned above, Trimble is in the
settlementprocess of
potential litigation. Asfinalizing the acquisitions in the fourth quarter of
January 2, 2004,fiscal 2005, pending the
total earn-out amount was approximately $1.8 million resulting in additional
goodwill and a final purchase pricecompletion of
approximately $7.5 million.
Applanix Corporation
* On July 7, 2003, Trimble acquired privately held Applanix Corporation of
Ontario, Canada for approximately $17.8 million. Applanix develops systems that
integrate inertial navigation system (INS) and GPS technologies. The purchase
price consisted of 1,154,240 shares of Trimble common stock, of which 720,404
were issued. Former Applanix shareholders havefair value assessments. Final changes to the
right to receive the
remaining 433,836 shares of Trimble common stock upon the surrender of
exchangeable shares of a Trimble subsidiary. Trimble expects the Applanix
acquisition to extend its technology portfolio and enable increased robustness
and capabilities in its future positioning products. Applanix's performance is
reported under the Company's Portfolio Technologies segment. Trimble's allocated
a portionestimated value of the
purchase priceIPR&D will also adjust the amounts attributable to
existing technology, which is being amortized
over seven years.
MENSI S.A.
On December 9,goodwill. We did not record any IPR&D expense in fiscal 2004 and fiscal 2003. The following table summarizes the Company’s business combinations completed during fiscal years 2005, 2004 and 2003 we acquired privately held MENSI S.A., a French developer
of terrestrial 3D laser scanning technology. This strategic acquisition will
enhance our technology portfolio and expand our product offerings. The purchase
price consisted of an initial cash payment of approximately Euro 3.5 million
(approximately US$4.3 million on December 9, 2003). The acquisition agreement
provides for Trimble to make(in thousands):
| | | December 30, | December 31, | January 2, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
| | | | |
| Purchase price | $ 63,830 | $ 12,246 | $ 22,352 |
| Purchase price adjustments | 1,595 | 1,167 | 4,010 |
| Acquisition costs | 466 | 279 | 810 |
| | Total purchase price | $ 65,891 | $ 13,692 | $ 27,172 |
| | | | | |
| Purchase price allocation: | | | |
| Fair value of net assets acquired | $ 1,237 | $ 2,649 | $ 4,020 |
| Identified intangible assets | 21,171 | 2,117 | 3,440 |
| In-Process Research & Development | 1,100 | - | - |
| Goodwill | 42,383 | 8,926 | 11,749 |
| | Total | | $ 65,891 | $ 13,692 | $ 19,229 |
Certain acquisitions include additional earn-out cash payments not to exceed
Euro 3 million (approximately US$3.7 million on December 9, 2003) based on future revenue derived from existing product sales. products. These earn-out payments are considered additional purchase price consideration. Earn-out cash payments made for fiscal 2005, fiscal 2004 and fiscal 2003 were $1.6 million, $1.2 million and $4.0 million respectively. Earn-outs and changes in purchase price allocation estimates were recorded as purchase price adjustments and goodwill adjustments. Acquisitions made by Trimble have additional potential earn-out cash payments not to exceed approximately $44.7 million.
Intangible Assets
The following tables present details of the Company’s total intangible assets:
| | | December 30, | | | | December 31, |
| As of | | 2005 | | | | 2004 |
(In thousands) | | | | | | |
| | | | | | | |
| Intangible assets: | | | | | | |
| Intangible assets with definite life: | | | | | | |
| Existing technology | $ | 48,100 | | | $ | 35,037 |
| Trade names, trademarks, patents, backlog and other intellectual properties | | 26,808 | | | | 22,111 |
| Total intangible assets with definite life | | 74,908 | | | | 57,148 |
| Less accumulated amortization | | (47,598) | | | | (43,313) |
| Total net intangible assets | $ | 27,310 | | | $ | 13,835 |
Total intangibles assets before accumulated amortization increased by $17.8 million primarily due to $20.7 million increase in intangible assets purchased in connection with acquisitions in fiscal 2005 offset by $2.5 million in exchange rate impact on non-US currency denominated intangible assets. Accumulated amortization increased by $4.3 million primarily due to a $7.0 million increased in amortization expense partially offset by $2.2 million in exchange rate impact on non-US currency denominated intangible assets. .
The following table presents details of the amortization expense of purchased and other intangible assets as reported in the Consolidated Statements of Income:
| Fiscal Years Ended | December 30, 2005 | | December 31, 2004 | | January 2, 2004 |
(In thousands) | | | | | |
| | | | | | |
| Reported as: | | | | | |
| Cost of sales | $ 165 | | $ 183 | | $ 604 |
| Operating expenses | 6,855 | | 8,327 | | 7,312 |
| Total | $ 7,020 | | $ 8,510 | | $ 7,916 |
The decrease in amortization expense is due to certain intangibles becoming fully amortized in the second quarter of fiscal 2005.
The estimated future amortization expense of intangible assets as of December 30, 2005, is as follows (in thousands):
| | Amortization Expense |
| 2006 | $ 8,392 |
| 2007 | 6,603 |
| 2008 | 5,560 |
| 2009 | 3,976 |
| 2010 | 2,612 |
| Thereafter | 167 |
| Total | $ 27,310 |
Goodwill
Goodwill consisted of the following:
| | | December 30, | | | | December 31, |
| As of | | 2005 | | | | 2004 |
(In thousands) | | | | | | |
| | | | | | | |
| Goodwill, Spectra Precision acquisition | $ | 196,676 | | | $ | 212,915 |
| Goodwill, other acquisitions | | 89,470 | | | | 46,607 |
| Goodwill | $ | 286,146 | | | $ | 259,522 |
The net increase in goodwill of approximately $26.6 million during fiscal 2005 was primarily due to a $39.9 million increase in goodwill from acquisitions of Pacific Crest, Apache, MobileTech Solutions and APS and $1.9 million in earn-out amounts recorded fiscal 2005 related to the Apache, Mensi and Levelite acquisitions. This amount was offset by the foreign exchange rate impact of approximately $15.8 million on non-US currency denominated goodwill assets. See Note 7 of the Notes to the Consolidated Financial Statements for additional payments, if
earned, will result in additional goodwill. MENSI's performance is reported
under our Engineering and Constructioninformation regarding Trimble’s goodwill by operating segment.
NOTE 3 - Joint Ventures:
5: JOINT VENTURE
Caterpillar Trimble Control Technologies Joint Venture
On April 1, 2002, Caterpillar Trimble Control Technologies LLC ("CTCT"(“CTCT”), a joint venture formed by Trimble and Caterpillar began operations. CTCT, based in
Dayton, Ohio,The joint venture is 50% owned by Trimble and 50% owned by Caterpillar, with equal voting rights. ItThe joint venture is accounted for under the equity method of accounting. Under the equity method, Trimble’s share of profits and losses are included in expenses for affiliated operations, net in the non-operating income (expense), net section of the Consolidated Statements of Income. CTCT develops and markets next generation advanced electronic guidance and control products for earthmovingearth moving machines in the construction, mining and waste industries. Under the terms of the joint venture agreement,
Caterpillar contributed $11.0 million cash plus selected technology, for a total
contributed value of $14.5 million, and Trimble contributed selected existing
machine control product technologies valued at $25.5 million. Additionally, both
companies have licensed patents and other intellectual property from their
portfolios to CTCT.
During the first fiscal quarter of 2002, Trimble received a special cash distribution of $11.0 million from CTCT. Trimble hasThe distribution was recorded the cash distribution of $11.0 million as a deferred gain beingand amortized to the extent that losses arewere attributable from CTCT under the equity method of accounting. When and if CTCTSince the joint venture is now profitable on a sustainable basis, and future operating losses are not anticipated thenand there are no future outstanding financial obligations by Trimble will
recognize as a gain,to the un-amortizedjoint venture, Trimble recognized the unamortized portion of the $11.0 million. Togain or $9.2 million in fiscal 2005 as non operating income.
Trimble acts as a contract manufacturer for CTCT. Products are manufactured based on orders received from CTCT and are sold at cost plus a mark up to CTCT. CTCT resells products to both Caterpillar and Trimble for sales through their respective distribution channels. Generally, Trimble sells products to the extent that it is possibleafter market dealer channel, and Caterpillar sells products for factory and dealer installation. CTCT does not hold inventory in that the Company will have any future-funding
obligation relatingresale of
products to CTCT, thenCaterpillar and Trimble occur simultaneously when the relevant amount ofproducts are purchased from the $11.0 million will
be deferred until such a time, as the funding obligation no longer exists. Both
Trimble's share of profits (losses) under the equity method and the amortization
of the $11.0 million deferred gain are recorded under the heading of "Expense
for affiliated operations, net"subcontract manufacturer in Non-operating income (expense).
Trimble.
The net expenses for affiliated operations at CTCT net also includes incremental costs as a result of purchasing products from CTCT at a higher price than Trimble's original manufacturing costs, partially offset by contract manufacturing fees charged to CTCT. In addition, Trimble received reimbursement of employee-related costs from CTCT for Trimble employees devoteddedicated to CTCT totaling $9.7 million for both fiscal 2005 and fiscal 2004 and $7.9 million infor fiscal 2003 and $3.9 million in fiscal 2002.2003. The reimbursements were offset against operating expenses.
January 2, January 3,
Fiscal year ended 2004 2003
- ----------------- ---- ----
(In millions)
CTCT incremental pricing effects, net $ 5.9 $ 4.0
Trimble's 50% share of CTCT's reported gain (loss) (0.9) (0.2)
Amortization of deferred gain 0.9 0.2
--- ---
Total CTCT expense for affiliated operations, net (1) $ 5.9 $ 4.0
===== =====
(1) Due to the nature of the relationship between Trimble and CTCT, a related
party, the impact of these agreements is classified under non-operating income
(expense) under the heading of "Expense for affiliated operations, net".
At January 2, 2004, the
| | December 30, | December 31, | January 2, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
(In millions) | | | |
| | | | |
| CTCT incremental pricing effects, net | $11.4 | $ 8.8 | $ 5.9 |
| Trimble's 50% share of CTCT's reported (gain) loss | (2.0) | 0.5 | 0.9 |
| Amortization of deferred gain | (9.2) | (0.7) | (0.9) |
| Total CTCT expense for affiliated operations, net | $ 0.2 | $ 8.6 | $ 5.9 |
The net outstanding balance due from CTCT
to Trimble was
approximately $0.8 million.
$0.2 million at December 30, 2005 and $0.7 million at December 31, 2004 and is included in account receivables, net on the Consolidated Balance Sheets.
Nikon-Trimble Joint Venture
On March 28, 2003, Nikon-Trimble Co., Ltd (“Nikon-Trimble”), a joint venture was formed by Trimble and Nikon Corporation entered into an agreement to
form aCorporation. The joint venture in Japan, Nikon-Trimble Co., Ltd., which assumed the
operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of Nikon
Corporation and Trimble Japan KK, a Japanese subsidiary of Trimble.
Nikon-Trimble began operations in July 2003.
Under the terms of the Nikon-Trimble agreement, Nikon contributed (Y)1.2 billion
(approximately US$10 million on June 30, 2003) in cash, while Trimble
contributed (Y)500 million (approximately US$4.1 million on June 30, 2003) in
cash2003 and (Y)700 million of its common stock or 349,251 shares valued at
approximately US$5.9 million on June 30, 2003. The Nikon-Trimble joint venture
purchased certain tangible and intangible assets from Nikon Geotecs Co., Ltd.
and Trimble Japan KK.
Nikon-Trimble is 50% owned by Trimble and 50% owned by Nikon, with equal voting rights. It focuses on the design and manufacture of surveying instruments including mechanical total stations and related products. In
Nikon-Trimble is the distributor in Japan this joint
venture will distribute Nikon's survey products as well as Trimble's GPS survey
productsfor Nikon and other Engineering and Construction products, including robotic
total stations. Outside Japan,Trimble products. Trimble is the exclusive distributor outside of Japan for Nikon branded survey products. For products sold from Trimble to the Nikon-Trimble, revenue is recognized by Trimble on a sell-through basis from Nikon-Trimble to the end customer. Profits from these inter-company sales are eliminated.
The terms and construction products.conditions of the sales of products from Trimble has adoptedto Nikon-Trimble are comparable with those of the standard distribution agreements which Trimble maintains with its dealer channel and margins earned are similar to those from third party dealers. Similarly, the purchases of product by Trimble from the Nikon-Trimble are made on terms comparable with the arrangements which Nikon maintained with its international distribution channel prior to the formation of the joint venture with Trimble.
Trimble uses the equity method of accounting for its investment in Nikon-Trimble, with 50% share of profit or loss from this joint venture to be
reported by Trimble in the Non-operating sectionConsolidated Statements of the Consolidated Statement
of OperationsIncome under the heading of "Expensesexpenses for affiliated operations, net."
During fiscal 2003, and the first year of its operations, Nikon-Trimble Trimble reported a loss of $0.6approximately $36,000 and a profit of $1.1 million for fiscal 2005 and fiscal 2004, respectively, as its proportionate share of which Trimble's share is $0.3 million.the net income. At January 2,
2004,December 30, 2005, the outstanding balance from Nikon-Trimble due to Trimble was
approximately $1.4 million related to the transfer of certain tangible and
intangible assets from Trimble Japan KK, recorded under the heading of "Accounts
and other receivables, net" and $2.0 million net payable by Trimble to Nikon-Trimble related to the purchase and sale of products from and to Nikon-Trimble recorded under the heading of "Other accrued liabilities"is $2.0 million and was included in accounts payable on the Consolidated Balance Sheets. Note 4 - Goodwill and Intangible Assets:
Goodwill and purchased intangible assets consistedIn addition, Trimble received reimbursement of employee-related costs from Nikon-Trimble for one Trimble employee dedicated to Nikon-Trimble totaling $0.4 million for fiscal 2005. The reimbursements were offset against operating expenses. The carrying amount of the following:
January 2, January 3,
Asinvestment was approximately $12.9 million at December 30, 2005 and $13.5 million at December 31, 2004.
NOTE 6: CERTAIN BALANCE SHEET COMPONENTS
The following tables provide details of 2004 2003
- ----- ---- ----selected balance sheet items (in thousands)
Intangible assets:
Intangible assets with definite life:
Existing technology $ 32,389 $ 25,986
Trade names, trademarks, patents, and other
intellectual properties 20,911 21,594
------ ------
Total intangible assets with definite life 53,300 47,580
Less:
| | December 30, | December 31, |
| As of | 2005 | 2004 |
| Inventories: | | |
| Raw materials | $ 52,199 | $ 36,425 |
| Work-in-process | 7,249 | 3,989 |
| Finished goods | 48,403 | 47,331 |
| Total | $ 107,851 | $ 87,745 |
| Property and equipment, net: | | |
| Machinery and equipment | $ 72,273 | $ 71,882 |
| Furniture and fixtures | 10,110 | 10,521 |
| Leasehold improvements | 8,695 | 5,861 |
| Buildings | 5,707 | 5,297 |
| Land | 1,231 | 1,231 |
| | 98,016 | 94,792 |
| Less accumulated depreciation | (55,352) | (63,801) |
| Total | $ 42,664 | $ 30,991 |
| Other Non-Current Liabilities: | | |
| Deferred compensation | $ 3,234 | $ 1,761 |
| Pension | 5,529 | 6,247 |
| Deferred Rent | 3,364 | 426 |
| Other long term liabilities | 6,917 | 3,296 |
| Total | $ 19,041 | $ 11,730 |
During the year, accumulated
amortization (33,559) (24,342)
------- -------
Total net intangible assets $ 19,741 $ 23,238
======== ========
Goodwill:
Goodwill, Spectra Precision acquisition 205,562 185,277
Goodwill, other acquisitions 35,863 20,656
------ ------
Total goodwill 241,425 205,933
======= =======
The increase in goodwill of approximately $35.5depreciation decreased by $8.4 million
during fiscal 2003 was
primarily due to the
acquisitionwrite-off of
Applanixfully depreciated assets and
MENSIdisposals in the amount of
approximately $15.0$16.2 million and the
foreign exchange rate impact of
approximately $18.0$2.6 million
on non-US
currency denominated goodwill assets.
The intangible asset amortization expenseoffset by $10.7 million in depreciation expense.
Other non-current liabilities include deferred rent as
of January 2, 2004 for the five
years following fiscal 2003 is projected as follows:
Amortization
Expense
(In thousands)
2004 $8,177
2005 5,384
2006 2,522
2007 1,747
2008 824
Thereafter 1,087
-----
Total $ 19,741
========
For comparative purposes, the pro forma adjusted net income (loss) per share
excluding amortization of goodwill, distribution channel, and assembled
workforce is as follows:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands, except per share data)
Net income (loss) $ 38,485 $ 10,324 $(22,879)
Add back SFAS 142 adjustments:
Amortization of goodwill - - 7,817
Amortization of distribution channel - - 11,230
Amortization of assembled workforce - - 1,834
-----
Adjusted net income (loss) $ 38,485 $ 10,324 $ (1,998)
========= ========= =========
Weighted average shares outstanding
Basic 47,505 42,860 37,091
Diluted 50,012 43,578 37,091
Diluted net income (loss) per share $ 0.81 $ 0.24 $ (0.05)
Pro forma adjusted diluted net income (loss) per share $ 0.77 $ 0.24 $ (0.05)
Note 5 - Certain Balance Sheet Components:
Inventories consisteda result of the
following:
January 2, January 3,
As of 2004 2003
- ----- ---- ----
(in thousands)
Raw materials $ 20,927 $ 21,098
Work-in-process 3,876 5,187
Finished goods 46,023 34,859
------ ------
$ 70,826 $ 61,144
========= ==========
Property and equipment consisted of the following:
January 2, January 3,
As of 2004 2003
- ----- ---- ----
(in thousands)
Machinery and equipment $ 66,634 $ 70,660
Furniture and fixtures 9,085 6,538
Leasehold improvements 4,502 6,451
Buildings 5,236 2,905
Land 1,391 1,391
----- -----
86,848 87,945
Less accumulated depreciation (59,469) (65,908)
-------- --------
$ 27,379 $ 22,037
========= =========
Other current assets consisted of the following:
January 2, January 3,
As of 2004 2003
- ----- ---- ----
(in thousands)
Notes receivable $ 446 $ 1,685
Prepaid expenses
4,566 5,495
Other 647 1,221
--- -----
$ 5,659 $ 8,401
========= =========
Other non-current assets consisted of the following:
January 2, January 3,
As of 2004 2003
- ----- ---- ----
(in thousands)
Debt issuance costs, net $ 1,691 $ 2,493
Nikon-Trimble joint venture investment* 10,717 -
Other investments 1,216 1,381
Deposits 925 1,196
Demonstration equipment, net 3,226 2,665
Receivables from employees 801 1,223
Other 3,978 3,128
----- -----
$ 22,554 $ 12,086
========= =========
* Includes transaction costs of approximately $0.7 million.
Note 6 - Derivative Financial Instruments:
Trimble transacts businessnew Sunnyvale lease executed in various foreign currencies and hedges identified
risks associated with foreign currency transactions in order to minimize the
impact of changes in foreign currency exchange rates on earnings. Trimble
utilizes forward contracts to hedge certain trade and inter-company receivables
and payables. These contracts reduce the exposure to fluctuations in exchange
rate movements, as the gains and losses associated with foreign currency
balances are generally offset with the gains and losses on the hedge contracts
and are marked to market through earnings every period and generally range from
one to three months in original maturity. These hedge instruments are marked to
market through earnings every period. Gains and losses are not material to the
Company's financial position or results of operation.
From time to time, Trimble may also utilize forward foreign exchange contracts
designated as cash flow hedges of operational exposures represented by firm
backlog orders to specific accounts over a specific period of time. Trimble
records changes in the fair value of cash flow hedges in accumulated other
comprehensive income (loss), until the firm backlog transaction ships. Upon
recognition of revenue, the Company reclassifies the gain or loss on the cash
flow hedge to the statement of operations. For the fiscal year ended January 3,
2003, Trimble recorded a gain of $57,000 reflecting the net change and ending
balance in relation to a firm backlog hedge. The critical terms of the cash flow
hedging instruments are the same as the underlying forecasted transactions. The
changes in fair value of the derivatives are intended to offset changes in the
expected cash flow from the forecasted transactions. All forward contracts have
maturity of less than 12 months. As of January 3, 2003, the effect of all
outstanding derivative instruments did not have a material impact on the
Company's financial position or results of operations and none are outstanding
as of January 2, 2004.
Note 7 - The Company, Industry Segment, Geographic, and Customer Information:
Trimble is a designer and distributor of positioning products and applications
enabled by GPS, optical, laser, and wireless communications technology. The
Company designs and markets products, by delivering integrated information
solutions such as collecting, analyzing, and displaying position data to its end
users. Trimble offers an integrated product line for diverse applications in its
targeted markets.
2005.
NOTE 7: REPORTING SEGMENT AND GEOGRAPHIC INFORMATION
To achieve distribution, marketing, production, and technology advantages in Trimble's targeted markets, the Company manages its operations in the following five segments:
o Engineering and Construction -- Consists of products currently used by
survey and construction professionals in the field for positioning data
collection, field computing, data management, and automated machine
guidance and control. These products provide solutions for numerous
construction applications including surveying, general construction,
site preparation and excavation, road and runway construction, and
underground construction.
o Field Solutions -- Consists of products that provide solutions in a
variety of agriculture and fixed asset applications, primarily in the
areas of precise land leveling, machine guidance, yield monitoring,
variable-rate applications of fertilizers and chemicals, and fixed
asset data collection for a variety of governmental and private
entities. This segment is an aggregation of the mapping and geographic
information systems (GIS) and agriculture businesses. Trimble has
aggregated these business operations under a single general manager in
order to continue to leverage its research and development activities
due to the similarities of products across the segment.
o Mobile Solutions -- Consists of products that enable end users to
monitor and manage their mobile assets by communicating
location-relevant information from the field to the office. Trimble
offers a range of products that address a number of sectors of this
market including truck fleets, security, telematics, and public safety
vehicles.
o Component Technologies -- Currently, Trimble markets its GPS component
products through an extensive network of OEM relationships. These
products include proprietary chipsets, modules, and a variety of
intellectual property. The applications into which end users currently
incorporate the component products include: timing applications for
synchronizing wireless and computer systems; in-vehicle navigation and
telematics (tracking) systems; fleet management; security systems; data
collection networks; and wireless handheld consumer products.
o Portfolio Technologies -- The various operations that comprise this
segment were aggregated on the basis that no single operation accounted
for more than 10% of the total revenue. During the first two fiscal
quarters of 2003, this segment was comprised solely of the Military and
Advanced Systems business. Beginning with the third quarter of fiscal
2003, Applanix's performance is reported in this business segment.
At the beginning of fiscal 2003, Trimble realigned two of its reportable
segments. The Tripod Data Systems business is now included in the Engineering
and Construction segment, while previously it was included in the Portfolio
Technologies segment. The following table has been restated to reflect this
realignment.
| · | Engineering and Construction — Consists of products currently used by survey and construction professionals in the field for positioning data collection, field computing, data management, and automated machine guidance and control. These products provide solutions for numerous construction applications including surveying, general construction, site preparation and excavation, road and runway construction, and underground construction. During fiscal 2005 the Company acquired Apache and Pacific Crest and their performances are reported in this business segment. |
| · | Field Solutions — Consists of products that provide solutions in a variety of agriculture and fixed asset applications, primarily in the areas of precise land leveling, machine guidance, yield monitoring, variable-rate applications of fertilizers and chemicals, and fixed asset data collection for a variety of governmental and private entities. This segment is an aggregation of the mapping and geographic information systems (GIS) and agriculture businesses. Trimble has aggregated these business operations under a single general manager in order to continue to leverage its research and development activities due to the similarities of products across the segment. |
| · | Component Technologies — Consists of products including proprietary chipsets, printed circuit boards, modules, and licenses of intellectual property. The applications into which end users currently incorporate the component products include timing applications for synchronizing wireless networks, in-vehicle navigation and telematics systems, fleet management, security systems, data collection networks, and wireless handheld consumer products. |
| · | Mobile Solutions — Consists of products that enable end users to monitor and manage their mobile assets by communicating location and activity-relevant information from the field to the office. Trimble offers a range of products that address a number of sectors of this market including truck fleets, security, telematics, and public safety vehicles. During fiscal 2005 the Company acquired MobileTech Solutions and Advanced Public Safety and their performances are reported in this business segment. |
| · | Portfolio Technologies — The various operations that comprise this segment were aggregated on the basis that no single operation accounted for more than 10% of Trimble’s total revenue. The operations in this segment are Applanix, Military and Advanced Systems (MAS) and Trimble Outdoors. |
Trimble evaluates each of its segment's performance and allocates resources based on profit and loss from operations before income taxes, and some corporate allocations. Trimble and each of its segments employ the same accounting policies.
The following table presents revenues, operating income (loss), and identifiable assets for the five segments.
The information includes the operations of Grid
Data after April 2, 2001, LeveLite after August 15, 2002, Applanix after July 7,
2003 and MENSI after December 9, 2003. Operating income (loss) is net revenue less operating expenses, excluding general corporate expenses,
goodwill amortization, restructuring charges, non-operating income (expense), and income taxes. The identifiable assets that Trimble's
Chief Operating Decision Makerchief operating decision maker views by segment are accounts receivable and inventory.
Reporting Segments
------------------
Engineering and Field Mobile Component Portfolio
Fiscal Years Ended Construction Solutions Solutions Technologies Technologies Total
- ------------------ ------------ --------- --------- ------------ ------------ -----
(In thousands)
January 2, 2004
External net revenues $ 367,058 $ 79,879 $ 12,981 $ 64,193 $ 16,792 $ 540,903
Operating income (loss)
before corporate
allocations 60,664 14,500 (6,452) 16,560 (1,686) 83,586
Accounts receivable (1) 84,897 16,589 4,103 10,003 7,321 122,913
Inventories 56,008 3,398 3,038 2,021 6,361 70,826
January 3, 2003
External net revenues $ 319,615 $ 67,259 $ 8,486 $ 59,755 $ 11,487 $ 466,602
Operating income (loss)
before corporate
allocations 53,453 9,676 (12,039) 10,673 557 62,320
Accounts receivable (1) 73,474 11,598 1,960 11,276 1,966 100,274
Inventories 46,332 7,337 1,986 2,853 2,636 61,144
December 28, 2001
External net revenues $ 317,849 $ 68,519 $ 13,791 $ 58,083 $ 17,050 $ 475,292
Operating income (loss)
before corporate
allocations 49,849 11,349 (9,990) 10,359 738 62,306
Accounts receivable (1) 64,185 10,191 4,274 7,392 5,535 91,577
Inventories 38,921 4,639 1,992 2,490 3,438 51,480
| | December 30, | | December 31, | | January 2, |
| Fiscal Years Ended | 2005 | | 2004 | | 2004 |
(in thousands) | | | | | |
Engineering & Construction | | | | | |
| Revenue | $ 524,461 | | $ 440,478 | | $ 367,058 |
| Operating income before corporate allocations | 117,993 | | 79,505 | | 60,664 |
| Accounts receivable | 105,980 | | 90,743 | | 84,897 |
| Inventories | 80,590 | | 65,116 | | 56,008 |
| Goodwill | 229,176 | | 238,801 | | 229,287 |
Field Solutions | | | | | |
| Revenue | 127,843 | | 105,591 | | 79,879 |
| Operating income before corporate allocations | 32,527 | | 25,151 | | 14,500 |
| Accounts receivable | 21,823 | | 19,141 | | 16,589 |
| Inventories | 11,790 | | 7,016 | | 3,398 |
| Goodwill | - | | - | | - |
Component Technologies | | | | | |
| Revenue | 53,902 | | 65,522 | | 64,193 |
| Operating income before corporate allocations | 8,034 | | 13,880 | | 16,560 |
| Accounts receivable | 6,283 | | 9,377 | | 10,003 |
| Inventories | 7,154 | | 5,271 | | 2,021 |
| Goodwill | - | | - | | - |
Mobile Solutions | | | | | |
| Revenue | 31,481 | | 23,531 | | 12,981 |
| Operating loss before corporate allocations | (3,072) | | (5,997) | | (6,452) |
| Accounts receivable | 10,789 | | 9,073 | | 4,103 |
| Inventories | 1,983 | | 5,735 | | 3,038 |
| Goodwill | 44,118 | | 7,660 | | - |
Portfolio Technologies | | | | | |
| Revenue | 37,226 | | 33,686 | | 16,792 |
| Operating income (loss) before corporate allocations | 5,178 | | 4,866 | | (1,686) |
| Accounts receivable | 7,750 | | 8,283 | | 7,321 |
| Inventories | 6,334 | | 4,607 | | 6,361 |
| Goodwill | 12,852 | | 13,061 | | 12,138 |
Total | | | | | |
| Revenue | $ 774,913 | | $ 668,808 | | $ 540,903 |
| Operating income before corporate allocations | 160,660 | | 117,405 | | 83,586 |
| Accounts receivable (1) | 152,625 | | 136,617 | | 122,913 |
| Inventories | 107,851 | | 87,745 | | 70,826 |
| Goodwill | 286,146 | | 259,522 | | 241,425 |
(1) As presented, accounts receivable excludes cash received in advance and
allowances for doubtful accounts,represents trade receivables, gross, which are not allocatedspecified between segments.
The following are reconciliations corresponding to totals in the accompanying
consolidated financial statements:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
Operating income from continuing operations:
Total for reportable divisions (1) $ 83,586 $ 62,320 $ 62,306
Unallocated corporate expenses (29,651) (28,497) (62,125)
------- ------- -------
Operating income from continuing operations $ 53,935 $ 33,823 $ 181
========== ========= =========
(1) Segment operating income for fiscal 2002 and fiscal 2001 have been restated
to reflect the allocations of certain corporate expenses so as to be comparable
with the allocation methodology in fiscal 2003.
January 2, January 3,
As of 2004 2003
- ----- ---- ----
(in thousands)
Assets:
Accounts receivable total for reportable segments $ 122,913 $ 100,274
Unallocated (1) (19,563) (20,629)
------- -------
Total $ 103,350 $ 79,645
========== =========
Consolidated Financial Statements:
| | December 30, | December 31, | January 4, |
| Fiscal Years Ended | 2005 | 2004 | 2004 |
(in thousands) | | | |
| Consolidated segment operating income | $ 160,660 | $ 117,405 | $ 83,586 |
| Unallocated corporate expense | (27,483) | (22,901) | (20,320) |
| Restructuring charges | (278) | (552) | (2,019) |
| Amortization of purchased intangible assets | (6,855) | (8,327) | (7,312) |
| In-process research and development | (1,100) | - | - |
| Non-operating expense, net | (156) | (10,701) | (18,350) |
| Consolidated income before income taxes | $ 124,788 | $ 74,924 | $ 35,585 |
| | December 30, | December 31, |
| As of | 2005 | 2004 |
(in thousands) | | |
| Assets: | | |
| Accounts receivable total for reportable segments | $ 152,625 | $ 136,617 |
| Unallocated (1) | (7,525) | (12,679) |
| Accounts receivable, net | $ 145,100 | $ 123,938 |
(1) Includes trade-related accruals and cash received in advance other receivables, and accruals that are not allocated by segment.
The followingdistribution of Trimble’s gross consolidated revenue by segment is summarized in the table presents revenues by product groups.
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
GPS Products $ 320.9 $ 274.5 $ 274.2
Laserbelow. Gross consolidated revenue includes external and Optical Products 199.7 186.9 93.9
Other 20.3 13.9 1.7
---- ---- ---internal sales. Total external consolidated revenue $ 540.9 $ 475.3 $ 369.8
======= ======= =======
is reported net of eliminations of internal sales between segments.
| | December 30, | December 31, |
| | 2005 | 2004 |
| | | |
(In thousands) | | |
| | | |
| Engineering and Construction | $ 529,034 | $ 443,973 |
| Field Solutions | 127,843 | 105,591 |
| Component Technologies | 53,956 | 65,713 |
| Mobile Solutions | 31,481 | 23,531 |
| Portfolio Technologies | 37,226 | 33,686 |
| Total Gross Consolidated Revenue | 779,540 | 672,494 |
| Eliminations | (4,627) | (3,686) |
| Total External Consolidated Revenue | $ 774,913 | $ 668,808 |
The geographic distribution of
Trimble'sTrimble’s revenues and identifiable assets is summarized in the table below. Other foreign countries include Canada, and countries
withinin South and Central
America.America, the Middle East, Africa, and the Pacific Rim. Identifiable assets indicated in the table below exclude inter-company receivables, investments in subsidiaries, goodwill, and intangibles assets.
Geographic Area
---------------
Europe Other
Middle East Non-US
Fiscal Years Ended US Africa Asia Countries Eliminations Total
- ------------------ -- ------ ---- --------- ------------ -----
(In thousands)
January 2, 2004
Sales to unaffiliated customers (1)
$ 265,846 $ 166,153 $ 70,257 $ 38,648 $ - $ 540,903
Inter-geographic transfers 112,623 116,185 - 3,755 (232,563) -
------- ------- ----- --------
Total revenue $ 378,469 $ 282,338 $ 70,257 $ 42,403 (232,563) $ 540,903
Identifiable assets $ 172,850 $ 91,008 $ 7,549 $ 12,330 $ - $ 283,737
January 3, 2003
Sales to unaffiliated customers (1) $ 235,716 $ 136,551 $ 60,878 $ 33,457 $ - $ 466,602
Inter-geographic transfers $ 62,843 73,625 - 4,121 (140,589) -
--------- ------ ----- --------
Total revenue $ 298,559 $ 210,176 $ 60,878 $ 37,578 (140,589) $ 466,602
Identifiable assets $ 127,594 $ 70,057 $ 9,955 $ 5,743 $ (864) $ 212,485
December 28, 2001
Sales to unaffiliated customers (1) $ 236,665 $ 143,051 $ 54,710 $ 40,866 $ - $ 475,292
Inter-geographic transfers 57,481 49,940 2,137 - (109,558) -
------ ------ ----- --------
Total revenue $ 294,146 $ 192,991 $ 56,847 $ 40,866 $(109,558) $ 475,292
Identifiable assets $ 120,403 $ 71,081 $ 10,048 $ 3,829 $ (5,494) $ 199,867
| | | | Geographic Area | | |
| | | | | | | | | | Other | | | | |
| | | | | | | | | | Non-US | | | | |
| Fiscal Years Ended | | US | | Europe | | Asia Pacific | | Countries | | Eliminations | | Total |
(In thousands) | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| December 30, 2005 | | | | | | | | | | | | |
| | Sales to unaffiliated customers (1) | $ | 415,443 | $ | 191,734 | $ | 88,315 | $ | 79,421 | $ | - | $ | 774,913 |
| | Inter-geographic transfers | | 222,909 | | 175,739 | | 1,198 | | 1,661 | | (401,507) | | - |
| | Total revenue | $ | 638,352 | $ | 367,473 | $ | 89,513 | $ | 81,082 | $ | (401,507) | $ | 774,913 |
| | | | | | | | | | | | | | |
| | Identifiable assets | $ | 295,196 | $ | 120,582 | $ | 4,602 | $ | 9,251 | $ | - | $ | 429,631 |
| | | | | | | | | | | | | | |
| December 31, 2004 | | | | | | | | | | | | |
| | Sales to unaffiliated customers (1) | $ | 331,607 | $ | 186,197 | $ | 86,117 | $ | 64,886 | $ | - | $ | 668,808 |
| | Inter-geographic transfers | | 149,499 | | 138,159 | | 3,479 | | 2,640 | | (293,777) | | - |
| | Total revenue | $ | 481,106 | $ | 324,356 | $ | 89,596 | $ | 67,527 | $ | (293,777) | $ | 668,808 |
| | | | | | | | | | | | | | |
| | Identifiable assets | $ | 242,141 | $ | 118,194 | $ | 6,959 | $ | 13,286 | $ | - | $ | 380,580 |
| | | | | | | | | | | | | | |
| January 2, 2004 | | | | | | | | | | | | |
| | Sales to unaffiliated customers (1) | $ | 265,846 | $ | 160,094 | $ | 70,257 | $ | 44,706 | $ | - | $ | 540,903 |
| | Inter-geographic transfers | | 112,623 | | 116,185 | | 3,755 | | - | | (232,563) | | - |
| | Total revenue | $ | 378,469 | $ | 276,279 | $ | 74,012 | $ | 44,706 | $ | (232,563) | $ | 540,903 |
| | | | | | | | | | | | | | |
(1) Sales attributed to countries based on the location of the customer.
Transfers between US and non-US geographic areas are made at prices based on total costs and contributions of the supplying geographic area. The Company's subsidiaries in Asia except for Japan, which is a buy/sell entity, have derived revenue from commissions from US operations in each of the periods presented. These commission revenues and expenses are excluded from total revenue and operating income (loss) in the preceding table. The Japanese entity's revenues
and expenses are included in total revenue and operating income (loss) in the
preceding table. In fiscal 2002, Germany comprised approximately 16% of sales to
unaffiliated customers. Other than the United States, no other country comprised more than 10% of sales to unaffiliated customers for any periods presented, except as disclosed above.
Revenues by product groups are not practicable to obtain and therefore are not presented.
No single customer accounted for 10% or more of Trimble's total revenues in fiscal years
2003, 2002,2005, 2004, and
2001.
Note2003.
NOTE 8 - Restructuring Charges:
: RESTRUCTURING CHARGES
Restructuring charges of $0.3 million, $0.6 million, and $2.0 million were recorded in fiscal years 2005, 2004 and 2003, $1.1 millionrespectively. The charges in fiscal 2002, and $3.6 million2005 were primarily related to office closure costs due to integration efforts of the Mensi acquisition. The charges in fiscal 2001, all of which2004 were primarily related to severance costs except for $0.3 in 2003 which related to lease costs of
Trimble's Japanese office closure due to the Nikonrealignment of Trimble Mobile Solutions Inc. while charges in fiscal 2003 were primarily related to our Japanese office relocation due to the Nikon-Trimble joint venture.venture formation. As a result of these actions, the restructuring activities,headcount of the Company's headcountaffected operations decreased by 36 and 77 in fiscal 2003
by 77, 492004, and 207 in fiscal 2003, 2002, and 2001, respectively. As of January 2,
2004,December 30, 2005, the restructuringremaining accrual balance was approximately $0.4of $0.3 million which
willis related to facilities closure expected to be paid over the remaining termnext several years. The restructuring accrual is included in the Condensed Consolidated Balance Sheets under the heading of the lease through 2006.
Note“Accrued Liabilities”.
NOTE 9 - Long-term Debt:
: LONG-TERM DEBT
Long-term debt consisted of the following:
January 2, January 3,
As of 2004 2003
(In thousands)
Credit Facilities:
Term loan $ 43,750 $ 32,600
Revolving credit facility 44,000 35,000
Subordinated note - 69,136
Promissory notes and other 2,736 1,789
----- -----
90,486 138,525
Less bank and other short-term borrowings - 6,556
Less current portion of long-term debt 12,885 24,104
------ ------
Non-current portion $ 77,601 $107,865
========= ========
| | | | | December 30, | | December 31, |
| As of | | | 2005 | | 2004 |
(In thousands) | | | | |
| | | | | | | |
| Credit Facilities: | | | | |
| | Term loan | $ | - | $ | 31,250 |
| | Revolving credit facility | | - | | 7,000 |
| Promissory notes and other | | 649 | | 746 |
| | | | | 649 | | 38,996 |
| | | | | | | |
| Less current portion of long-term debt | | 216 | | 12,500 |
| | Non-current portion | $ | 433 | $ | 26,496 |
The following summarizes the future cash payment obligations (excluding interest) as of
January 2, 2004:
2009 and
Total 2004 2005 2006 2007 2008 Beyond
----- ---- ---- ---- ---- ---- ------
(in thousands)
Credit Facilities:
Term loan $ 43,750 $ 12,500 $ 12,500 $ 12,500 $ 6,250 $ - $ -
Revolving credit facility 44,000 - - 44,000 - - -
Subordinated note - - - - - - -
Promissory note and other 2,736 385 165 285 110 110 1,681
----- --- --- --- --- --- -----
Total contractual cash obligations $ 90,486 $ 12,885 $ 12,665 $ 56,785 $ 6,360 $ 110 $ 1,681
========= ========= ======== ======== ======= ====== =======
December 30, 2005:
| | | | | | | | | | | | | | | 2011 and |
| | | Total | | 2006 | | 2007 | | 2008 | | 2009 | | 2010 | | Beyond |
(in thousands) | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Promissory note and other | | 649 | | 216 | | - | | 104 | | 329 | | - | | - |
| Total contractual cash obligations | $ | 649 | $ | 216 | $ | - | $ | 104 | $ | 329 | $ | - | $ | - |
Credit Facilities
On June 25, 2003, Trimble obtainedJuly 28, 2005, the Company entered into a $200 million unsecured revolving credit agreement (“2005 Credit Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent. The 2005 Credit Facility replaces the Company’s $175 million secured 2003 Credit Facility. The funds available under the new 2005 Credit Facility ("2003
Credit Facility") from a syndicate of nine banks to repaymay be used by the Subordinated Note
and refinance certain existing higher interest credit facilities, pay fees and
expenses related to this new credit facility, andCompany for ongoing working capital
and general corporate needs.
At January 2, 2004, Trimble had approximately $87.8purposes and up to $25 million of borrowingsthe 2005 Credit Facility may be used for letters of credit.
The Company may borrow funds under the 20032005 Credit Facility comprised ofin U.S. Dollars or in certain other currencies, and will bear interest, at the Company's option, at either: (i) a $43.8 million term loan and $44.0
million of a $125 million revolver. The Company has access to an additional $81
million of cash under the terms of the revolving credit facility. The Company
has commitment fees on the unused portion of 0.5% if the Leverage Ratio (which
is defined as total indebtedness to Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA), as defined in the related agreement) is
2.0 or greater and 0.375% if the Leverage Ratio is less than 2.0.
Pricing of interest for any borrowings under the 2003 Credit Facility was fixed
for the first six months at LIBOR plus 175 basis points (1.5% at January 2,
2004) and now is thereafter tied to a formula,base rate, based on the Leverage Ratio.administrative agent's prime rate, plus a margin of between 0% and 0.125%, depending on the Company's leverage ratio as of its most recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on LIBOR, EURIBOR, STIBOR or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.625% and 1.125%, depending on the Company's leverage ratio as of the most recently ended fiscal quarter. The Company's obligations under the 2005 Credit Facility are guaranteed by certain of the Company's domestic subsidiaries.
The 2005 Credit Facility contains customary affirmative, negative and financial covenants including, among other requirements, negative covenants that restrict the Company's ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions, make investments, enter into mergers and consolidations and make capital expenditures, and financial covenants that require the maintenance of leverage and fixed charge coverage ratios. The 2005 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments, and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company's obligations under the 2005 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default. Trimble incurs a commitment fee if the 2005 Credit Facility is secured bynot used. The commitment fee is not material to the Company’s results during all ofperiods presented.
At December 30, 2005, the Company's material assets, except
for assets that are subject to foreign tax considerations. Financial covenants
of the 2003 Credit Facility include leverage, fixed charge,Company has a zero balance outstanding and minimum net
worth tests. At January 2, 2004, Trimble was in compliance with all financial debt covenants.
Promissory Note
As of December 30, 2005, the Company had other notes payable totaling approximately $0.6 million consisting of government loans to foreign subsidiaries.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Operating Leases
On May 13, 2005, Trimble entered into a lease agreement for the lease of real property located in Sunnyvale, California. The
amount due under the revolver loan is paid as the loan
matures on June 25,lease agreement has a seven year term, commencing January 1, 2006 and
the loan commitment fees are paid on a quarterly
basis.
Under the terms of the 2003 Credit Facility, the Company is allowed to pay
dividends and repurchase shares of common stock up to 25% of net income in the
previous fiscal year, under the existing terms of the credit facilities.
In July of 2000, Trimble obtained $200 million of senior, secured credit
facilities (the "2000 Credit Facility") from a syndicate of banks to support the
acquisition of Spectra Precision Group and its ongoing working capital
requirements and to refinance certain existing debt. At January 3, 2003, Trimble
had approximately $67.6 million outstanding under the 2000 Credit Facility,
comprised of $32.6 million under a $100 million five-year term loan, $25 million
under a $50 million US dollar only revolving credit facility ("revolver"), and
$10 million under a $50 million multi-currency revolver. The Company had
commitment fees on the unused portion of 0.5% assuming certain ratios were met.
Pricing for any borrowings under the 2000 Credit Facility was fixed for the
first six months at LIBOR plus 275 basis points and was thereafter tied to a
formula, based on the leverage ratio.
Due to the full repayment of the Subordinated Note and the refinancing of the
2000 Credit Facility, the Company wrote off approximately $3.6 million of
unamortized debt issuance costs and warrants issued in connection with the
Subordinated Note, as interest expense in fiscal 2003.
Subordinated Note
In July of 2000, as part of the acquisition of Spectra Precision Group, the
Company issued Spectra-Physics Holdings USA, Inc., a subordinated seller note
that had a stated two-year maturity. On March 20, 2002, the Company renegotiated
the terms of the subordinated note. Under the revised agreement, Spectra-Physics
Holdings, Inc., a subsidiary of Thermo Electron, extended the due date of the
note until July 14, 2004, at the current interest rate of approximately 10.4%
per year.
As of January 3, 2003 the principal amount outstanding was approximately $69.1
million. As permitted by the 2000 Credit Facility, Trimble repaid the
subordinated note during fiscal 2003.
Promissory Note and Others
The promissory note and others mainly consists of a $1.7 million liability
arising from the purchase of a building for Trimble's Corvallis, Oregon site and
other government loans in our foreign subsidiaries. The $1.7 million note is
payable in monthly installments through April 2015, bearing a 3.99% variable
interest rate as of January 2, 2004.
Weighted Average Cost of Debt
The weighted average cost of debt is approximately 2.9% for fiscal 2003 and 7.6%
for fiscal 2002.
Note 10 - Lease Obligations and Commitments:
ending December 31, 2012.
Trimble's principal facilities in the United States are leased under various cancelable and non-cancelable operating leases that expire at various dates through 2011.2012. For tenant improvement allowances and rent holidays, Trimble records a deferred rent liability on the consolidated balance sheets and amortizes the deferred rent over the terms of the leases as reductions to rent expense on the consolidated statements of income. The Company has options to renew certain of these leases for an additional five years. Trimble also leases facilities under operating leases in the United
Kingdom, Sweden, and Germany that expire in 2005.
Future minimum payments required under non-cancelable operating leases are as follows:
Operating
Lease Payments
--------------
(In thousands)
2004 $ 10,129
2005 9,401
2006 2,322
2007 1,643
2008 1,489
Thereafter 3,157
-----
Total $ 28,141
--------
| | Operating Lease Payments |
(In thousands) | |
| | |
| 2006 | $ 9,664 |
| 2007 | 8.094 |
| 2008 | 6,927 |
| 2009 | 6,073 |
| 2010 | 5,487 |
| Thereafter | 5,779 |
| Total | $ 42,024 |
Net rent expense under operating leases was $12.6 million in fiscal 2005, $10.9 million in fiscal 2004, and $13.2 million in fiscal 2003, $5.9
million in fiscal 2002, and $9.6 million in fiscal 2001.2003. Sublease income was $39,000, $38,000, and $1.7 million $4.7for fiscal 2005, 2004 and 2003, respectively.
Purchase Commitments with a Supplier
Trimble entered into a significant supply agreement in fiscal 2004 that sets forth minimum purchase commitments for outsourced services. The term of the supply agreement is the earlier of four years from the initial product ship date, or when Trimble has paid for a cumulative total of 200,000 billable hours (approximately $10.4 million). Should Trimble not purchase and pay for 200,000 hours, then Trimble will compensate the supplier for 20% of the shortfall. Thereafter, the contract continues in effect until terminated by either party with 30 days prior written notice to the other party. As of December 30, 2005, based on current hours earned to date the future obligation is approximately $3.1 million and $3.5 million, respectively.
Notewhich is expected to be paid over the next year. Trimble does not expect a shortfall based on current hours earned to date.
NOTE 11 - Fair Value of Financial Instruments:
: FAIR VALUE OF FINANCIAL INSTRUMENTS
The
carrying amounts andestimated fair values of
Trimble's financial instruments
outstanding are as follows:
Carrying Fair Carrying Fair
Amount Value Amount Values
------ ----- ------ ------
January 2, 2004 January 3, 2003
--------------- ---------------
(In thousands)
Assets:
Cash and cash equivalents (See Note 1) $ 45,416 $ 45,416 $ 28,679 $ 28,679
Forward foreign currency exchange contracts 1,412 1,328 125 297
(See Note 6)
Accounts receivable 103,350 103,350 79,645 79,645
Liabilities:
Subordinated notes (See Note 9) - - 69,136 65,798
Credit facilities (See Note 9) 87,750 87,750 67,600 67,600
Promissory note and other (See Note 9) 2,736 2,335 1,789 1,421
Accounts payable 26,019 26,019 30,669 30,669
| | Carrying Amount | Fair Value | Carrying Amount | Fair Values |
| | December 30, 2005 | December 31, 2004 |
| As of | | | | |
(In thousands) | | | | |
| | | | | |
Assets: | | | | |
| Cash and cash equivalents | $ 73,853 | $ 73,853 | $ 71,872 | $ 71,872 |
| Forward foreign currency exchange contracts | 516 | 577 | - | - |
| Accounts and other receivable, net | 145,100 | 145,100 | 123,938 | 123,938 |
| | | | | |
Liabilities: | | | | |
| Credit facilities | $ - | $ - | $ 38,250 | $ 38,250 |
| Forward foreign currency exchange contracts | - | - | 639 | 539 |
| Promissory note and other | 649 | 562 | 746 | 737 |
| Accounts payable | 45,206 | 45,206 | 43,551 | 43,551 |
The fair value of the
subordinated notes, bank borrowings, and promissory notes have been estimated using an estimate of the interest rate Trimble would have had to pay on the issuance of notes with a similar maturity and discounting the cash flows at that rate. The fair values do not give an indication of the amount that Trimble would currently have to pay to extinguish any of this debt.
The fair value of forward foreign exchange contracts is estimated based on the difference between the market price and the carrying amount of comparable contracts. These contracts are adjusted to fair value at the end of every month. Note 12 - Income Taxes:
NOTE 12: INCOME TAXES
Trimble's income tax provision (benefit) consisted of the following:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(In thousands)
US Federal:
Current $ 513 $ - $ -
Deferred (7,000) - -
-------
(6,487) - -
-------
US State:
Current 250 142 58
Deferred (600) - -
-----
(350) 142 58
----- --- --
Non-US:
Current 1,594 2,052 2,729
Deferred 2,343 1,306 (887)
----- ----- ----
3,937 3,358 1,842
----- ----- -----
Income tax provision (benefit) $ (2,900) $ 3,500 $1,900
========= ======= ======
| | | | December 30, | | December 31, | January 2, |
| Fiscal Years Ended | | | 2005 | | 2004 | 2004 |
(In thousands) | | | | | | |
| | | | | | | |
| US Federal: | | | | | | |
| Current | | $ | 36,493 | $ | 18,196 | 513 |
| Deferred | | | (1,534) | | (17,995) | (7,000) |
| | | | 34,959 | | 201 | (6,487) |
| US State: | | | | | | |
| Current | | | 3,500 | | 2,895 | 250 |
| Deferred | | | (2,348) | | (897) | (600) |
| | | | 1,152 | | 1,998 | (350) |
| Non-US: | | | | | | |
| Current | | | 3,102 | | 3,137 | 1,594 |
| Deferred | | | 720 | | 1,908 | 2,343 |
| | | | 3,822 | | 5,045 | 3,937 |
| Income tax provision (benefit) | | $ | 39,933 | $ | 7,244 | (2,900) |
The pre-tax US income (loss) from continuing operations was approximately $39.5$99.5 million, $3.3$70.0 million and $(29.3)$39.5 million in fiscal years 2005, 2004 and 2003, 2002respectively. The pre-tax non-US income (loss) was approximately $25.3 million, $4.9 million and 2001,($3.9) million in fiscal years 2005, 2004 and 2003, respectively.
The fiscal year 2005 and 2004 tax provisions reflected above were reduced by $14.5 million and $14.4 million of tax benefits, respectively attributable to stock option deductions which were credited to equity.
The income tax provision (benefit) differs from the amount computed by applying the statutory
US federal income tax rate to income before taxes. The sources and tax effects of the differences are as follows:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(In thousands)
Expected tax from continuing operations at $ 12,455 $ 4,839 $(7,557)
35% in all years
Change in valuation allowance (15,028) (1,156) 9,704
Non-US tax rate differential - (137) (855)
Goodwill amortization - - 747
Other (327) (46) (139)
---- --- ----
Income tax provision (benefit) $ (2,900) $ 3,500 $ 1,900
========= ======== ========
Effective tax rate (8%) 25% (9%)
=== == ===
| | | December 31, | | December 31, | | January 2, |
| Fiscal Years Ended | | 2005 | | 2004 | | 2004 |
(In thousands) | | | | | | |
| | | | | | | |
| Expected tax from continuing operations at 35% in all years | $ | 43,677 | $ | 26,223 | $ | 12,455 |
| Change in valuation allowance | | | | (24,004) | | (15,028) |
| US State income taxes | | 749 | | 1,299 | | - |
| Export sales incentives | | (2,316) | | (1,176) | | - |
| Non-US tax rate differential and unbenefitted losses | | 3,684 | | 5,134 | | - |
| US Federal research and development credit | | (895) | | (508) | | - |
| Benefit from repatriation legislation | | (6,445) | | | | |
| Other | | 1,479 | | 276 | | (327) |
| Income tax provision (benefit) | $ | 39,933 | $ | 7,244 | $ | (2,900) |
| | | | | | | |
| Effective tax rate | | 32% | | 10% | | (8%) |
The components of deferred taxes consist of the following:
January 2, January 3,
As
| | | December 30, | | December 31, | | January 2, |
| As of | | 2005 | | 2004 | | 2004 |
(In thousands) | | | | | | |
| | | | | | | |
| Deferred tax liabilities: | | | | | | |
| Purchased intangibles | $ | 11,058 | $ | 3,247 | $ | 1,338 |
| Depreciation and amortization | | 11,711 | | 10,183 | | 3,776 |
| Other individually immaterial items | | 1,516 | | 229 | | 251 |
| Total deferred tax liabilities | | 24,285 | | 13,659 | | 5,365 |
| | | | | | | |
| Deferred tax assets: | | | | | | |
| Inventory valuation differences | | 8,983 | | 8,782 | | 9,001 |
| Expenses not currently deductible | | 6,233 | | 8,034 | | 5,528 |
| US Federal credit carryforwards | | | | 5,619 | | 9,150 |
| Deferred revenue | | 564 | | 3,857 | | 4,280 |
| US State credit carryforwards | | 8,530 | | 6,722 | | 6,999 |
| Warranty | | 2,361 | | 2,216 | | 2,374 |
| | | | | 0 | | 2,871 |
| US Federal net operating loss carryforward | | 2,669 | | 2,998 | | - |
| Net foreign tax credits on undistributed foreign earnings | | 5,743 | | 2,682 | | - |
| Other individually immaterial items | | 7,452 | | 7,655 | | 3,106 |
| Total deferred tax assets | | 42,535 | | 48,565 | | 43,309 |
| Valuation allowance | | (5,855) | | (12,989) | | (34,756) |
| Total deferred tax assets | | 36,680 | | 35,576 | | 8,553 |
| | | | | | | |
| Total net deferred tax assets | $ | 12,395 | $ | 21,917 | $ | 3,188 |
The Company has $2.7 million of 2004 2003
- ----- ---- ----
(In thousands)
Deferred tax liabilities:
Purchased intangibles $ 1,338 $ 381
Depreciation and amortization 3,776 2,258
Other individually immaterial items 251 (78)
--- ---
Total deferred tax liabilities 5,365 2,561
----- -----
Deferred tax assets:
Inventory valuation differences 9,001 12,069
Expenses not currently deductible 5,528 5,762effected US Federal credit carryforwards 9,150 8,172
Deferred revenue 4,280 4,317
US State credit carryforwards 6,999 6,215
Warranty 2,374 2,374
Depreciation and amortization 2,871 3,184
US Federalfederal net operating loss (NOL) carryforward - 4,451
Other individually immaterial items 3,106 1,827
----- -----
Total deferred tax assets 43,309 48,371
Valuation allowance (34,756) (47,878)
------- -------
Total deferred tax assets 8,553 493
----- ---
Total net deferred tax assets/(liabilities) $ 3,188 $(2,068)
========== =======
The Company has US Federal credit carryforwards of approximately $9.1 million
that expire beginning in 2004.from an acquisition, which is subject to certain limitations under IRC Section 382. The Company has state research and development credit carryforwards of approximately $10.4$13.1 million, which do not expire.
The change in valuation allowance in 2003 includes net operating losses realized
as well as the benefit given to certain deferred tax assets in the amount of
$7.6 million based on management's assessment that it is more likely than not
that such assets will be realized.
The valuation allowance decreased by $7.1 million in fiscal 2005, $21.8 million in fiscal 2004 and $13.1 million in 2003fiscal 2003. Approximately, $1.2 million, $8.0 million and decreased by $3.1 million in 2002. Approximately $14.1 million of the valuation allowance at December 30, 2005, December 31, 2004 and January 2, 2004 relatesrespectively relate to the tax benefitsbenefit of stock option deductions,deduction, which will be credited to equity if and when realized.
Note 13 - Shareholders' Equity:
3-for-2 Stock Split
Trimble's Board
Repatriation of Directors approvedforeign earnings. The American Jobs Creation Act of 2004 (the Act) provides for a 3-for-2 splitspecial one-time elective dividends received deduction on the repatriation of all outstanding sharescertain foreign earnings to a U.S. taxpayer equal to 85% of the Company's Common Stock, payable March 4, 2004 to stockholderseligible distribution. During the fourth quarter of record
on February 17, 2004. Cash will be paid in lieu of fractional shares. All share
and per share information have been adjusted to reflect2005, the stock split on a
retroactive basis for all periods presented.
Common Stock
On April 14, 2003, Trimble sold 3,148,000 shares of its Common Stock, no par
value per share, to an investor at a price of $12.17 per share in an offering
pursuant to its shelf registration statement. The offering resulted in net
proceeds to Trimble of approximately $36.6 million, approximately $31Company repatriated $39.5 million, of which was used to pay down$24 million qualified for the principal balancespecial one-time elective dividends received deduction and $5.6$15.5 million was used to
pay downconstituted earnings that do not qualify under the accrued interest due on the Subordinated Note (see Note 9 to the
Consolidated Financial Statements).
On December 21, 2001, Trimble completedAct; previously taxed income and return of capital. The company recorded a private placement$6.4 million tax benefit from these foreign earnings.
NOTE 13: COMPREHENSIVE INCOME
The components of 2,675,006 sharescomprehensive income and related tax effects were as follows:
Fiscal Years Ended | December 30, 2005 | December 31, 2004 | January 2, 2004 |
(in thousands) | | | |
| Net income | $ 84,855 | $ 67,680 | $ 38,485 |
| Foreign currency translation adjustments, net of tax of $308 in 2005 and $(912) in 2004 | (24,690) | 14,025 | 31,198 |
| Net gain (loss) on hedging transactions | (106) | 106 | (7) |
| Net unrealized gain (loss) on investments | (34) | (6) | 74 |
| Total comprehensive income | $ 60,025 | $ 81,805 | $ 69,750 |
The components of its Commonaccumulated other comprehensive, net of related tax were as follows:
| | December 30, | December 31, |
| Fiscal Years Ended | 2005 | 2004 |
(in thousands) | | |
| Accumulated foreign currency translation adjustments | $ 19,504 | $ 44,191 |
| Accumulated net gain on hedging transactions | - | 106 |
| Accumulated net unrealized gain on foreign currency | 30 | 67 |
| Total accumulated other comprehensive income | $ 19,534 | $ 44,364 |
NOTE 14: EMPLOYEE STOCK BENEFIT PLANS
Employee Stock at a pricePurchase Plan
The Company has an Employee Stock Purchase Plan (“Purchase Plan”) under which an aggregate of $10.00 per share to certain qualified
investors, resulting in gross proceeds of approximately $26.8 million to the
Company. On January 15, 2002, Trimble had a second closing of the private
placement issuing 1,920,0065,325,000 shares of Common Stock have been reserved for sale to eligible employees as approved by the shareholders to date. The plan permits full-time employees to purchase Common Stock through payroll deductions at $10.00 per share resulting
in gross proceeds85% of the lower of the fair market value of the Common Stock at the beginning or at the end of each six-month offering period. The Purchase Plan terminates on December 31, 2008. In fiscal 2005 and 2004, the shares issued under the Purchase Plan were 179,999 and 183,214 shares, respectively. At December 30, 2005, the number of shares reserved for future purchases by eligible employees was 367,836.
Restricted Stock Award
During the second quarter of fiscal 2005, the Company granted 20,000 shares of restricted common stock. The award vests 20% on June 30, 2005 and an additional
$19.2 million.
20% each June 30 thereafter. The Company recorded compensation expense of $120,000 for fiscal 2005. Trimble did not grant any restricted stock in fiscal 2004 and fiscal 2003.
2002 Stock Plan
In 2002, Trimble'sTrimble’s Board of Directors adopted the 2002 Stock Plan ("(“2002 Plan"Plan”). The 2002 Plan approved by the shareholders provides for the granting of incentive and non-statutory stock options for up to 3,000,0004,500,000 shares plus any shares currently reserved but un-issued to employees, consultants, and directors of Trimble. Incentive stock options may be granted at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the 2002 Plan have 120-month terms, and vest at a rate of 20% at the first anniversary of grant, and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of the grant. The exercise price of non-statutory stock options issued under the 2002 Plan must be at least 85% of the fair market value of Common Stock on the date of grant. As of January 2, 2004,December 30, 2005, options to purchase 2,326,7423,641,850 shares were outstanding and 619,9491,509,230 were available for future grant under the 2002 Plan.
1993 Stock Option Plan
In 1992, Trimble's Board of Directors adopted the 1993 Stock Option Plan ("(“1993 Plan"Plan”). The 1993 Plan, as amended to date and approved by shareholders, providesprovided for the granting of incentive and non-statutory stock options for up to 9,562,500 shares of Common Stock to employees, consultants, and directors of Trimble. Incentive stock options may be granted at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the 1993 Plan have 120-month terms, and vest at a rate of 20% at the first anniversary of grant, and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of grant. The exercise price of non-statutory stock options issued under the 1993 Plan must be at least 85% of the fair market value of Common Stock on the date of grant. As of January 2, 2004,December 30, 2005 options to purchase 4,799,0452,364,495 shares were outstanding and 980,627no shares were available for future grant.
1992 Management Discount Stock Option Plan
In 1992, Trimble's Board of Directors approved the 1992 Management Discount Stock Option Plan ("Discount Plan"). As of December 30, 2005, options to purchase 187,500 shares were outstanding and no shares were available for future grant under the 19931992 Management Discount Stock Option Plan.
1990 Director Stock Option Plan
In December 1990, Trimble adopted a Director Stock Option Plan under which an aggregate of 570,000 shares of Common Stock have been reserved for issuance to non-employee directors as approved by the shareholders to date. At
January 2,
2004,December 30, 2005, options to purchase
287,501220,000 shares were outstanding, and no shares were available for future grants under the Director Stock Option Plan.
1992 Management Discount Stock Option Plan
In 1992, Trimble's Board of Directors approved the 1992 Management Discount
Stock Option Plan ("Discount Plan"). Under the Discount Plan, 450,000
non-statutory stock options were reserved for grant to management employees at
exercise prices that may be significantly discounted from the fair market value
of Common Stock on the dates of grant. Options are generally exercisable six
months from the date of grant. As of January 2, 2004, there were no shares
available for future grants. For accounting purposes, compensation cost on these
grants is measured by the excess over the discounted exercise prices of the fair
market value of Common Stock on the dates of option grants. There were no
discounted options granted in the plan in fiscal 2003, 2002, and 2001. As of
January 2, 2004, options to purchase 187,500 shares were outstanding under the
1992 Management Discount Stock Option Plan.
1988 Employee Stock Purchase Plan
In 1988, Trimble established an employee stock purchase plan under which an
aggregate of 5,025,000 shares of Common Stock have been reserved for sale to
eligible employees as approved by the shareholders to date. The plan permits
full-time employees to purchase Common Stock through payroll deductions at 85%
of the lower of the fair market value of the Common Stock at the beginning or at
the end of each six-month offering period. In fiscal 2003 and 2002, 328,044
shares and 362,412 shares, respectively, were issued under the plan for
aggregate proceeds to the Company of $3.1 million and $2.9 million,
respectively. At January 2, 2004, the number of shares reserved for future
purchases by eligible employees was 428,216.
SFAS 123 Disclosures
As stated in Note 12 of the Notes to the Consolidated Financial Statements, Trimble has elected to follow APB 25 and related interpretations in accounting for its employee stock options and stock purchase plans. The alternative fair value accounting provided for under SFAS 123 requires use of option pricing models that were not developed for use in valuing employee stock options. Under APB 25, because the exercise price of Trimble's employee stock options equals the market price of the underlying stock on date of grant, no compensation expense is recognized.
Exercise prices for options outstanding as of
January 2, 2004,December 30, 2005, ranged from $5.33 to
$34.46.$43.43. The weighted average remaining contractual life of those options is
6.916.46 years. In view of the wide range of exercise prices, Trimble considers it appropriate to provide the following additional information
inwith respect
ofto options
outstanding:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Price Remaining Number Exercise Price
Range Outstanding(1) per Share Contractual Life Exercisable(1) per Share
- ----- -------------- --------- ---------------- -------------- ---------
$ 5.33 - 6.63 908 5.70 5.01 873 $ 5.71
6.67 - 8.53 861 7.91 6.03 614 7.89
8.75 - 9.33 111 9.10 6.07 65 8.94
10.23 843 10.23 8.47 228 10.23
10.25 - 11.43 957 10.81 6.13 585 10.66
11.65 - 11.67 780 11.65 6.74 426 11.65
11.93 - 15.71 783 13.29 6.18 525 13.13
16.04 21 16.04 6.02 17 16.04
17.00 1,064 17.00 9.53 5 17.00
17.55 - 34.46 1,274 26.37 6.86 800 27.01
----- ----- ---- --- -----
Total 7,601 13.61 6.91 4,136 $ 12.76
===== ===== ==== ===== =======
(1) In thousands
outstanding at December 30, 2005:
| | | Options Outstanding | | Options Exercisable |
| | | | | Weighted- | Weighted- | | | | Weighted- |
| | | | | Average | Average | | | | Average |
| | | Number | | Exercise Price | Remaining | | Number | | Exercise Price |
| | Range | Outstanding | | per Share | Contractual Life (Years) | | Exercisable | | per Share |
| $ | 5.33 - 7.13 | 693,327 | | $ 5.80 | 3.33 | | 678,527 | | $ 5.78 |
| | 7.67 - 10.23 | 1,006,555 | | 9.36 | 5.61 | | 708,522 | | 9.14 |
| | 10.25 - 11.65 | 805,720 | | 11.25 | 5.12 | | 687,278 | | 11.23 |
| | 11.67 - 16.04 | 472,282 | | 13.22 | 4.05 | | 455,292 | | 13.16 |
| | 17.00 | 858,000 | | 17.00 | 7.54 | | 369,181 | | 17.00 |
| | 17.55 - 27.42 | 832,755 | | 25.15 | 5.86 | | 650,221 | | 26.10 |
| | 27.56 | 3,300 | | 27.56 | 8.06 | | 525 | | 27.56 |
| | 29.06 | 722,456 | | 29.06 | 8.81 | | 168,173 | | 29.06 |
| | 30.57 - 33.99 | 893,350 | | 33.37 | 9.69 | | 30,167 | | 32.49 |
| | 34.46 - 43.43 | 126,250 | | 37.75 | 8,46 | | 34,498 | | 35.67 |
| Total | 6,413,995 | | $ 18.70 | 6.46 | | 3,782,384 | | $ 14.40 |
Activity during fiscal
2003, 2002,2005, 2004, and
2001,2003, under the combined plans was as follows:
January 2, 2004 January 3, 2003 December 28, 2001
--------------- --------------- -----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Fiscal Years Ended Options price Options price Options price
- ------------------ ------- ----- ------- ----- ------- -----
(In thousands, except for per
share data)
Outstanding at beginning of year 7,691 $ 12.35 6,932 $ 12.69 6,390 $ 12.73
Granted 1,298 16.87 1,275 9.88 1,605 11.39
Exercised (1,263) 8.90 (199) 6.67 (436) 8.61
Cancelled (125) 15.51 (317) 13.46 (627) 12.37
---- ----- ----- ----- ---- -----
Outstanding at end of year 7,601 $ 13.61 7,691 $ 12.35 6,932 $ 12.69
Exercisable at end of year 4,136 $ 12.76 4,005 $ 11.69 3,009 $ 10.84
Available for grant 1,605 2,790 1,565
Weighted-average fair value of
options granted during year $ 10.03 $ 5.64 $ 6.39
| | December 30, 2005 | December 31, 2004 | January 2, 2004 |
| Fiscal Years Ended | Options | Weighted average exercise price | Options | Weighted average exercise price | Options | Weighted average exercise price |
(In thousands, except for per share data) | | | | | | |
| | | | | | | |
| Outstanding at beginning of year | 6,721 | 16.10 | 7,601 | 13.62 | 7,691 | $ 12.35 |
| Granted | 874 | 34.10 | 1,119 | 28.20 | 1,298 | 16.87 |
| Exercised | (1,060) | 14.74 | (1,710) | 12.92 | (1,263) | 8.90 |
| Cancelled | (121) | 20.39 | (289) | 16.55 | (125) | 15.51 |
| Outstanding at end of year | 6,414 | 18.70 | 6,721 | 16.10 | 7,601 | $ 13.62 |
| | | | | | | |
| Exercisable at end of year | 3,782 | 14.40 | 3,721 | 13.40 | 4,136 | $ 12.76 |
| Available for grant | 1,513 | | 2,275 | | 1,605 | |
| Weighted-average fair value of options granted during year | | $ 14.53 | | $ 13.85 | | $ 10.03 |
Non-statutory Options
On May 3, 1999, Trimble entered into an agreement to grant a non-statutory option to purchase up to 45,000 shares of common stock at an exercise price of $6.50 per share, with an expiration date of March 29, 2004. As of January 2, 2004, theseThese non-statutory options have not been exercised.
were exercised January 15, 2004.
Warrants
On April 12, 2002, the Company issued to Spectra-Physics Holdings USA, Inc., a warrant to purchase up to 564,350 shares of Trimble'sTrimble’s Common Stock over a fixed period of time. Initially, Spectra-Physics'Spectra-Physics’ warrant entitlesentitled it to purchase 300,000 shares of Common Stock over a five-year period at an exercise price of $10.07 per share. On a quarterly basis beginning July 14, 2002, Spectra-Physics'Spectra-Physics’ warrant became exercisable for an additional 375 shares of Common Stock for every $1 million of principal and interest outstanding to Spectra-Physics until the obligation iswas paid off in full. These shares are purchasable at a price equal to the average of Trimble'sTrimble’s closing price for the five days immediately precedingproceeding the last trading day of each quarter. On July 14, 2002 an additional 26,046 shares became exercisable at an exercise price of $9.64 per share. On October 14, 2002 an additional 26,736 shares became exercisable at an exercise price of $6.12. On January 14, 2003, an additional 27,426 shares became exercisable at an exercise price of $9.03. On April 14, 2003, an additional 14,312 shares became exercisable at an exercise price of $13.37. The additional shares are exercisable over a 5-year period. No additional shares will be issuable under the warrant to Spectra-Physics as the underlying obligation has been paid off in full.
The approximate fair value of the warrants of $2.4 million was determined using the Black-Scholes pricing model with the following assumptions: contractual life of 5-year period, risk-free interest rate of 4%; volatility of 65%; and no dividends during the contractual term. The value of the warrants was being amortized to interest expense over the term of the subordinated noteSubordinated Note and the unamortized balancesbalance was written off to interest expense on June 2003 upon repayment of the note.
On December 21, 2001 and January 15, 2002, in connection with the first and second closing of the private placement of the Company'sCompany’s Common Stock, Trimble granted five-year warrants to purchase an additional 919,008 shares of Common Stock, subject to certain adjustments, at an exercise price of $12.97 per share.
Common Stock Reserved for Future Issuances
As of January 2, 2004, Trimble had reserved 11,371,652 common shares for
issuance upon exercise of options and warrants outstanding and options available
for grant under the 2002 Plan, the 1993 Plan, the 1990 Director Plan, and the
1992 Management Discount Plan, and available for issuance under the 1988
Employee Stock Purchase Plan.
Note 14 - Benefit Plans:
NOTE 15: BENEFIT PLANS
401(k) Plan
Under Trimble's 401(k) Plan, US employee participants (including employees of certain subsidiaries) may direct the investment of contributions to their accounts among certain mutual funds and the Trimble Navigation Limited Common Stock Fund. The Trimble Fund sold net 61,23842,945 shares of Common Stock for an aggregate of $0.9$1.6 million in fiscal 2003.2005. Trimble, at its discretion, matches individual employee 401(k) Plan contributions at a rate of fifty cents of every dollar that the employee contributes to the 401(k) Plan up to 5% of the employee'semployee’s annual salary to an annual maximum of $2,500. Trimble's matching contributions to the 401(k) Plan were $2.2 million in fiscal 2005, $1.9 million in fiscal 2004 and $1.8 million in fiscal 2003, $1.8 million
in fiscal 2002, and $1.7 million in fiscal 2001.
2003.
Profit-Sharing Plan
In 1995, Trimble introduced an employee profit-sharing plan in which all employees, excluding executives and certain levels of management, participate. The plan distributes to employees approximately 5% of quarterly adjusted pre-tax income. Payments under the plan during fiscal
2005, 2004 and 2003
2002were $5.9 million, $4.4 million, and
2001 were $2.5 million,
$1.1 million, and $0.9 million, respectively.
Defined Contribution Pension Plans
Certain of the Company'sCompany’s European subsidiaries participate in state sponsored pension plans. Contributions are based on specified percentages of employee salaries. For these plans, Trimble contributed and charged to expense approximately $0.6 million for fiscal 2005, $0.6 million for fiscal 2004, and $2.0 million for fiscal 2003, $1.4 million for fiscal 2002, and
$1.4 million for fiscal 2001.
2003.
Defined Benefit Pension Plan
Trimble provides defined benefit pension plans in certain countries outside the United States, including Sweden and Germany. The largest of these plans is provided by the Swedish and German subsidiaries havesubsidiary which has an unfunded defined benefit pension plan that covered substantially all of theirits full-time employees through 1993. Benefits are based on a percentage of eligible earnings. The employee must have had a projected period of pensionable service of at least 30 years as of 1993. If the period was shorter, the pension benefits were reduced accordingly. Active employees do not accrue any future benefits; therefore, there is no service cost and the liability will only increase for interest cost.
Net periodic benefit costs in fiscal 2003, 2002,2005, 2004, and 20012003 were not material.
The changes in the benefit obligations and plan assets of the significant non-US defined benefit pension plans for fiscal
20032005 and
20022004 were as follows:
Fiscal Years Ended January 2, 2004 January 3, 2003(1)
- ------------------ --------------- -----------------
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 4,972 $ 4,105
Interest cost 328 317
Benefits paid (256) (212)
Foreign exchange impact 1,102 814
Actuarial (gains) losses 58 (52)
-- ---
Benefit obligation at end of year 6,204 4,972
----- -----
Change in plan assets:
Fair value of plan assets at beginning of year 787 731
Actual return on plan assets 29 122
Employer contribution 150 121
Plan participants' contributions - -
Benefits paid (256) (212)
Foreign exchange impact 162 24
Fair value of plan assets at end of year 872 786
Benefit obligation in excess of plan assets 5,332 4,186
----- -----
Unrecognized prior service cost - -
Unrecognized net actuarial gain 35 25
-- --
Accrued pension costs (included in accrued liabilities) $ 5,297 $ 4,161
------- -------
(1) Prior year's disclosure has been restated to correct for a clerical error.
| Fiscal Years Ended | December 30, 2005 | December 31, 2004 |
(in thousands) | | |
| | | |
| Change in benefit obligation: | | |
| Benefit obligation at beginning of year | $ 7,208 | $ 6,204 |
| Service cost | 90 | 74 |
| Interest cost | 270 | 388 |
| Benefits paid | (312) | (196) |
| Foreign exchange impact | (1,145) | 699 |
| Actuarial (gains) losses | 818 | 39 |
| Benefit obligation at end of year | 6,929 | 7,208 |
| Change in plan assets: | | |
| Fair value of plan assets at beginning of year | 1,088 | 872 |
| Actual return on plan assets | 36 | 64 |
| Employer contribution | 339 | 238 |
| Plan participants' contributions | - | - |
| Benefits paid | (312) | (196) |
| foreign exchange impact | (172) | 110 |
| Fair value of plan assets at end of year | 980 | 1,088 |
| Benefit obligation in excess of plan assets | 5,949 | 6,120 |
| Unrecognized prior service cost | - | - |
| Unrecognized net actuarial gain (loss) | (419) | 127 |
| Accrued pension costs (included in accrued liabilities) | $ 5,529 | $ 6,247 |
Actuarial assumptions used to determine the net periodic pension costs for the year ended January 2, 2004December 30, 2005 were as follows:
Swedish Subsidiary
| | Swedish Subsidiary | German Subsidiaries |
| Discount rate | 4.8% | 4.0% |
| Rate of compensation increase | 2.5% | 2.0% |
| Measurement Date | 12/30/05 | 12/30/05 |
Trimble’s accumulated benefits obligation was $7.0 million and $7.3 million for fiscal 2005 and fiscal 2004 respectively.
Trimble’s plan assets are primarily located in our German Subsidiaries
------------------ -------------------
Discount rate 5.5% 6.0%
Ratesubsidiaries. For fiscal 2005 and fiscal 2004, the asset allocation of compensation increase 2.5% 1.5%
Note 15 - Earnings Per Share:
our total plan assets was approximately as follows: 89% local government bonds, 7% real estate and 4% equity securities. Long-term asset allocation and expected return on assets assumptions are derived from detailed annual studies conducted by Trimble’s asset management group and actuaries. Trimble’s asset management group limits allocation to equity securities and real estate to a maximum of 10% and 25%, respectively, with the remaining assets to be allocated to local government bonds. While the asset allocation give appropriate consideration to recent performance and historical returns, the strategy is focused primarily on conservative and sustainable long-term returns. Based on historical returns, Trimble expects future return on assets to be approximately 4%.
Trimble expects to contribute approximately $300,000 to plan assets in fiscal year ended 2006.
The following
data show the amounts used in computing earnings (loss) per share
and the effect on the weighted-average number of shares of potentially dilutive
Common Stock.
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands, except per share data)
Numerator:
Income available to common shareholders:
Used in basic and diluted earnings (loss) per
share from continuing operations $ 38,485 $ 10,324 $ (23,492)
Used in basic and diluted earnings per share
from discontinued operations - - 613
---
Used in basic and diluted earnings (loss) per
share $ 38,485 $ 10,324 $ (22,879)
========== =========== ===========
Denominator:
Weighted-average number of common shares used in
basic earnings (loss) per share 47,505 42,860 37,091
Effect of dilutive securities (using treasury stock
method):
Common stock options 2,058 705 -
Common stock warrants 449 13 -
Weighted-average number of common shares and dilutive
potential common shares used in diluted income per
share 50,012 43,578 37,091
====== ====== ======
Basic earnings (loss) per share from continuing operations $ 0.81 $ 0.24 $ (0.63)
Basic earnings per share from discontinued operations - - 0.01
Basic earnings (loss) per share $ 0.81 $ 0.24 $ (0.62)
Diluted earnings (loss) per share from continuing
operations $ 0.77 $ 0.24 $ (0.63)
Diluted earnings per share from discontinued operations - - 0.01
Diluted income (loss) per share $ 0.77 $ 0.24 $ (0.62)
Duebenefit payments, which reflect estimated future employee service, as appropriate, are expected to the fact that the Company reported a net loss in fiscal 2001, options and
warrants were not included in the computation of earnings per share in fiscal
2001. If the Company had reported net income in 2001, additional 1,407,000
common equivalent shares related to outstanding options and warrants would have
been included in the calculation of diluted loss per share.
Note 16 - Comprehensive Income (Loss):
The components of comprehensive income (loss), net of related tax as follows:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
Net income (loss) $ 38,485 $10,324 $(22,879)
Foreign currency translation adjustments 31,198 17,697 (9,766)
Net gain (loss) on hedging transactions (7) 210 (203)
Net unrealized gain (loss) on investments 74 (17) 16
-- --- --
Comprehensive income (loss) $ 69,750 $28,214 $(32,832)
======== ======= ========
The components of accumulated other comprehensive (loss), net of related tax as
follows:
January 2, January 3,
Fiscal Years Ended 2004 2003
- ------------------ ---- ----
(in thousands)
Cumulative foreign currency translation adjustments $ 30,166 $ (1,032)
Net gain on hedging transactions - 7
Net unrealized gain (loss) on investments 73 (1)
-- --
Accumulated other comprehensive income (loss) $ 30,239 $ (1,026)
========= =========
Note 17 - Related-Party Transactions:
be paid:
| | | Expected Benefit Payments |
(In thousands) | | |
| | | |
| 2006 | | $222 |
| 2007 | | $265 |
| 2008 | | $310 |
| 2009 | | $368 |
| 2010 | | $869 |
| 2011-2015 | | $1,966 |
| Total | | $4,000 |
NOTE 16: RELATED-PARTY TRANSACTIONS
Related-Party Lease
Trimble currently leases office space in Ohio from an association of three individuals, one of whom is an employee of one of the US operating units,Company, under a non-cancelable operating lease arrangement expiring in 2011. The annual rent is subject to adjustment based on the terms of the lease. The Consolidated Statements of OperationsIncome include expenses from this operating lease of $0.35
million$350,000 for fiscal 2003,years 2005, 2004, and 2003.
As part of the Apache Technologies, Inc. acquisition in the second quarter of fiscal 2002,2005, Trimble currently leases an office, manufacturing facility and equipment from a group of individuals, all of whom are now employees of the Company, under a non-cancelable operating lease expiring in January 2013. The Consolidated Statements of Income include expenses for this operating lease of approximately $148,000 for fiscal 2001.
Related -Partyyear 2005.
These related-party leases were entered into at rates that were similar to comparable market rates.
Related-Party Notes Receivable
Trimble has notes receivable from officers and employees of approximately $0.8$0.1 million as of January 2, 2004December 30, 2005 and $1.2$0.4 million as of January 3, 2003.December 31, 2004. The notes bear interest from 4.49%4.52% to 6.62% and have an average remaining life of 1.470.3 years as of January 2, 2004.
December 30, 2005.
See Note
35 to the Notes to the Consolidated Financial Statements for additional information regarding
Trimble'sTrimble’s related party transactions with joint venture partners.
Note 18 - Statement of Cash Flow Data:
January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
Supplemental disclosure of cash flow information:
Interest paid $ 10,208 $ 12,215 $ 17,363
Income taxes paid $ 688 $ 2,635 $ 825
Significant non-cash investing activities:
Issuance of shares related to invest in joint venture $ 5,922 $ - $ -
Issuance of shares related to LeveLite earn-out
payments $ 1,349 $ 336 $ -
Note 19 - Litigation:
NOTE 17: STATEMENT OF CASH FLOW DATA
| | | December 30, | | December 31, | | January 2, |
| Fiscal Years Ended | | 2005 | | 2004 | | 2004 |
(in thousands) | | | | | | |
| | | | | | | |
| Supplemental disclosure of cash flow information: | | | | | | |
| Interest paid | $ | 1,081 | $ | 3,142 | $ | 10,208 |
| Income taxes paid | $ | 8,938 | $ | 6,694 | $ | 688 |
| | | | | | | |
| Significant non-cash investing activities: | | | | | | |
| Issuance of shares related to investment in joint venture | $ | - | $ | - | $ | 5,922 |
| Issuance of shares related to acquisition related earn-out payments | $ | - | $ | 899 | $ | 1,349 |
NOTE 18: LITIGATION
From time to time, the Company is involved in litigation arising out of the ordinary course of its business. There are no known claims or pending litigation expected to have a material effect on the
Company'sCompany’s overall financial position, results of operations, or liquidity.
Note 20 - Selected Quarterly Financial Data (unaudited):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share data)
Fiscal 2003
Revenue $ 127,325 $ 138,132 $ 139,569 $ 135,877
Gross margin 61,755 71,095 69,112 66,068
Net income 5,353 8,105 9,936 15,091
Basic net income per share 0.12 0.17 0.20 0.30
Diluted net income per share 0.12 0.16 0.19 0.28
Fiscal 2002
Revenue $ 104,029 $ 123,256 $ 114,748 $ 124,569
Gross margin 54,333 60,951 57,581 61,567
Net income (loss) (715) 4,326 2,708 4,005
Basic net income (loss) per share (0.02) 0.10 0.06 0.09
Diluted net income (loss) per share (0.02) 0.10 0.06 0.09
NOTE 19: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
| | | | First | | Second | | Third | | Fourth |
| | | Quarter | | Quarter | | Quarter | | Quarter |
(in thousands, except per share data) | | | | | | | |
| | | | | | | | | | |
| Fiscal 2005 | | | | | | | | |
| | Revenue | $ | 195,383 | $ | 204,225 | $ | 188,484 | $ | 186,821 |
| | Gross margin | | 97,807 | | 102,407 | | 97,292 | | 92,299 |
| | Net income | | 17,439 | | 23,787 | | 20,236 | | 23,393 |
| | | | | | | | | | |
| | Basic net income per share | | 0.33 | | 0.45 | | 0.38 | | 0.43 |
| | Diluted net income per share | | 0.31 | | 0.42 | | 0.35 | | 0.41 |
| | | | | | | | | | |
| Fiscal 2004 | | | | | | | | |
| | Revenue | $ | 156,510 | $ | 179,451 | $ | 170,164 | $ | 162,683 |
| | Gross margin | | 75,760 | | 88,319 | | 83,372 | | 77,359 |
| | Net income | | 12,840 | | 20,518 | | 17,917 | | 16,405 |
| | | | | | | | | | |
| | Basic net income per share | | 0.25 | | 0.40 | | 0.35 | | 0.32 |
| | Diluted net income per share | | 0.24 | | 0.38 | | 0.33 | | 0.29 |
Significant quarterly items for fiscal 20032005 include the following: (i) in the first quarter of 2003 a $0.4 million charge or $0.01 per diluted share relating
to workforce reduction; (ii) in the second quarter of 2003 a $0.7 million
charge, or $0.01 per diluted share relating to work force reduction and $3.6
million of interest expenses, or $0.07 per diluted share relating to the
Company's debt refinancing; (iii) in the third quarter of 2003 a $0.6 million
charge, or $0.01 per diluted share relating to work force reduction; (iv) in the
fourth quarter of 2003 a $0.3 million charge, or less than $0.01 per diluted
share relating to work force reduction.
Significant quarterly items for fiscal 2002 include the following: (i) in the
first quarter of 2002 a $0.3 million charge or $0.01 per diluted share relating
to workforce reduction; (ii) in the second quarter of 20022005 a $0.2 million charge, or less than $0.01 per diluted share relating to work force reduction;
(iii)facilities closure; (ii) in the third quarter of 20022005 a $0.9 million charge, or $0.02 per diluted share relating to a write-off of debt issuance costs; (iii) in the fourth quarter of 2005 a $1.1 million charge, or $0.02 per diluted share relating to in-process research and development and $9.2 million or $0.16 per diluted share related to deferred gain on joint venture.
Significant quarterly items for fiscal 2004 include the following: (i) in the second quarter of 2004 a $1.2 million income, or $0.03 per diluted share relating to valuation of investment; (ii) in the third quarter of 2004 a $0.2 million income, or less than $0.01 per diluted share relating to revaluation of investment; (iii) in the fourth quarter of 2004 a $0.4 million charge, or less than $0.01 per diluted share relating to work force reduction and a $0.2 million gain, or less
than $0.01 per diluted share relating to the salerevaluation of an investment; (iv) in the
fourth quarterinvestment.
Report of 2002 a $0.5 million charge, or $0.01 per diluted share
relating to work force reduction and a $1.5 million charge, or $0.03 per diluted
share relating to the write-down of an investment.
Note 21 - Subsequent Events
3-for-2 Stock Split
Trimble's Board of Directors approved a 3-for-2 split of all outstanding shares
of the Company's Common Stock, payable March 4, 2004 to stockholders of record
on February 17, 2004. Cash will be paid in lieu of fractional shares. All share
and per share information have been adjusted to reflect the stock split on a
retroactive basis for all periods presented.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Trimble Navigation Limited
We have audited the accompanying Consolidated Balance Sheetsconsolidated balance sheets of Trimble Navigation Limited as of January 2,December 30, 2005 and December 31, 2004, and January 3, 2003, and the related Consolidated Statementsconsolidated statements of Operations, Shareholders' Equity,income, shareholders' equity, and Cash Flowscash flows for each of the three years in the period ended January 2, 2004.December 30, 2005. Our audits also included the financial statement schedule listed in the index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditingthe standards generally accepted
inof the United States.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 financial statements and schedule referred to above present fairly, in all material respects, the consolidated financial position of Trimble Navigation Limited at January 2,December 30, 2005 and December 31, 2004, and January 3, 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 2, 2004,December 30, 2005, in conformity with accounting principlesU.S. generally accepted in the United States.accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed
We also have audited, in Note 1 toaccordance with the consolidatedstandards of the Public Company Accounting Oversight Board (United States), the effectiveness of Trimble Navigation Limited’s internal control over financial statements, effectivereporting as of December 29, 2001,30, 2005, based on criteria established in Internal Control-Integrated Framework issued by the company adopted StatementCommittee of Financial Accounting
Standards No. 142, "GoodwillSponsoring Organizations of the Treadway Commission and Other Intangible Assets."
/s/our report dated March 8, 2006, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
March 11, 2004
March 8, 2006
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Trimble Navigation Limited
We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting at Item 9A, that Trimble Navigation Limited maintained effective internal control over financial reporting as of December 30, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Trimble Navigation Limited’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 Trimble Navigation Limited maintained effective internal control over financial reporting as of December 30, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Trimble Navigation Limited maintained, in all material respects, effective internal control over financial reporting as of December 30, 2005, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Trimble Navigation Limited as of December 30, 2005 and December 31, 2004, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 30, 2005, of Trimble Navigation Limited and our report dated March 8, 2006 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Palo Alto, California
March 8, 2006
Item 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9a.9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
The Company's management, with the participation of the Company'sProcedures
Trimble’s Chief Executive Officer (“CEO”) and Chief Financial Officer has evaluated(“CFO”), after evaluating the effectiveness of the Company's disclosurecompany’s “disclosure controls and proceduresprocedures” (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 as
amended (the "Exchange Act"“Exchange Act”)), as of the end of the period covered by this report.
Based on such evaluation, the Company's Chief Executive Officer and Chief
Financial OfficerDecember 30, 2005, have concluded that as of December 30, 2005, the end of such period, the
Company'scompany’s disclosure controls and procedures arewere effective in recording,
processing, summarizing and reporting, on a timely basis,designed to provide reasonable assurance that material information relating to the company and its consolidated subsidiaries required to be disclosed by the Companyincluded in the reports that it files or submitscompany’s periodic filings under the Exchange Act.
(b) Internal Control Over Financial Reporting.
There haveAct would be made known to them by others within those entities.
Inherent Limitations on Effectiveness of Controls
The company’s management, including the CEO and CFO, does not been any changes in the Company'sexpect that our internal control over financial reporting (aswill prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Management's Report on Internal Control over Financial Reporting
The company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in RulesExchange Act Rule 13a-15(f). The company’s management, including the CEO and 15d-15(f) underCFO, conducted an evaluation of the Exchange Act) duringeffectiveness of its internal control over financial reporting based on the fiscal year toInternal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, the company’s management concluded that its internal control over financial reporting was effective as of December 30, 2005.
Management's assessment of the effectiveness of our internal control over financial reporting as of December 30, 2005 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which this report relatesis included elsewhere herein.
(c) Changes in Internal Control over Financial Reporting
During the quarter ended December 30, 2005, there were no changes in the company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company'scompany’s internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Item 10Directors and Executive Officers of the Registrant
The information required by this item, insofar as it relates to Trimble's directors, will be contained under the captions "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement and is incorporated herein by reference. The information required by this item relating to executive officers is set forth above in Item 1 Business Overview under the caption "Executive“Executive Officers."
”
Code of Ethics
The Company'sCompany’s Business Ethics and Conduct Policy that applies to, among others, to the Company'sCompany’s Chief Executive Officer, Chief Financial Officer, Corporate Controller, and other finance organization employees. The Business Ethics and Conduct Policy is available on the Company'sCompany’s website at www.trimble.com under the heading "Corporate“Corporate Governance and Policies"Policies” on the Investor Information page of our website. A copy will be provided, without charge, to any shareholder who requests one by written request addressed to General Counsel, Trimble Navigation Limited, 749 N. Mary Avenue,935 Stewart Drive, Sunnyvale, CA 94085.
If any substantive amendments to the Business Ethics and Conduct Policy are made or any waivers are granted, including any implicit waiver, from a provision of the Business Ethics and Conduct Policy, to its Chief Executive Officer, Chief Financial Officer or Corporate Controller, the Company will disclose the nature of such amendment or waiver on the Company'sCompany’s website at www.trimble.com or in a report on Form 8-K.
Item 11Executive Compensation
The information required by this item will be contained in the Proxy Statement under the caption "Executive Compensation" and is incorporated herein by reference.
Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item will be contained in the Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters" and is incorporated herein by reference.
Item 13Certain Relationships and Related Transactions
The information required by this item will be contained in the Proxy Statement under the caption "Certain Relationships and Related Transactions" and is incorporated herein by reference.
Item 14Principal Accountant Fees and Services
The information required by this item will be contained in the Proxy Statement under the caption "Principal Accountant Fees and Services" and is incorporated herein by reference.
PART IV
Item 15.Exhibits, Financial Statement Schedules, and Reports on form 8-K
(a) 1. Financial Statements
Schedules.
| (a) | (1) Financial Statements |
The following consolidated financial statements required by this item are included in Part II Item 8 hereof under the caption "Financial Statements and Supplementary Data."
Page in this
Annual Report
on Form 10-K
Consolidated Balance Sheets at January 2, 2004 and January 3, 2003...........45
Consolidated Statements of Operations for each of the three
fiscal years in the period ended January 2, 2004.............................46
Consolidated Statement of Shareholders' Equity for each of the three
fiscal years in the period ended January 2, 2004.............................47
Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended January 2, 2004..........................................48
Notes to Consolidated Financial Statements ..................................49
Report of Ernst & Young LLP, Independent Auditors............................74
2.
| Page in this Annual Report on Form 10-K |
| Consolidated Balance Sheets at December 30, 2005 and December 31, 2004 | 43 |
| |
| Consolidated Statements of Income for each of the three fiscal years | |
| in the period ended December 30, 2005 | 44 |
| |
| Consolidated Statement of Shareholders' Equity for each of the three fiscal years | |
| in the period ended December 30, 2005 | 45 |
| |
| Consolidated Statements of Cash Flows for each of the three fiscal years | |
| in the period ended December 30, 2005 | 46 |
| |
| Notes to Consolidated Financial Statements | 47 |
| |
| Reports of Independent Registered Public Accounting Firm | 72 |
(2)��Financial Statement Schedules
The following financial statement schedule is filed as part of this report:
Page in this
Annual Report
on Form 10-K
Schedule II - Valuation and Qualifying Accounts........................S-1
| Page in this Annual Report on Form 10-K |
| Schedule II - Valuation and Qualifying Accounts | S-1 |
All other schedules have been omitted as they are either not required or not applicable, or the required information is included in the consolidated financial statements or the notes thereto.
3.
(3)Exhibits
Exhibit
Number
3.1 Restated Articles of Incorporation of the Company filed June 25, 1986. (5)
3.2 Certificate of Amendment of Articles of Incorporation of the Company filed
October 6, 1988. (5)
3.3 Certificate of Amendment of Articles of Incorporation of the Company filed
July 18, 1990. (5)
3.4 Certificate of Determination of the Company filed February 19, 1999. (5)
3.5 Certificate of Amendment of Articles of Incorporation of the Company filed
May 29, 2003. (15)
3.8 Amended and Restated Bylaws of the Company. (16)
4.1 Specimen copy of certificate for shares of Common Stock of the Company. (1)
4.2 Preferred Shares Rights Agreement dated as of February 18, 1999. (4)
4.3 First Amended and Restated Stock and Warrant Purchase Agreement between and
among the Company and the investors thereto dated January 14, 2002. (9)
4.4 Form of Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(10)
4.5 Form of Warrant dated April 12, 2002. (11)
10.4+ Form of Indemnification Agreement between the Company and its officers and
directors. (1)
10.32+ 1990 Director Stock Option Plan, as amended, and form of Outside Director
Non-statutory Stock Option Agreement. (3)
10.46+ 1992 Management Discount Stock Option and form of Non-statutory Stock
Option Agreement. (2)
10.59+ 1993 Stock Option Plan, as amended May 11, 2000. (7)
10.60 + 1988 Employee Stock Purchase Plan, as amended May 11, 2000. (7)
10.65+ Standby Consulting Agreement between the Company and Bradford W.
Parkinson dated September 1, 1998. (5)
10.66+ Standby Consulting Agreement between the Company and Robert S. Cooper
dated September 1, 1998. (5)
10.67+ Employment Agreement between the Company and Steven W. Berglund dated
March 17, 1999. (5)
10.68+ Nonqualified deferred Compensation Plan of the Company effective February
10, 1994. (5)
10.70***Supply Agreement dated August 10, 1999 by and among Trimble Navigation
Limited and Solectron Corporation and Solectron Federal Systems, Inc. (6)
10.77+ Australian Addendum to the Trimble Navigation 1988 Employee Stock
Purchase Plan. (8)
10.81+ 2002 Stock Plan, including form of Option. (12)
10.82 Credit Agreement dated June 25, 2003. (14)
10.83 Letter dated May 8, 2002 exercising renewal option of the Supply Agreement
dated August 10, 1999 by and among Trimble Navigation Limited and Solectron
Corporation and Solectron Federal Systems, Inc. (13)
21.1 Subsidiaries of the Company. (16)
23.1 Consent of Ernst & Young LLP, independent auditors. (16)
24.1 Power of Attorney included on signature page herein.
31.1 Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (16)
31.2 Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (16)
32.1 Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (16)
32.2 Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (16)
*** Confidential treatment has been granted for certain portions of this exhibit
pursuant to an order dated effective October 5, 1999.
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) thereof.
(1) Incorporated by reference to identically numbered exhibits to the
registrant's Registration Statement on Form S-1, as amended (File No. 33-35333),
which became effective July 19, 1990.
(2) Incorporated by reference to identically numbered exhibits to the
registrant's Registration Statement on Form S-1 (File No. 33-45990), which was
filed February 18, 1992.
(3) Incorporated by reference to identically numbered exhibits to the
registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.
(4)
| 3.1 | Restated Articles of Incorporation of the Company filed June 25, 1986. (5) |
| 3.2 | Certificate of Amendment of Articles of Incorporation of the Company filed October 6, 1988. (6) |
| 3.3 | Certificate of Amendment of Articles of Incorporation of the Company filed July 18, 1990. (7) |
| 3.4 | Certificate of Determination of the Company filed February 19, 1999. (8) |
| 3.5 | Certificate of Amendment of Articles of Incorporation of the Company filed May 29, 2003. (17) |
| 3.6 | Certificate of Amendment of Articles of Incorporation of the Company filed March 4, 2004. (21) |
| 3.8 | Bylaws of the Company (amended and restated through January 22, 2004). (20) |
| 4.1 | Specimen copy of certificate for shares of Common Stock of the Company. (1) |
| 4.2 | Preferred Shares Rights Agreement dated as of February 18, 1999. (4) |
| 4.3 | Agreement of Substitution and Amendment of Preferred Shares Rights Agreement dated September 10, 2004. (22) |
| 4.4 | First Amended and Restated Stock and Warrant Purchase Agreement between and among the Company and the investors thereto dated January 14, 2002. (13) |
| 4.5 | Form of Warrant to Purchase Shares of Common Stock dated January 14, 2002. (14) |
| 4.6 | Form of Warrant dated April 12, 2002. (15) |
| 10.1+ | Form of Indemnification Agreement between the Company and its officers and directors. (28) |
| 10. 2+ | 1990 Director Stock Option Plan, as amended, and form of Outside Director Non-statutory Stock Option Agreement. (3) |
| 10.3+ | 1992 Management Discount Stock Option and form of Non-statutory Stock Option Agreement. (2) |
| 10.4+ | 1993 Stock Option Plan, as amended October 24, 2003. (11) |
| 10.5+ | Trimble Navigation 1988 Employee Stock Purchase Plan, as amended May 19, 2004. (28) |
| 10.6+ | Employment Agreement between the Company and Steven W. Berglund dated March 17, 1999. (9) |
| 10.7+ | Trimble Navigation Limited Deferred Compensation Plan effective December 30, 2004, as amended May 19, 2005. (10) |
| 10.8+ | Australian Addendum to the Trimble Navigation 1988 Employee Stock Purchase Plan. (12) |
| 10.9+ | 2002 Stock Plan (as amended and restated January 20, 2005), including forms of option agreements. (19) |
| 10.10 | Credit Agreement dated July 28, 2005 among Trimble Navigation Limited, The Bank of Nova Scotia (Administrative Agent, Issuing Bank and Swing Line Bank), The Bank of New York and Harris Nesbitt (Co-Syndication Agents), Bank of America, N.A. and Wells Fargo Bank N.A. (Co-Documentation Agents), The Bank of Nova Scotia and BNY Capital Markets, Inc. (Joint Lead Arrangers), and The Bank of Nova Scotia (Sole Book Runner). (16) |
| 10.11+ | Employment Agreement between the Company and Rajat Bahri dated December 6, 2004. (23) |
| 10.12+ | Board of Directors Compensation Policy effective January 1, 2004. (24) |
| 10.13+ | Form of Change in Control agreement between the Company and certain Company officers. (18) |
| 10.14+ | Letter of Assignment between the Company and Alan Townsend dated November 12, 2003. (25) |
| 10.15+ | Supplemental agreement to Letter of Assignment between the Company and Alan Townsend dated January 19, 2004. (26) |
| 10.16+ | Trimble Navigation Limited 2006 Management Incentive Plan Description. (27) |
| 10.17 | Lease dated May 11, 2005 between CarrAmerica Realty Operating Partnership, L.P. and the Company. (28) |
| 21.1 | Subsidiaries of the Company. (28) |
| 23.1 | Consent of Ernst & Young LLP, independent registered public accounting firm. (28) |
| 24.1 | Power of Attorney included on signature page herein. |
| 31.1 | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (28) |
| 31.2 | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (28) |
| 32.1 | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (28) |
| 32.2 | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (28) |
| |
| + | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) thereof. |
| (1) | Incorporated by reference to exhibit number 4.1 to the Company's Registration Statement on Form S-1, as amended (File No. 33-35333), which became effective July 19, 1990. |
| (2) | Incorporated by reference exhibit number 10.46 to the Company's Registration Statement on Form S-1 (File No. 33-45990), which was filed February 25, 1992. |
| (3) | Incorporated by reference to exhibit number 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. |
| (4) | Incorporated by reference to exhibit number 1 to the Company's Registration Statement on Form 8-A, which was filed on February 18, 1999. |
| (5) | Incorporated by reference to exhibit number 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (6) | Incorporated by reference to exhibit number 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (7) | Incorporated by reference to exhibit number 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (8) | Incorporated by reference to exhibit number 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (9) | Incorporated by reference to exhibit number 10.67 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (10) | Incorporated by reference to exhibit number 10.1 to the Company's Current Report on Form 8-K filed on May 25, 2005. |
| (11) | Incorporated by reference to exhibit number 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 2003. |
| (12) | Incorporated by reference to exhibit number 10.77 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2000. |
| (13) | Incorporated by reference to exhibit number 4.1 to the Company's Current Report on Form 8-K filed on January 16, 2002. |
| (14) | Incorporated by reference to exhibit number 4.2 to the Company's Current Report on Form 8-K filed on January 16, 2002. |
| (15) | Incorporated by reference to exhibit number 4.1 to the Company’s Registration Statement on Form S-3 filed on April 19, 2002. |
| (16) | Incorporated by reference to exhibit number 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. |
| (17) | Incorporated by reference to exhibit number 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2003. |
| (18) | Incorporated by reference to exhibit number 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (19) | Incorporated by reference to exhibit number 10.2 to the Company’s Current Report on Form 8-K filed on May 24, 2005. |
| (20) | Incorporated by reference to exhibit number 3.8 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2004. |
| (21) | Incorporated by reference to exhibit number 3.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2004. |
| (22) | Incorporated by reference to exhibit number 4.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (23) | Incorporated by reference to exhibit number 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (24) | Incorporated by reference to exhibit number 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (25) | Incorporated by reference to exhibit number 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (26) | Incorporated by reference to exhibit number 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (27) | Incorporated by reference to exhibit number 10.1 to the Company’s Current Report on Form 8-K filed on January 24, 2006. |
| (28) | Filed herewith. |
EXHIBIT LIST
Exhibit No. 1 to the registrant's Registration
Statement on Form 8-A, which was filed on February 18, 1999.
(5) Incorporated by reference to identically numbered exhibits to the
registrant's Annual Report on Form 10-K for the fiscal year ended January 1,
1999.
(6) Incorporated by reference to identically numbered exhibits to the
registrant's Report on Form 8-K, which was filed on August 25, 1999.
(7) Incorporated by reference to identically numbered exhibits to the
registrant's registration statement on Form S-8 filed on June 1, 2000.
(8) Incorporated by reference to identically numbered exhibits to the
registrant's Annual Report on Form 10-K for the fiscal year ended December
Number
| 3.1 | Restated Articles of Incorporation of the Company filed June 25, 1986. (5) |
| 3.2 | Certificate of Amendment of Articles of Incorporation of the Company filed October 6, 1988. (6) |
| 3.3 | Certificate of Amendment of Articles of Incorporation of the Company filed July 18, 1990. (7) |
| 3.4 | Certificate of Determination of the Company filed February 19, 1999. (8) |
| 3.5 | Certificate of Amendment of Articles of Incorporation of the Company filed May 29,
2000.
(9) Incorporated by reference to exhibit number 4.1 to the registrant's Current
Report on Form 8-K filed on January 16, 2002.
(10) Incorporated by reference to exhibit number 4.2 to the registrant's Current
Report on Form 8-K filed on January 16, 2002.
(11) Incorporated by reference to exhibit number 4.1 to the registrant's
Registration Statement on Form S-3 filed on April 19, 2002.
(12) Incorporated by reference to exhibit number 10.82 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended June 28, 2002.
(13) Incorporated by reference to exhibit number 10.83 to the registrant's
Annual Report on Form 10-K for the year ended January 3, 2003.
(14) Incorporated by reference to exhibit number 10.2 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended July 4, 2003.
(15) Incorporated by reference to exhibit number 3.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended July 4, 2003.
(16) Filed herewith.
(b) Reports on Form 8-K.
On October 28, 2003, the Company filed a report on Form 8-K reporting the
Company's quarterly earnings for the third fiscal quarter of 2003. (17) |
| 3.6 | Certificate of Amendment of Articles of Incorporation of the Company filed March 4, 2004. (21) |
| 3.8 | Bylaws of the Company (amended and restated through January 22, 2004). (20) |
| 4.1 | Specimen copy of certificate for shares of Common Stock of the Company. (1) |
| 4.2 | Preferred Shares Rights Agreement dated as of February 18, 1999. (4) |
| 4.3 | Agreement of Substitution and Amendment of Preferred Shares Rights Agreement dated September 10, 2004. (22) |
| 4.4 | First Amended and Restated Stock and Warrant Purchase Agreement between and among the Company and the investors thereto dated January 14, 2002. (13) |
| 4.5 | Form of Warrant to Purchase Shares of Common Stock dated January 14, 2002. (14) |
| 4.6 | Form of Warrant dated April 12, 2002. (15) |
| 10.1+ | Form of Indemnification Agreement between the Company and its officers and directors. (28) |
| 10. 2+ | 1990 Director Stock Option Plan, as amended, and form of Outside Director Non-statutory Stock Option Agreement. (3) |
| 10.3+ | 1992 Management Discount Stock Option and form of Non-statutory Stock Option Agreement. (2) |
| 10.4+ | 1993 Stock Option Plan, as amended October 24, 2003. (11) |
| 10.5+ | Trimble Navigation 1988 Employee Stock Purchase Plan, as amended May 19, 2004. (28) |
| 10.6+ | Employment Agreement between the Company and Steven W. Berglund dated March 17, 1999. (9) |
| 10.7+ | Trimble Navigation Limited Deferred Compensation Plan effective December 30, 2004, as amended May 19, 2005. (10) |
| 10.8+ | Australian Addendum to the Trimble Navigation 1988 Employee Stock Purchase Plan. (12) |
| 10.9+ | 2002 Stock Plan (as amended and restated January 20, 2005), including forms of option agreements. (19) |
| 10.10 | Credit Agreement dated July 28, 2005 among Trimble Navigation Limited, The Bank of Nova Scotia (Administrative Agent, Issuing Bank and Swing Line Bank), The Bank of New York and Harris Nesbitt (Co-Syndication Agents), Bank of America, N.A. and Wells Fargo Bank N.A. (Co-Documentation Agents), The Bank of Nova Scotia and BNY Capital Markets, Inc. (Joint Lead Arrangers), and The Bank of Nova Scotia (Sole Book Runner). (16) |
| 10.11+ | Employment Agreement between the Company and Rajat Bahri dated December 6, 2004. (23) |
| 10.12+ | Board of Directors Compensation Policy effective January 1, 2004. (24) |
| 10.13+ | Form of Change in Control agreement between the Company and certain Company officers. (18) |
| 10.14+ | Letter of Assignment between the Company and Alan Townsend dated November 12, 2003. (25) |
| 10.15+ | Supplemental agreement to Letter of Assignment between the Company and Alan Townsend dated January 19, 2004. (26) |
| 10.16+ | Trimble Navigation Limited 2006 Management Incentive Plan Description. (27) |
| 10.17 | Lease dated May 11, 2005 between CarrAmerica Realty Operating Partnership, L.P. and the Company. (28) |
| 21.1 | Subsidiaries of the Company. (28) |
| 23.1 | Consent of Ernst & Young LLP, independent registered public accounting firm. (28) |
| 24.1 | Power of Attorney included on signature page herein. |
| 31.1 | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (28) |
| 31.2 | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (28) |
| 32.1 | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (28) |
| 32.2 | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (28) |
| |
| + | Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K pursuant to Item 14(c) thereof. |
| (1) | Incorporated by reference to exhibit number 4.1 to the Company's Registration Statement on Form S-1, as amended (File No. 33-35333), which became effective July 19, 1990. |
| (2) | Incorporated by reference exhibit number 10.46 to the Company's Registration Statement on Form S-1 (File No. 33-45990), which was filed February 25, 1992. |
| (3) | Incorporated by reference to exhibit number 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993. |
| (4) | Incorporated by reference to exhibit number 1 to the Company's Registration Statement on Form 8-A, which was filed on February 18, 1999. |
| (5) | Incorporated by reference to exhibit number 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (6) | Incorporated by reference to exhibit number 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (7) | Incorporated by reference to exhibit number 3.3 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (8) | Incorporated by reference to exhibit number 3.4 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (9) | Incorporated by reference to exhibit number 10.67 to the Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (10) | Incorporated by reference to exhibit number 10.1 to the Company's Current Report on Form 8-K filed on May 25, 2005. |
| (11) | Incorporated by reference to exhibit number 10.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended October 3, 2003. |
| (12) | Incorporated by reference to exhibit number 10.77 to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2000. |
| (13) | Incorporated by reference to exhibit number 4.1 to the Company's Current Report on Form 8-K filed on January 16, 2002. |
| (14) | Incorporated by reference to exhibit number 4.2 to the Company's Current Report on Form 8-K filed on January 16, 2002. |
| (15) | Incorporated by reference to exhibit number 4.1 to the Company’s Registration Statement on Form S-3 filed on April 19, 2002. |
| (16) | Incorporated by reference to exhibit number 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. |
| (17) | Incorporated by reference to exhibit number 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2003. |
| (18) | Incorporated by reference to exhibit number 10.15 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (19) | Incorporated by reference to exhibit number 10.2 to the Company’s Current Report on Form 8-K filed on May 24, 2005. |
| (20) | Incorporated by reference to exhibit number 3.8 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2004. |
| (21) | Incorporated by reference to exhibit number 3.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2004. |
| (22) | Incorporated by reference to exhibit number 4.3 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (23) | Incorporated by reference to exhibit number 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (24) | Incorporated by reference to exhibit number 10.14 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (25) | Incorporated by reference to exhibit number 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (26) | Incorporated by reference to exhibit number 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (27) | Incorporated by reference to exhibit number 10.1 to the Company’s Current Report on Form 8-K filed on January 24, 2006. |
| (28) | Filed herewith. |
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 on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
By:
By: /s/ Steven W. Berglund
-----------------------
Steven W. Berglund,
President and Chief Executive Officer
March 10, 2004
2006
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Steven W. Berglund as his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
| Signature | Capacity in which Signed Date
/s/ | |
| | |
| | |
| /s/ Steven W. Berglund | President, Chief Executive - ---------------------- Officer, Director | March 15, 2004
10, 2006 |
Steven W. Berglund
/s/ Mary Ellen Genovese | | |
| | |
| | |
| /s/ Rajat Bahri | Chief Financial Officer and Assistant
- ----------------------- | March 10, 2006 |
| Rajat Bahri | Secretary
Mary Ellen Genovese (Principal Financial Officer) March 15, 2004
/s/ | |
| | |
| | |
| /s/ Anup V. Singh | Corporate Controller
- ----------------- (Principal Accounting Officer) | March 15, 2004
10, 2006 |
Anup V. Singh
/s/ | (Principal Accounting Officer) | |
| | |
| | |
| /s/ Robert S. Cooper | Director | March 9, 2004
- --------------------
2006 |
Robert S. Cooper
/s/ | | |
| | |
| | |
| /s/ John B. Goodrich | Director | March 15, 2004
- --------------------
7, 2006 |
John B. Goodrich
/s/ | | |
| | |
| | |
| /s/ William Hart | Director | March 9, 2004
- ----------------
6, 2006 |
William Hart
/s/ | | |
| | |
| | |
| /s/ Ulf J. Johansson | Director | March 9, 2004
- --------------------
7, 2006 |
Ulf J. Johansson
/s/ | | |
| | |
| | |
| | |
| /s/ Bradford W. Parkinson | Director | March 9, 2004
- -------------------------
6, 2006 |
Bradford W. Parkinson
/s/ | | |
| | |
| | |
| /s/ Nickolas W. Vande Steeg | Director | March 9, 2004
- ---------------------------
6, 2006 |
| Nickolas W. Vande Steeg | | |
SCHEDULE II
TRIMBLE NAVIGATION LIMITED
VALUATION AND QUALIFYING ACCOUNTS
(IN
(IN THOUSANDS OF DOLLARS)
January 2, January 3, December 28,
Allowance for doubtful accounts: 2004 2003 2001
Balance at beginning of period $ 9,900 $ 8,540 $ 6,538
Acquired allowance (1) 752 - -
Bad debt expense (32) 5,443 5,077
Write-offs, net of recoveries (667) (4,083) (3,075)
---- ------ ------
Balance at end of period $ 9,953 $ 9,900 $ 8,540
-------- -------- --------
Inventory allowance:
Balance at beginning of period $ 25,150 $ 23,274 $ 19,285
Acquired allowance (2) 1,292 - -
Additions to allowance 5,762 3,901 7,242
Write-offs, net of recoveries (6,319) (2,025) (3,253)
------ ------ ------
Balance at end of period $ 25,885 $ 25,150 $ 23,274
-------- -------- --------
(1) Includes $168,000 acquired at July 7, 2003 as part of the acquisition of
Applanix and $584,000 acquired at December 9, 2003 as part of the
acquisition of MENSI.
(2) Includes $494,000 acquired at July 7, 2003 as part of the acquisition of
Applanix and $797,000 acquired at December 9, 2003 as part of the
acquisition of MENSI.
Allowance for doubtful accounts: | December 30, 2005 | December 31, 2004 | January 2, 2004 |
| Balance at beginning of period | $ 8,952 | $ 9,953 | $ 9,900 |
| Acquired allowance | 237 | 116 | 752 |
| Bad debt expense | 502 | 1,210 | (32) |
| Write-offs, net of recoveries | (3,459) | (2,327) | (667) |
| Balance at end of period | $ 5,230 | $ 8,952 | $ 9,953 |
| | | | |
Inventory allowance: | | | |
| Balance at beginning of period | $ 26,217 | $ 25,885 | $ 25,150 |
| Acquired allowance | 357 | 591 | 1,292 |
| Additions to allowance | 5,612 | 3,765 | 5,762 |
| Write-offs, net of recoveries | (8,948) | (4,024) | (6,319) |
| Balance at end of period | $ 23,238 | $ 26,217 | $ 25,885 |
| | | | |
Sales return reserve: | | | |
| Balance at beginning of period | $ 2,210 | $ 3,252 | $ 2,650 |
| Acquired allowance | 21 | 0 | 126 |
| Additions (Reductions) to allowance | (383) | (809) | 2809 |
| Write-offs, net of recoveries | (348) | (233) | (2,333) |
| Balance at end of period | $ 1,500 | $ 2,210 | $ 3,252 |
| | | | |