UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended SEPTEMBER 27, 2002.
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 name of registrant as specified in its charter)
California 94-2802192
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
645 North Mary Avenue, Sunnyvale, CA 94088
(Address of principal executive offices) (Zip Code)
Telephone Number (408) 481-8000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
As of November 1, 2002, there were 29,075,613 shares of Common Stock
(no par value) outstanding.
- --------------------------------------------------------------------------------
<page>
TRIMBLE NAVIGATION LIMITED
FORM 10-Q
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets--
September 27, 2002 and December 28, 2001 (unaudited)..... 3
Condensed Consolidated Statements of Operations--
Three and Nine Months Ended September 27, 2002
and June 29, 2001 (unaudited)............................ 4
Consolidated Statements of Cash Flows--
Nine Months Ended September 27, 2002
and September 28, 2001(unaudited)........................ 5
Notes to Condensed Consolidated Financial Statements......... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 20
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk... 40
ITEM 4. Controls and Procedures...................................... 42
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 43
ITEM 2. Changes in Securities and Use of Proceeds.................... 43
ITEM 6. Exhibits and Reports on Form 8-K............................. 43
Signatures............................................................ 45
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 27, December 28,
2002 2001 (1)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 30,352 $ 31,078
Accounts and other receivable, net 82,015 71,680
Inventories 57,368 51,810
Other current assets 7,702 6,536
--------- ----------
Total current assets 177,437 161,104
Property and equipment, net 23,015 27,542
Goodwill, net 200,220 120,052
Intangible assets, net 23,531 100,252
Deferred income taxes 433 383
Other assets 11,237 10,062
--------- ----------
Total assets $435,873 $419,395
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank and other short-term borrowings $ 40,019 $ 40,025
Current portion of long-term debt 22,317 23,443
Accounts payable 25,962 21,494
Accrued compensation and benefits 18,089 13,786
Accrued liabilities 21,660 28,822
Accrued warranty expense 7,299 6,827
Income taxes payable 7,977 7,403
--------- ---------
Total current liabilities 143,323 141,800
------- -------
Noncurrent portion of long-term debt and other
liabilities 87,532 127,097
Noncurrent portion of deferred gain 11,000 -
Deferred tax liabilities 1,842 7,347
Other noncurrent liabilities 4,853 4,662
--------- --------
Total liabilities 248,550 280,906
--------- ---------
Shareholders' equity:
Common stock, no par value; 40,000 shares
authorized; 28,681 and 26,862 shares
outstanding, respectively 223,781 191,224
Accumulated deficit (27,500) (33,819)
Accumulated other comprehensive loss (8,958) (18,916)
--------- -------
Total shareholders' equity 187,323 138,489
-------- -------
Total liabilities and shareholders' equity $435,873 $419,395
======== ========
(1) Derived from the December 28, 2001 audited consolidated
financial statements included in the Annual Report on
Form 10-K of Trimble Navigation Limited for fiscal year 2001.
See accompanying notes to Condensed Consolidated Financial Statements.
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<table>
<caption>
Three Months Ended Nine Months Ended
------------------------------------ -----------------------------------
<s> <c> <c> <c> <c>
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
--------------------------------------------------- ----------------- ------------------ ----------------- -----------------
--------------------------------------------------- ----------------- ------------------ ----------------- -----------------
(In thousands, except per share data)
Revenue $ 114,748 $ 117,437 $ 342,033 $ 368,887
Cost of sales 57,167 57,122 169,168 185,541
-------------- -------------- ------- --------
Gross margin 57,581 60,315 172,865 183,346
Operating expenses:
Research and development 15,235 15,726 45,259 47,281
Sales and marketing 21,338 25,345 65,362 81,016
General and administrative 10,812 9,727 31,484 29,098
Restructuring charges 154 363 646 2,997
Amortization of goodwill and other purchased
intangibles 1,832 7,378 6,134 22,088
--------------- --------------- --------------- --------------
Total operating expenses 49,371 58,539 148,885 182,480
-------------- -------------- --------------- --------------
Operating income 8,210 1,776 23,980 866
--------------- --------------- -------------- --------------
Nonoperating income (expense):
Interest income 116 210 336 946
Interest expense (3,654) (5,327) (11,232) (16,861)
Foreign exchange gain (loss), net (354) 813 (1,123) 549
Expense for affiliated operations, net (1,516) - (2,726) -
Other income (expense) 156 42 334 (47)
---------------- --------------- ------------- ------------
Total nonoperating income (expense) (5,252) (4,262) (14,411) (15,413)
--------------- -------------- ------------- ------------
Income (loss) before income taxes 2,958 (2,486) 9,569 (14,547)
Income tax provision 250 200 3,250 1,700
------------- ------------- --------- ------------
Net income (loss) $ 2,708 $ (2,686) $ 6,319 $ (16,247)
============ ============= ========= ============
Basic net income (loss) per share $ 0.09 $ (0.11) $ 0.22 $ (0.66)
============= ============== ============ ============
Diluted net income (loss) per share $ 0.09 $ (0.11) $ 0.22 $ (0.66)
============= ============== ============ ============
</table>
See accompanying notes to Condensed Consolidated Financial Statements.
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
---------------------
September 27, September 28,
2002 2001
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(In thousands)
Cash flow from operating activities:
Net income (loss) $6,319 $(16,247)
-------- ---------
Adjustment to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation expense 7,804 8,945
Amortization expense 6,775 22,088
Provision for bad debt 3,590 2,949
Amortization of deferred gain (1,061) (1,193)
Other 2,277 21
Add decrease (increase) in assets:
Accounts receivables, net (11,132) (1,133)
Inventories (3,873) 2,281
Deferred income taxes 731 38
Other current and noncurrent assets (2,395) 2,228
Effect of foreign currency translation
adjustment 506 (3,544)
Add increase (decrease) in liabilities:
Accounts payable 3,886 (3,405)
Accrued compensation 3,813 1,550
Deferred tax liability (860)
Other accrued liabilities (3,743) (3,185)
Deferred gain short term (7) -
Deferred gain long term 11,000 -
Income taxes payable 574 430
--------- -------
Net cash provided by operating activities 25,064 10,963
------ ------
Cash flows from investing activities:
Acquisitions, net of cash acquired 1,717 (4,886)
Acquisition of property and equipment (5,474) (6,366)
Capitalized patents, software and intangibles (48) (1,166)
--------- ---------
Net cash used in investing activities (3,805) (12,418)
--------- ---------
Cash flow from financing activities:
Issuance of common stock 19,302 9,348
(Payment)/Collections of notes receivable (590) 404
Proceeds from long-term debt and revolving
credit lines 13,000 34,062
Payments on long-term debt and revolving
credit lines (53,697) (40,832)
--------- --------
Net cash provided (used) by financing activities (21,985) 2,982
--------- -------
Net increase (decrease) in cash and cash equivalents (726) 1,527
Cash and cash equivalents-- beginning of period 31,078 40,876
-------- -------
Cash and cash equivalents-- end of period $30,352 $42,403
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $11,163 $14,916
======= =======
Income taxes, net of refunds 1,906 1,426
======== =======
In 2002, the purchase of LeveLite Technology, Inc., a non-cash financing
and investing activity, was made with common stock of the Company with a value
of approximately $5.7 million.
See accompanying notes to Condensed Consolidated Financial Statements.
NOTE 1 -- Basis of Presentation:
Basis of Presentation
The Condensed Consolidated Financial Statements of Trimble Navigation
Limited and subsidiaries, ("Trimble" or the "Company") for the three and nine
month periods ended September 27, 2002, and September 28, 2001, which are
presented in this Quarterly Report on Form 10-Q are unaudited. The balance sheet
at December 28, 2001, has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, these statements include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair statement of the
results for the interim periods presented. The Condensed Consolidated Financial
Statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in Trimble's Annual Report on Form 10-K
for the fiscal year ended December 28, 2001.
The results of operations for the three and nine month periods ended
September 27, 2002 are not necessarily indicative of the results that may be
expected for the fiscal year ending January 3, 2003.
New Accounting Standards
Trimble adopted Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets," at the
beginning of fiscal 2002. The effect of adopting SFAS 144 did not have a
material impact on the Company's financial position or results of operations.
Trimble adopted Statement of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets ("SFAS
142"), at the beginning of fiscal 2002. Application of the nonamortization
provisions of SFAS 142 significantly reduced amortization expense of purchased
intangibles and goodwill to approximately $6.1 million for the nine month period
ended September 27, 2002 from $22.1 million in the prior year. The Company
reclassified identifiable intangible assets with indefinite lives, as defined by
SFAS 142, to goodwill at the date of adoption. The Company tested goodwill for
impairment using the two-step process prescribed in SFAS 142. The first step is
a screen for potential impairment, while the second step measures the amount of
the impairment, if any. No impairment charge resulted from the impairment tests.
The effect of adopting SFAS No. 141 and 142 did not have a material impact on
the Company's financial position or results of operations.
In July 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the
financial accounting and reporting for obligations associated with an exit
activity, including restructuring, or with a disposal of long-lived assets. Exit
activities include, but are not limited to, eliminating or reducing product
lines, terminating employees and contracts and relocating plant facilities or
personnel. SFAS No. 146 specifies that a company will record a liability for a
cost associated with an exit or disposal activity only when that liability is
incurred and can be measured at fair value. Therefore, commitment to an exit
plan or a plan of disposal expresses only management's intended future actions
and, therefore, does not meet the requirement for recognizing a liability and
the related expense. SFAS No. 146 is effective prospectively for exit or
disposal activities initiated after December 31, 2002, with earlier adoption
encouraged. The Company does not anticipate that the adoption of SFAS No. 146
will have a material effect on its financial position or results of operations.
NOTE 2 -- Acquisitions:
LeveLite Technology, Inc.
On August 15, 2002, Trimble acquired LeveLite Technology, Inc., a
California corporation, for approximately $5.7 million. This strategic
acquisition complements the Company's low-end construction instrument product
line. The purchase price consisted of 437,084 shares of Trimble's common stock.
The merger agreement provides for Trimble to make earn-out payments not to
exceed $3.9 million based on future revenues derived from existing product sales
to a certain customer. Also, if Trimble receives any proceeds from a pending
litigation, a portion will be paid to the former shareholders of Levelite. The
additional payments, if earned, will result in additional goodwill.
Grid Data
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 upon the completion of certain business milestones.
In April 2002, Trimble agreed to issue 268,352 shares of Trimble's common stock
to Grid Data in settlement of all earn-out payments due under the purchase
agreement. These shares were issued in June 2002 and resulted in additional
goodwill of $4.7 million, with a final purchase price of approximately $8.2
million.
Spectra Precision Group Restructuring Activities
At the time the Company acquired the Spectra Precision Group in July 2000,
the Company formulated a restructuring plan and provided approximately $9.0
million for costs to close certain duplicative office facilities, combine
operations including redundant domestic and foreign legal entities, reduce
workforce in overlapping areas, and relocate certain employees. These estimated
costs were accrued for as part of the allocation of the purchase price. Included
in the total estimated cost was approximately $2.7 million related to the
discontinuance of overlapping product lines, which was included in reserves for
excess and obsolete inventory. As of September 27, 2002, the Company had charged
against the reserve approximately $4.5 million of non-inventory related charges,
which consisted of $1.8 million for legal and tax consulting expenses relating
to consolidation of legal entities, $1.3 million for severance expenses, $1.0
million for facilities and direct sales office closures, $0.3 million for an
underfunded pension plan, and other costs of $0.1 million, of which $1.2 million
was paid in the first nine months of 2002.
The Company revised its final estimates for costs to complete the remaining
planned activities and accordingly reduced its restructuring reserve by
approximately $1.1 million, with a corresponding adjustment to Goodwill, in the
fourth quarter of fiscal 2001. The reserve balance was approximately $0.8
million at September 27, 2002, and the Company anticipates completing the
majority of its remaining restructuring activities during the fourth fiscal
quarter of 2002. These activities consist principally of legal costs and other
expenses required to combine redundant legal entities.
The elements of the reserve at September 27, 2002, on the balance sheet
(included in accrued liabilities) are as follows:
Employee Severance Facility Closure,
and Relocation Legal and Tax
and Other Expense Total
(In thousands)
Total reserve $ 1,945 $ 4,370 $ 6,315
Amounts paid/written off (1,685) (2,788) (4,473)
Revision to estimates (260) (812) (1,072)
-------------------------------------------------
Balance as of
September 27, 2002 $ - $ 770 $ 770
=================================================
NOTE 3 -- Goodwill and Intangible Assets:
Goodwill and intangible assets consisted of the following:
September 27, December 28,
2002 2001
- ---------------------------------------------------- ---------------------------
- ---------------------------------------------------- ---------------------------
(In thousands)
Intangible assets:
Intangible assets with indefinite life:
Distribution channel $ - $ 73,363
Assembled workforce - 17,773
---------- ---------
Total intangible assets with indefinite life - 91,136
Intangible assets with definite life:
Existing technology 25,096 23,907
Trade names, trade marks, patents, and
other intellectual properties 19,475 18,394
---------- ---------
Total intangible assets with definite life 44,571 42,301
---------- ---------
Total intangible assets 44,571 $ 133,437
Less accumulated amortization (21,040) (33,185)
----------- ----------
Total net intangible assets $ 23,531 $ 100,252
========== ==========
Goodwill:
Goodwill, Spectra Precision acquisition* 179,518 116,001
Goodwill, other acquisitions* 20,702 14,710
---------- ---------
Total goodwill 200,220 130,711
Less accumulated amortization * - (10,659)
-------------- ----------
Total net goodwill $ 200,220 $ 120,052
========== ==========
--------------------------------------------------------------------------
* Goodwill as of September 27, 2002 includes assembled workforce and
distribution channel amounts, which were reclassified to goodwill in
accordance with FAS 142. Also, September 27, 2002 amounts are shown net of
accumulated depreciation from December 2001.
The Company adopted SFAS No. 142 on January 1, 2002. As a result, goodwill
is no longer amortized and intangible assets with indefinite lives were
reclassified to goodwill.
For comparative purposes, the pro forma adjusted net income per share
excluding amortization of goodwill, distribution channel, and assembled
workforce is as follows:
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ---------------------------------------------------------- ---------------- ----------------- ---------------- ---------------
- ---------------------------------------------------------- ---------------- ----------------- ---------------- ---------------
<s> <c> <c> <c> <c>
(In thousands)
Net income (loss) $ 2,708 $(2,686) $ 6,319 $(16,247)
Add back SFAS 142 adjustments:
Amortization of Goodwill $ 1,954 $ 5,863
Amortization of distribution channel 2,808 8,423
Amortization of assembled workforce 459 1,376
-------- --------- --------- --------
Adjusted net income (loss) $ 2,708 $ 2,535 $ 6,319 $ (585)
======= ======= ======= =======
Basic and diluted net income (loss) per share $ 0.09 $ (0.11) $ 0.22 $ (0.66)
Add back:
Amortization of Goodwill $ 0.08 $ 0.24
Amortization of distribution channel $ 0.11 $ 0.34
Amortization of assembled workforce $ 0.02 $ 0.06
Pro forma adjusted basic and diluted net income (loss)
per share $ 0.09 $0 .10 $ 0.22 $ (0.02)
====== ====== ====== ========
</table>
NOTE 4 -- Certain Balance Sheet Components:
Inventories consisted of the following:
September 27, December 28,
2002 2001
- -------------------------------------------- -------------------- --------------
- -------------------------------------------- -------------------- --------------
(In thousands)
Raw materials $ 20,896 $ 25,790
Work-in-process 6,337 7,177
Finished goods 30,135 18,843
------------- ------------
$ 57,368 $ 51,810
============ ============
Property and equipment consisted of the following:
September 27, December 28,
2002 2001
- ------------------------------------------ ------------------ ------------------
- ------------------------------------------ ------------------ ------------------
(In thousands)
Machinery and equipment $ 69,606 $ 66,265
Furniture and fixtures 6,506 6,367
Leasehold improvements 6,340 5,882
Buildings 2,908 3,979
Land 1,391 1,657
------------ -----------
86,751 84,150
Less accumulated depreciation (63,736) (56,608)
------------ -----------
$ 23,015 $ 27,542
============= ===========
Other current assets consisted of the following:
September 27, December 28,
2002 2001
- ----------------------------------------- ------------------- ------------------
- ----------------------------------------- ------------------- ------------------
(In thousands)
Notes receivable $ 1,193 $ 2,130
Prepaid expenses 5,669 4,150
Other 840 256
------------- --------------
$ 7,702 $ 6,536
============ =============
Other noncurrent assets consisted of the following:
September 27, December 28,
2002 2001
- ----------------------------------------- -------------------- -----------------
- ----------------------------------------- -------------------- -----------------
(In thousands
Debt issuance costs, net $ 2,888 $ 3,046
Other investments 2,835 2,737
Deposits 1,206 1,241
Other 4,308 3,038
------------ -----------
$ 11,237 $ 10,062
============ ===========
NOTE 5 -- Derivative Financial Instruments:
Forward foreign currency exchange contracts.
At September 27, 2002, Trimble had the following forward foreign currency
exchange contracts:
Amount (in
Currency Buy/Sell millions)
- -------- -------- ---------
Japanese Yen* Sell 855.0
Mexican Pesos Sell 5.0
Euro Sell 17.0
Canadian Dollars Sell 1.6
Swedish Krona Sell 10.7
British Pounds Sell 2.5
Swedish Krona Buy 180.0
New Zealand Dollar Buy 1.9
Euro Buy 4.0
British Pounds Buy 1.6
* approximately 295 million Yen was
designated to hedge firm orders to one
particular customer
In July 2002, the Company expanded its worldwide hedging program to include
intercompany transactions among the former Spectra Precision Group entities in
order to minimize the impact of changes in foreign exchange rates on earnings.
The forward foreign currency exchange contracts mature over the next twelve
months.
NOTE 6 -- Disposition of Line of Business:
Disposition of Line of Business:
On March 6, 2001, the Company sold certain product lines of its Air
Transport Systems to Honeywell Inc. for approximately $4.5 million in cash.
Under the asset purchase agreement, Honeywell International, Inc. purchased
product lines that included the HT 1000, HT 9000, HT 9100 and Trimble's TNL
8100. As part of this sale, during the third quarter of fiscal 2001, the Company
also sold other product lines and discontinued its manufacturing operations in
Austin, Texas. The Company also incurred severance costs of approximately $1.7
million which are included in restructuring charges related to the termination
of employees associated with the product lines disposed of in fiscal 2001.
At September 27, 2002, the Company has a provision of $1.3 million for
related liabilities associated with the disposition of these product lines and
the discontinuance of its manufacturing operations.
NOTE 7 -- Long-Term Debt:
Trimble's long-term debt consists of the following:
September 27, December 28,
2002 2001
- --------------------------------------------------------------------------------
(In thousands)
Credit Facilities:
Five Year Term Loan $ 37,600 $ 61,300
U.S. and Multi-Currency Revolving
Credit Facility 40,000 40,000
Subordinated note
69,136 84,000
Promissory notes 3,113
5,189
Other
19 76
------------- ------------
149,868 190,565
Less current portion 62,336 63,468
------------- ------------
Noncurrent portion $ 87,532 $ 127,097
============= ============
Credit Facilities
In July 2000, Trimble obtained $200 million of senior, secured credit
facilities (the "Credit Facilities") from a syndicate of banks to support the
acquisition of the Spectra Precision Group, the Company's ongoing working
capital requirements and to refinance certain existing debt. At September 27,
2002, Trimble has approximately $77.6 million outstanding under the Credit
Facilities, comprised of $37.6 million under a $100 million five-year term loan,
$25 million under a $50 million three-year U.S. dollar only revolving credit
facility, and $15 million under a $50 million three-year multi-currency
revolver. The Company has access to $60 million of cash under the terms of its
three-year revolver loans. The Company has annual commitment fees on the unused
portion of 0.5% if the leverage ratio (which is defined as all outstanding debt,
excluding the seller subordinated note, divided by the last twelve months
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 for any borrowings under the Credit Facilities was fixed for the
first six months at LIBOR plus 275 basis points and is thereafter tied to a
formula, based on the Company's leverage ratio. The weighted average interest
rate under the Credit Facilities was 4.2% for the month of September 2002.
The Credit Facilities are secured by all material assets of the Company,
except for assets that are subject to foreign tax considerations. Financial
covenants of the Credit Facilities include leverage, fixed charge, and minimum
net worth tests. Should the Company default on one or more covenants, the
Company will attempt to obtain either waivers or amendments to the Facilities.
There can be no assurances that the Company will be able to obtain any necessary
waivers or amendments.
Two of the Company's financial covenants, minimum fixed charge coverage and
maximum leverage ratios are sensitive to EBITDA. EBITDA is correlated to the
Company's results of operations. Due to uncertainties associated with the
downturn in the worldwide economy and other factors, future revenues by quarter
are difficult to forecast. New cost cutting measures have been put in place by
management; however, if revenues should decline at a higher rate than cost
cutting measures reduce our expenses on a quarterly basis, the Company may
violate the two above mentioned financial covenants.
Subordinated Note
In the first fiscal quarter of 2002, the Company renegotiated the terms of
its subordinated note and under the revised agreement, Spectra Physics Holdings,
Inc., a subsidiary of Thermo Electron, extended the term of the note until July
14, 2004, at the current interest rate of approximately 10.4% per year. As of
September 27, 2002 the principal amount outstanding was approximately $69.1
million. To the extent that interest and principal due on the maturity date
becomes delinquent, an additional 4% interest rate per annum will apply.
The Credit Facilities allow Trimble to repay the subordinated note at any
time (in part or in whole), provided that (a) Trimble's leverage ratio (Debt
(excluding the seller note)/EBITDA) prior to such repayment is less than 1.0x
and (b) after giving effect to such repayment Trimble would have (i) a leverage
ratio (Debt (excluding any remaining portion of the subordinated note)/EBITDA)
of less than 2.0x and (ii) cash and unused availability under the revolvers of
the Credit Facilities of at least $35 million. The note, by its terms, is
subordinated to the Credit Facilities.
Promissory Notes
The promissory notes at the end of September 27, 2002 include a $1.3
million obligation to the former owners of ZSP Geodetic Systems GmbH, a
subsidiary of Trimble, assumed by the Company when it acquired the Spectra
Precision Group which was paid subsequent to September 27, 2002.
In addition, these notes include a $1.8 million promissory note arising
from the purchase of a building for the Company's Corvallis, Oregon site. The
note is payable in monthly installments through April 2015 bearing a variable
interest rate (5.4% at September 27, 2002).
The Company's weighted average cost of debt is approximately 6.6% as of
September 27, 2002.
NOTE 8 -- Segment Information:
Trimble is a designer and distributor of positioning products and
applications enabled by Global Positioning Systems (GPS), optical, laser, and
wireless communications technology. The Company designs and markets products,
which deliver integrated information solutions, such as collecting, analyzing,
and displaying position data to its end-users. The Company offers an integrated
product line for diverse applications in its targeted markets.
In the first fiscal quarter of 2002, Trimble realigned two of its
reportable segments. The Agriculture segment has been combined with the mapping
and Geographic Information Systems (GIS) market to form Trimble Field Solutions.
Mapping and GIS was previously part of Fleet and Asset Management. The mobile
positioning market that was part of Fleet and Asset Management is now Trimble
Mobile Solutions.
To achieve distribution, marketing, production, and technology advantages
in Trimble's targeted markets, the Company currently manages itself within five
segments:
o Engineering and Construction -- Consists of products currently used by
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 Trimble 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 Company's
Mapping and GIS operation and the Company's Agriculture operation. The
Company has aggregated these business operations under a single
general manager in order to take advantage of the convergence of
wireless communications and internet applications to provide field
solutions, and to continue to leverage its research and development
activities due to the similarities of products across the segment.
o Trimble 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. The
Company 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, the Company markets its 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 Company's component products include: timing
applications for synchronizing wireless and computer systems;
in-vehicle navigation and telematics (tracking) systems; fleet
management; security systems; data collection systems; 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 of the Company. These
markets include the operations of the Military Advanced Systems
business and Tripod Data Systems.
Trimble evaluates each of these segment's performance and allocates
resources based on profit and loss from operations before income taxes, and some
corporate allocations.
The accounting policies applied by each of the segments are the same as
those used by Trimble in general.
The following table presents revenues, operating income (loss), and
identifiable assets for Trimble's five segments. The information for fiscal 2001
has been reclassified in order to conform to the new basis of presentation. The
information includes the operations of Grid Data after April 2, 2001 and
LeveLite Technology, Inc. after August 15, 2002. Operating income (loss) is net
revenue less operating expenses, excluding general corporate expenses, goodwill
amortization, restructuring charges, nonoperating income (expense), and income
taxes. The identifiable assets that Trimble's Chief Operating Decision Maker,
the CEO, views by segment are accounts receivable and inventory.
<table>
<caption>
------------------------------------------------------------------------------------
Three Months Ended
September 27, 2002
------------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ------------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
<s> <c> <c> <c> <c> <c> <c>
(In thousands)
External net revenues $78,993 $13,252 $2,244 $14,607 $ 5,652 $114,748
======= ======= ====== ======= ========= ========
Operating income (loss) before
corporate allocations 15,232 1,445 (2,836) 2,563 757 17,161
</table>
<table>
----------------------------------------------------------------------------------
<caption>
Nine Months Ended
September 27, 2002
----------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- ------------- -----------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
<s> <c> <c> <c> <c> <c> <c>
(In thousands)
External net revenues $227,294 $49,495 $6,436 $39,807 $19,001 $342,033
======== ======= ====== ======= ======= ========
Operating income (loss) before
corporate allocations 42,618 9,831 (8,742) 6,162 3,376 53,245
</table>
<table>
------------------------------------------------------------------------------------
<caption>
September 27, 2002
------------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ------------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
<s> <c> <c> <c> <c> <c> <c>
(In thousands)
Assets:
Accounts receivable (1) $72,786 $11,077 $2,723 $8,706 $4,723 $100,015
Inventory 43,205 6,829 1,897 911 3,886 56,728
</table>
<table>
------------------------------------------------------------------------------------
<caption>
Three Months Ended
September 28, 2001
------------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ------------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
<s> <c> <c> <c> <c> <c> <c>
(In thousands)
External net revenues $74,221 $18,017 $4,412 $12,602 $8,185 $117,437
======= ======= ====== ======= ====== ========
Operating income (loss) before
corporate allocations 13,256 4,120 (1,719) 2,160 377 18,194
</table>
<table>
----------------------------------------------------------------------------------
<caption>
Nine Months Ended
September 28, 2001
----------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- ------------- -----------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
<s> <c> <c> <c> <c> <c> <c>
(In thousands)
External net revenues $234,868 $53,987 $10,300 $45,379 $24,353 $368,887
======== ======= ======= ======= ======= ========
Operating income (loss) before
corporate allocations 41,048 11,249 (7,170) 7,404 (856) 51,675
</table>
<table>
----------------------------------------------------------------------------------
<caption>
December 28, 2001
----------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ----------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ------------------------------------ -------------- ------------ ------------ --------------- -------------- ----------
<s> <c> <c> <c> <c> <c> <c>
(In thousands)
Assets:
Accounts receivable (1) $ 62,471 $ 10,191 $ 4,274 $ 7,392 $ 7,249 $91,577
Inventory 36,896 4,639 1,992 2,490 5,463 51,480
</table>
- ----------------------------
(1) As presented, the accounts receivable number excludes cash received in
advance, deferred revenue and reserves, which are not allocated between
segments.
The following are reconciliations corresponding to totals in the
accompanying consolidated financial statements:
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ------------------------------------------------- --------------- ---------------- ------------- --------------
<s> <c> <c> <c> <c>
(In thousands) Operating income (loss):
Total for reportable segments $17,161 $ 18,194 $53,245 $ 51,675
Unallocated corporate expenses (8,951) (16,418) (29,265) (49,085)
------- -------- -------- --------
Operating income (loss) $ 8,210 $ 1,776 $23,980 $ 866
======= ======== ======== =======
</table>
September 27, December 28,
2002 2001
- -------------------------------------------------- --------------- -------------
- -------------------------------------------------- --------------- -------------
(In thousands)
Assets:
Accounts receivable total for reportable
divisions $100,015 $91,577
Unallocated (1) (20,800) (19,897)
-------- --------
Total $ 79,215 $71,680
======== =======
Inventory total for reportable divisions $56,728 $51,480
Common inventory (2) 640 330
------- -------
Net inventory $57,368 $51,810
======= =======
- ----------------------------
(1) Includes cash in advance, deferred revenue and reserves that are not
allocated by segment.
(2) Consists of inventory that is common between the segments. Parts can be
used by more than one segment.
The following table presents revenues by product groups.
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ------------------------------------- -------------- ---------------------------
(In thousands)
GPS products $58,556 $68,260 $177,680 $ 211,258
Laser and optical
products 53,147 43,723 153,704 146,303
Other 3,045 5,454 10,649 11,326
----------- ----------- ------------- --------------
Total revenue $114,748 $117,437 $342,033 $368,887
=========== ============ ============ ==============
NOTE 9 -- Equity:
Comprehensive Income (Loss)
The components of other comprehensive loss, net of related tax, include:
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- --------------------------------------------- ---------------- ----------------- ---------------- --------------
- --------------------------------------------- ---------------- ----------------- ---------------- --------------
<s> <c> <c> <c> <c>
(In thousands)
Cumulative foreign currency translation $(1,778) $2,388 $9,691 $(9540)
adjustments
Unrealized gain - hedges of forecasted 50 - 50 -
transactions
Net gain (loss) on interest rate swap - (42) 203 (273)
Net unrealized gain on investments - (77) 14 28
-------- ------- ------ -------
Other comprehensive loss $(1,728) $2,269 $9,958 $(9,785)
-------- ======= ====== =======
</table>
The change in cumulative foreign currency translation for the nine months
ended September 27, 2002 was primarily due to the weakening of the U.S. dollar
against the Euro and Swedish Krona.
Accumulated other comprehensive income (loss) on the consolidated balance
sheets consists of unrealized gains on available for sale investments and
foreign currency translation adjustments.
The components of accumulated other comprehensive income (loss), net of
related tax as follows:
September 27, December 28,
2002 2001
- ---------------------------------------------------- -------------- ------------
- --------------------------------------------------- -------------- ------------
(In thousands)
Cumulative foreign currency translation adjustments $(9,008) $(18,729)
Unrealized gain on hedges of forecasted transactions 50 -
Net loss on interest rate swap - (203)
Net unrealized gain on investments - 16
-------- ---------
Accumulated other comprehensive loss $(8,958) $(18,916)
======== =========
Warrants
On April 12, 2002, the Company issued to Spectra Physics Holdings USA,
Inc., a subsidiary of Thermo Electron Corporation, a warrant to purchase up to
376,233 shares of Trimble's common stock over a fixed period of time. Initially,
Spectra Physics' warrant entitles it to purchase 200,000 shares of common stock
over a five-year period at an exercise price of $15.11 per share. On a quarterly
basis beginning July 14, 2002, Spectra Physics' warrant became exercisable for
an additional 250 shares of common stock for every $1 million of principal and
interest outstanding until the note is paid off in full. These shares are
purchasable at a price equal to the average of Trimble's closing price for the
five days immediately preceding the last trading day of each quarter. On July
14, 2002 an additional 17,364 shares became exercisable at an exercise price of
$14.46 per share. On October 14, 2002 an additional 17,824 shares became
exercisable at an exercise price of $9.18. The additional shares are exercisable
over a 5-year period. Under the terms of the warrant, the total number of shares
issued will not exceed 376,233 shares. The warrant was valued at approximately
$1.3 million and is being amortized to interest expense over the remaining term
of the related subordinated note.
NOTE 10 -- Earnings Per Share:
The following data show the amounts used in computing earnings (loss) per
share and the effect on the weighted-average number of shares of dilutive
potential Common Stock.
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
<c>
(In thousands, except per share amounts)
Numerator:
Income (loss) available to common shareholders used
in basic and diluted loss per share $ 2,708 $ (2,686) $ 6,319 $(16,247)
======= ========= ======= ========
Denominator:
Weighted-average number of common shares used in
calculating basic income (loss) per share 28,819 24,889 28,372 24,707
Effect of dilutive securities:
Common stock options 384 -- 525 --
Common stock warrants 8 -- 10 --
------------ ----------- ---------- -----------
Weighted-average number of common shares and
dilutive potential common shares used in
calculating diluted income (loss) per share 29,211 24,889 28,907 24,707
======= ======= ====== =======
Basic income (loss) per share $ 0.09 $ (0.11) $ 0.22 $(0.66)
====== ======== ====== ======
Diluted income (loss) per share $ 0.09 $ (0.11) $ 0.22 $(0.66)
====== ======== ====== =======
</table>
Options and warrants were not included in the computation of earnings per
share in the three and nine months ended September 28, 2001 because the Company
reported a net loss. If Trimble had reported net income, additional 855,000 and
1,025,000 common equivalent shares related to outstanding options and warrants
would have been included in the calculation of diluted income (loss) per share
for the three and nine months ended September 28, 2001, respectively.
NOTE 11 -- Related-Party Transactions:
Related-Party Lease
The Company currently leases office space in Ohio from an association of
three individuals, two of whom are employees of one of the Company's U.S.
operating units, under a noncancelable operating lease arrangement expiring in
2011. The annual rent is $345,000 and is subject to adjustment based on the
terms of the lease. The Condensed Consolidated Statements of Operations include
expenses from this operating lease of $86,351 and $259,054 for the three and
nine month periods ended September 27, 2002 and September 28, 2001,
respectively.
Related-Party Notes Receivable
The Company has notes receivable from officers and employees of $1,213,000
as of September 27, 2002 and $955,000 as of December 28, 2001. The notes bear
interest from 4.49% to 6.62% and have an average remaining life of 2.89 years as
of September 27, 2002.
NOTE 12 -- Contingencies:
In January 2001, Philip M. Clegg instituted a lawsuit in the United States
District Court for the District of Utah, Central Division, against
Spectra-Physics Laserplane, Inc., Spectra Precision AB and Trimble Navigation
Limited. The complaint alleges claims of infringement of U.S. Patent No.
4,807,131, breach of contract and unjust enrichment. The suit seeks damages and
an accounting for moneys alleged to be owed under a license agreement, plus
interest and attorney fees.
In November 2001, Qualcomm Inc. filed a lawsuit against the Company in the
Superior Court of the State of California. The complaint alleges claims for an
unspecified amount of money damages arising out of Qualcomm's perceived lack of
assurances in early 1999 that the Company's products purchased by Qualcomm would
work properly after a scheduled week number rollover event that took place in
August, 1999. Qualcomm is the only customer to make a claim against the Company
based on the week number rollover event.
In the opinion of management, the resolutions of the foregoing lawsuits are
not expected to have a material adverse effect on the overall financial position
of the Company. However, depending on the amount and timing, an unfavorable
resolution in any one of these matters could materially affect the Company's
future operations or cash flow in a particular period.
The Company is also a party to other disputes incidental to its business.
The Company believes that the ultimate liability of the Company as a result of
such disputes, if any, would not be material to its overall financial position,
results of operations, or liquidity.
NOTE 13 -- Restructuring Charges:
Restructuring charges of $ 154,000 and $646,000 were recorded for the three
and nine month periods ended September 27, 2002 respectively, which are
primarily related to severance costs. For the nine month period ended September
28, 2001, restructuring charges of $3.0 million were recorded, which are
primarily related to severance costs. These restructuring activities impacted 40
individuals in the first nine months of fiscal 2002. In the nine months of
fiscal 2001, 160 individuals were impacted. As of September 27, 2002, all of the
restructuring charges have been paid.
NOTE 14 -- Joint Venture:
On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT, or
"Joint Venture"), a joint venture formed by Trimble and Caterpillar began
operations. The joint venture, 50 percent owned by Trimble and 50 percent owned
by Caterpillar, will develop and market, the next generation of advanced
electronic guidance and control products for earthmoving machines in the
construction, mining and waste industries. CTCT is based in Dayton, Ohio. Under
the terms of the joint venture agreement, Caterpillar contributed $11.0 million
cash and 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 the joint venture. During
the first fiscal quarter of 2002, Trimble received a special cash distribution
of $11.0 million from the joint venture.
During the third fiscal quarter of 2002, Trimble recorded approximately
$1.5 million of expenses under the heading of "Expense for affiliated
operations, net" in Non operating income (expense) related to certain
transactions between the Company and the Joint Venture. This was comprised of
approximately $1.8 million of incremental costs incurred by Trimble as a result
of purchasing products from the Joint Venture at a higher transfer price than
its original manufacturing costs, offset by approximately $0.3 million of
contract manufacturing fees charged to the Joint Venture by Trimble. Due to the
nature of the transfer price agreements between Trimble and the Joint Venture, a
related party, the impact of these agreements are classified under Non operating
income (expense).
In addition, during the third fiscal quarter of 2002, the Company recorded
lower operating expenses of approximately $1.3 million due to the transfer of
employee related expenses for research and development ($0.8 million), and
sales, marketing and administrative functions ($0.5 million) to the Joint
Venture. These employees are devoted to the Joint Venture and are primarily
engaged in developing next generation products and technology for that entity.
Trimble has adopted the equity method of accounting for its investment in
the Joint Venture. This requires the company to record 50 percent of the Joint
Venture profits or losses in a given fiscal period. During the third fiscal
quarter of 2002, the Joint Venture reported a loss of $185,000 of which
Trimble's share is $92,500. During the nine month period ended September 27,
2002, the joint venture reported a gain of $77,000 of which Trimble share is
$38,500.
The Company has elected to treat the cash distribution of $11.0 million as
a deferred gain, being amortized to the extent that losses are attributable from
the Joint Venture under the equity method described above. When the Joint
Venture is profitable on a sustainable basis, and future operating losses are
not anticipated, then Trimble will recognize as a gain, the portion of the $11.0
million which is unamortized. To the extent that it is possible that Trimble
will have any future funding obligation relating to the Joint Venture, then the
relevant amount of the $11.0 million will be deferred until such a time as the
funding obligation no longer exists. In future periods, both the Company's share
of profits (losses) under the equity method, and the amortization of its $11.0
million deferred gain will be recorded under the heading of "Expense for
affiliated operations, net" in Non operating income (expense).
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the "safe harbor" created by those sections. Actual results could
differ materially from those indicated in the forward-looking statements due to
a number of factors including, but not limited to, the risk factors discussed in
"Certain Other Risk Factors" below and elsewhere in this report as well as in
the Company's Annual Report on Form 10-K for fiscal year 2001 and other reports
and documents that the Company files from time to time with the Securities and
Exchange Commission. The Company has attempted to identify forward-looking
statements in this report by placing an asterisk (*) before paragraphs.
Discussions containing such forward-looking statements may be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below. 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 are made as of the date of this Quarterly Report on Form 10-Q, and
the Company disclaims any obligation to update these statements or to explain
the reasons why actual results may differ.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Trimble's discussion and analysis of its financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to product returns, doubtful accounts, inventories, investments,
intangible assets, income taxes, warranty obligations, restructuring costs, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the amount and timing of revenue and expenses and the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. See
the discussion of our critical accounting policies under the heading
Management's Discussion and Analysis of Financial Condition and Results of
Operations in our Form 10K for fiscal 2001.
BUSINESS DEVELOPMENTS
On August 15, 2002, Trimble acquired LeveLite Technology, Inc., a
California corporation, for approximately $5.7 million. This strategic
acquisition complements the Company's low-end construction instrument product
line. The purchase price consisted of 437,084 shares of Trimble's common stock.
The merger agreement provides for Trimble to make earn-out payments not to
exceed $3.9 million based on future revenues derived from existing product sales
to a certain customer. Also, if Trimble receives any proceeds from a pending
litigation, a portion will be paid to the former shareholders of Levelite. The
additional payments, if earned, will result in additional goodwill.
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 upon the completion of certain business milestones.
In April 2002, Trimble agreed to issue 268,352 shares of Trimble's common stock
to Grid Data in settlement of all earn-out payments due under the purchase
agreement. These shares were issued in June 2002 and resulted in additional
goodwill of $4.7 million, with a final purchase price of approximately $8.2
million.
In August 1999, Trimble and Solectron entered into a supply agreement that
provided for the exclusive manufacture by Solectron of a significant portion of
Trimble's products for the three-year period ending August 13, 2002. The
agreement was extended for a one year period expiring in August 2003. As of the
date of this report, the Company is engaged in negotiations with Solectron
regarding the nature of the manufacturing agreement going forward. The Company
does not expect to experience any disruptions in its product supply as a result
of these negotiations. During the fourth quarter of fiscal 2002, the Company
began shipping certain of its products out of Solectron's China manufacturing
facilities.
CATERPILLAR JOINT VENTURE
On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT, or
"Joint Venture"), a joint venture formed by Trimble and Caterpillar began
operations. The joint venture, 50 percent owned by Trimble and 50 percent owned
by Caterpillar, will develop and market, the next generation of advanced
electronic guidance and control products for earthmoving machines in the
construction, mining and waste industries. CTCT is based in Dayton, Ohio. Under
the terms of the joint venture agreement, Caterpillar contributed $11.0 million
cash and 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 the joint venture. During
the first fiscal quarter of 2002, Trimble received a special cash distribution
of $11.0 million from the joint venture.
During the third fiscal quarter of 2002, Trimble recorded approximately
$1.5 million of expenses under the heading of "Expense for affiliated
operations, net" in Non operating income (expense) related to certain
transactions between the Company and the Joint Venture. This was comprised of
approximately $1.8 million of incremental costs incurred by Trimble as a result
of purchasing products from the Joint Venture at a higher transfer price than
its original manufacturing costs, offset by approximately $0.3 million of
contract manufacturing fees charged to the Joint Venture by Trimble. Due to the
nature of the transfer price agreements between Trimble and the Joint Venture, a
related party, the impact of these agreements are classified under Non operating
income (expense).
In addition, during the third fiscal quarter of 2002, the Company recorded
lower operating expenses of approximately $1.3 million due to the transfer of
employee related expenses for research and development ($0.8 million), and
sales, marketing and administrative functions ($0.5 million) to the Joint
Venture. These employees are devoted to the Joint Venture and are primarily
engaged in developing next generation products and technology for that entity.
Trimble has adopted the equity method of accounting for its investment in
the Joint Venture. This requires the company to record 50 percent of the Joint
Venture profits or losses in a given fiscal period. During the third fiscal
quarter of 2002, the Joint Venture reported a loss of $185,000 of which
Trimble's share is $92,500. During the nine month period ended September 27,
2002, the joint venture reported a gain of $77,000 of which Trimble share is
$38,500.
The Company has elected to treat the cash distribution of $11.0 million as
a deferred gain, being amortized to the extent that losses are attributable from
the Joint Venture under the equity method described above. When the Joint
Venture is profitable on a sustainable basis, and future operating losses are
not anticipated, then Trimble will recognize as a gain, the portion of the $11.0
million which is unamortized. To the extent that it is possible that Trimble
will have any future funding obligation relating to the Joint Venture, then the
relevant amount of the $11.0 million will be deferred until such a time as the
funding obligation no longer exists. In future periods, both the Company's share
of profits (losses) under the equity method, and the amortization of its $11.0
million deferred gain will be recorded under the heading of "Expense for
affiliated operations, net" in Non operating income (expense).
RESULTS FROM CONTINUING OPERATIONS EXCLUDING INFREQUENT AND ACQUISITION
RELATED ADJUSTMENTS
Income (loss) from continuing operations include certain infrequent and
acquisition related charges that management believes are not reflective of
on-going operations. The following table, which does not purport to present the
results of continuing operations in accordance with generally accepted
accounting principles, reflects results of operations to exclude the effects of
such items as follows (in thousands):
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
<s> <c> <c> <c> <c>
Income (loss) before income taxes from continuing
Operations $ 2,958 $ (2,486) $ 9,569 $ (14,547)
Infrequent and acquisition-related charges:
Loss on sale of business (Other income and expense)
- - - 1,964
Amortization of goodwill and other purchased
intangibles 1,832 7,378 6,134 22,088
Gain on sale of assets (Other income and expense) (165) - (165) (270)
Restructuring charges 154 363 646 2,997
----------- ---------- ---------- -----------
Total infrequent and acquisition-related charges 1,821 7,741 6,615 26,779
---------- --------- -------- ----------
Adjusted income before income taxes from continuing
operations 4,779 5,255 16,184 12,232
Income tax provision, adjusted 250 475 3,250 1,425
----------- ---------- ---------- ----------
Adjusted net income $ 4,529 $ 4,780 $ 12,934 $ 10,807
========= ======== ======== ==========
</table>
RESULTS OF OPERATIONS
The Company's annual revenues from operations for the three and nine month
periods ended September 27, 2002 were $114.7 million and $342.0 million, as
compared with $117.4 million and $368.9 million in the corresponding periods in
fiscal 2001. The net income for the three and nine months ended September 27,
2002, was $2.7 million, or $0.09 diluted income per share and $6.3 million, or
$0.22 diluted income per share, compared to a net loss for the corresponding
periods in fiscal 2001, of $2.7 million, or $0.11 loss per share and $16.2
million or $0.66 loss per share.
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 goodwill and other purchased intangibles, as well as other items
not controlled by the business segment.
<table>
<caption>
Three Months Ended Nine Months Ended
% of % of % of % of
September 27, Total September 28, Total September 27, Total September Total
2002 Revenue 2001 Revenue 2002 Revenue 28, Revenue
2001
- ---------------------------------- -------------- --------- -------------- -------- -------------- ------- ------------ -------
<s> <c> <c> <c> <c> <c> <c> <c> <c>
(Dollars in thousands)
Engineering and Construction
Revenue $78,993 69% $74,221 63% $227,294 66% $234,868 64%
Segment Operating income
from operations 15,232 13,256 42,618 41,048
Segment Operating income
as a percentage of segment
revenue 19% 18% 19% 18%
Trimble Field Solutions
Revenue 13,252 12% 18,017 15% 49,495 14% 53,987 15%
Segment Operating income
from operations 1,445 4,120 9,831 11,249
Segment Operating income
as a percentage of segment
revenue 9% 23% 20% 21%
Trimble Mobile Solutions
Revenue 2,244 2% 4,412 4% 6,436 2% 10,300 3%
Segment Operating loss from
operations (2,836) (1,719) (8,742) (7,170)
Segment Operating loss
as a percentage of segment
revenue 126)% (39)% (136)% (70)%
Component Technologies
Revenue 14,607 13% 12,602 11% 39,807 12% 45,379 12%
Segment Operating income
from operations 2,563 2,160 6,162 7,404
Segment Operating income
as a percentage of segment
revenue 18% 17% 15% 16%
Portfolio Technologies
Revenue 5,652 4% 8,185 7% 19,001 6% 24,353 6%
Segment Operating income
(loss) from operations 757 (377) 3,376 (856)
Segment Operating income
(loss) as a percentage of
segment revenue 13% (5%) 18% (4)%
Total Revenue $114,748 100% $117,437 100% $342,033 100% $368,887 100%
Total Segment Operating
income from continuing
operations $17,161 $18,194 53,245 51,675
</table>
A reconciliation of Trimble's consolidated segment operating income to
consolidated income (loss) before income taxes from operations follows:
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ------------------------------------------------------- ----------------- ----------------- ---------------- ----------------
<s> <c> <c> <c> <c>
(In thousands)
Consolidated segment operating income from
continuing operations $ 17,161 $ 18,194 $ 53,245 $ 51,675
Unallocated corporate expense (6,965) (8,677) (22,485) (25,724)
Amortization of goodwill and other purchased
intangibles (1,832) (7,378) (6,134) (22,088)
Restructuring charges (154) (363) (646) (2,997)
Non-operating income (expense), net (5,252) (4,262) (14,411) (15,413)
----------------- ----------------- ---------------- ---------------
Income (loss) from operations before income taxes $ 2,958 $ (2,486) $ 9,569 $ (14,547)
================= ================= ================ ================
</table>
Revenue
For the three months ended September 27, 2002, total revenue decreased by
$2.7 million or 2% to $114.7 million from $117.4 million in the corresponding
period in fiscal 2001.
For the nine months ended September 27, 2002, total revenue decreased by
$26.9 million or 7% to $342.0 million from $368.9 million in the corresponding
period in fiscal 2001.
Engineering and Construction
Revenue
Products within the Engineering and Construction segment include surveying,
general construction, site preparation, excavation, road and runway
construction, interior construction and underground construction systems.
Engineering and Construction revenues increased by $4.8 million or 6% for the
three months ended September 27, 2002 as compared with the same corresponding
period in fiscal 2001. The increase was due to the following:
o Continued strong demand for our Machine Control products combined with new
Survey product introductions during the quarter.
o Inclusion of revenues from the acquisition of LeveLite on August 15, 2002
of approximately $1.3 million.
Engineering and Construction revenues decreased by $7.6 million or 3% for
the nine months ended September 27, 2002 as compared with the same corresponding
period in fiscal 2001. The decrease was due to the following:
o A shift in the distribution model from direct sales offices to dealer
dependent channels, resulted in reduced revenue for the Construction
Instruments and Machine Control product lines, due to discount offered on
sales to dealers.
o Survey equipment revenues decreased due to the general economic slowdown.
The decrease in Survey equipment and Construction Instrument revenues was
partially offset by an increase in Machine Control revenues due to strong
acceptance of the GPS site vision product line.
Operating Income
Engineering and Construction operating income increased by $1.9 million and
$1.5 million or 15% and 4% for the three and nine months ended September 27,
2002 as compared with the same corresponding periods in fiscal 2001. The
increases were due to the continued realization of cost synergies from actions
implemented in 2001 as a result of the acquisition of the Spectra Precision
Group. These actions included the integration of sales forces, rationalization
of overlapping product lines, and the elimination of redundant development, and
sales and service facilities. These cost savings helped to offset a decline in
gross margins caused by shifting product mix, as well as reduced revenue due to
the general economic slowdown.
Trimble Field Solutions
Revenue
Products within the Trimble Field Solutions segment include GPS-based
machine guidance systems, field management systems, laser-based water management
systems and solutions for a variety of applications in asset tracking. Trimble
Field Solutions revenues decreased by $4.8 million and by $4.5 million or 26%
and 8% for the three and nine months ended September 27, 2002 as compared with
the same corresponding periods in fiscal 2001. The decreases were due to the
following:
o Delays in shipping of a recently announced new product, the GeoExplorer CE
series GPS handheld for mobile mapping applications, as a result of
delivery delays of a critical component by one of our vendors.
o Lower volumes for GIS data capture products partially due to weakness in US
federal, state, and local government spending for the three and nine month
period ended September 27, 2002, compared to the corresponding period in
2001. For the nine month period ended September 27, 2002, the decrease in
US federal, state and local government revenues was partially offset by
increased Agriculture revenues compared to the corresponding period in
2001.
Operating Income
Trimble Field Solutions operating income decreased by $2.7 million and $1.4
million or 65% and 13% for the three and nine months ended September 27, 2002 as
compared with the same corresponding periods in fiscal 2001. The decreases in
operating income were primarily due to lower revenues.
Trimble Mobile Solutions
Revenue
Products within the Trimble Mobile Solutions segment combine GPS and
information technologies to provide solutions for a variety of applications in
fleet management. Trimble Mobile Solutions revenues decreased by $2.2 million
and $3.9 million or 49% and 38% for the three months and nine months ended
September 27, 2002 as compared with the corresponding periods in fiscal 2001.
The decreases in revenue were due to the following factors:
o Reduction in our Satcom Galaxy Inmarsat C business. We announced early last
year that we would exit this product line due to the wide availability and
significant cost savings of cellular products.
o Slow down in system integration projects due to reduced spending at
municipalities.
o Reduced sales of wireless products due to a transition from a sensor
provider to a full integrated service provider.
Operating Income
Trimble Mobile Solutions operating loss increased by $1.1 million and $1.6
million or 65% and 22% for the three and nine months ended September 27, 2002 as
compared with the corresponding periods in fiscal 2001. The increases in
operating loss were due to the following:
o Lower revenue base as compared to the same corresponding period of the
previous year.
o Decrease in margins due to the sell-off of existing Satcom inventory at
reduced prices.
o Significant costs incurred in the development of a service platform to
enable a range of asset management solutions including an internet
delivered cellular based solution for vehicle fleet management.
Component Technologies
Revenue
Products within the Component Technologies segment consist principally of
proprietary GPS chipsets and modules marketed to original equipment
manufacturers. Component Technologies revenues increased by $2.0 million or 16%
for the three months ended September 27, 2002 as compared with the corresponding
period in fiscal 2001. The increase is primarily due to introduction of our low
power LassenTM SQ product which was introduced in our second fiscal quarter.
Component Technologies revenues decreased by $5.6 million or 12% from $45.4
million to $39.8 million for the nine months ended September 27, 2002 as
compared with the corresponding period in fiscal 2001. The decrease in revenue
was due to the following factors:
o A reduction in sales of Embedded product lines due to the economic
slowdown, primarily in the first half of the year, and a decrease in Timing
product lines due to reduced spending in the telecommunications market.
* A slight decrease of In-vehicle navigation sales due to decrease in average
selling prices. We expect this trend to continue, as technology advances in
component technology will enable among other things, reduced costs.
Operating Income
Component Technologies operating income increased by $0.4 million or 19%
for the three months ended September 27, 2002 as compared with the corresponding
period in fiscal 2001. The increase in operating income was due primarily to
higher revenue, and partially offset by higher operating expenses.
Component Technologies operating income decreased by $1.3 million or 17%
for the nine months ended September 27, 2002 as compared with the corresponding
period in fiscal 2001. The decrease in operating income was due primarily to
lower revenue, and partially offset by reductions in operating expenses.
Portfolio Technologies
Revenue
This segment is an aggregation of various operations that each equal less
than ten percent of the Company's total operating revenue. These markets include
the operations of the Military Advanced Systems business and Tripod Data
Systems, or TDS. Portfolio Technologies revenues decreased by $2.5 million and
$5.4 million or 31% and 22% for the three and nine months ended September 27,
2002 as compared with the same corresponding periods in fiscal 2001. The
decrease in revenue was primarily due to a reduction of $1.3 million and $4.4
million for the three and nine month, respectively, in our commercial aviation
product line as a result of the sale of the air transport product line to
Honeywell in the first fiscal quarter of 2001. In addition, the economic
slowdown resulted in lower TDS revenues.
Operating Income
Portfolio Technologies operating income increased by $1.1 million or 301%,
and $4.2 million or 494% for the three and nine months ended September 27, 2002
as compared with the same corresponding periods in fiscal 2001. The increase in
operating income was primarily due to the following:
o A decrease in research and development expenses of approximately $0.7
million and $1.3 million, which was primarily due to an increase in cost
reimbursement for military research and development programs and a
reduction in temporary help and consultants.
o Disposal of the loss generating commercial aviation product line, which
accounted for approximately $1.9 million in the nine months of fiscal 2001.
International Revenues
* Sales to our unaffiliated customers in locations outside the U.S.
comprised approximately 49% and 48% of total revenues for nine months ended
September 27, 2002 and September 28, 2001, respectively. North and South America
represented 59% of total revenue, Europe 29%, and Asia 12% in the first nine
months of fiscal 2002. 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, and tariffs or other barriers. Even though the U.S. Government
announced on March 29, 1996, that it would support and maintain the GPS system,
and on May 1, 2000, stated that it has no intent to ever again use Selective
Availability (SA), a method of degrading GPS accuracy, there may be reluctance
in certain foreign markets to purchase such products given the control of GPS by
the U.S. Government. Trimble's results of operations could be adversely affected
if we were unable to continue to generate significant sales in locations outside
the U.S.
Gross Margin
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, and new product start-up costs.
Gross margin as a percentage of total revenues was 50% and 51% for the three and
nine months ended September 27, 2002 and 50% and 51% for the same corresponding
periods in fiscal 2001. The gross margin was slightly impacted by shifting
product mix; lower revenue from high margin Geographic Information Systems
products was offset by higher revenue from lower margin Component Technologies.
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 further, gross margin could be further adversely
impacted.
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:
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(In thousands)
Research and development $ 15,235 $ 15,726 $ 45,259 $ 47,281
Sales and marketing 21,338 25,345 65,362 81,016
General and administrative 10,812 9,727 31,358 29,098
Restructuring charges 154 363 646 2,997
Amortization of goodwill
and other purchased
intangibles 1,832 7,378 6,134 22,088
--------- ---------- ----------- ---------
Total $ 49,371 $ 58,539 $ 148,885 $ 182,480
========= ========= ========== =========
Research and Development
Research and development spending decreased by $0.5 million and $2.0 million
during the three and nine month periods ended September 27, 2002, and
represented 13% and 12% of revenue, compared with 13% for the three and nine
month ended September 28, 2001. The reduction of research and development
expenses was primarily due to the transfer of employee related expenses to the
CTCT joint venture of approximately $0.9 million and $1.5 million for the three
and nine months ended September 27, 2002.
* The Company believes that the development and introduction of new
products is critical to its future success and expects to continue its active
development of future products.
Sales and Marketing
Sales and marketing expense decreased by $ 4.0 million and $15.7 million
during the three and nine month periods ended September 27, 2002, and represents
13% of revenue, compared with 13% in the same corresponding periods in fiscal
2001. The decreases in 2002 were due primarily to the following factors:
o During fiscal 2001, the Company sold off many of its direct sales offices
which decreased sales and marketing expense by approximately $1.7 million
and $6.6 million for the three and the nine months ended September 27, 2002
as compared to the same periods in prior year 2001.
o Decreased in compensation and related expenses, as well as temporary help
and consulting expenses of approximately $0.9 million and $3.8 million for
the three and the nine months ended September 27, 2002.
o Decrease in travel, advertising, promotional, trade show and sales
commission expenses of approximately $1.8 million and $4.0 million for the
three and nine months ended September 27, 2002 compared with the
corresponding periods in fiscal 2001.
o Reduction in facility, equipment, office and telephone expenses of
approximately $1.5 million for the nine months ended September 27, 2002
compared to the corresponding period in fiscal 2001.
* Trimble's future growth will depend in part on the timely development and
continued viability of the markets in which we currently compete, and on our
ability to continue to identify and exploit new markets for our products.
General and Administrative
General and administrative expense increased by $1.1 million and $2.3
million during the three and the nine month periods ended September 27, 2002,
representing 9% of revenue, compared with 8% in the same corresponding periods
in fiscal 2001. The increases in 2002 was due primarily to increased provisions
for receivables due from customers in troubled South American economies and a
$1.5 million charge resulting from the write-off of receivables due from a
Japanese distributor, partially offset by reduction in compensation and
professional fees of approximately $0.6 million.
Restructuring charges
Restructuring charges of $ 154,000 and $646,000 were recorded for the three
and nine month periods ended September 27, 2002 respectively, which are
primarily related to severance costs. For the nine month period ended September
28, 2001, restructuring charges of $3.0 million were recorded, which are
primarily related to severance costs. These restructuring activities impacted 40
individuals in the first nine months of fiscal 2002. In the nine months of
fiscal 2001, 160 individuals were impacted. As of September 27, 2002, all of the
restructuring charges have been paid.
Spectra Precision Group Restructuring Activities
At the time the Company acquired the Spectra Precision Group in July 2000,
the Company formulated a restructuring plan and provided approximately $9.0
million for costs to close certain duplicative office facilities, combine
operations including redundant domestic and foreign legal entities, reduce
workforce in overlapping areas, and relocate certain employees. These estimated
costs were accrued for as part of the allocation of the purchase price. Included
in the total estimated cost was approximately $2.7 million related to the
discontinuance of overlapping product lines, which was included in our reserve
for excess and obsolete inventory. As of September 27, 2002, the Company had
charged against the reserve approximately $4.5 million of non-inventory related
charges, which consisted of $1.8 million for legal and tax consulting expenses
relating to consolidation of legal entities, $1.3 million for severance
expenses, $1.0 million for facilities and direct sales office closures, $0.3
million for an underfunded pension plan, and other costs of $0.1 million, of
which $1.2 million was paid in the first nine months of 2002.
The Company revised its final estimates for costs to complete the remaining
planned activities and accordingly reduced its restructuring reserve by
approximately $1.1 million, with a corresponding adjustment to Goodwill, in the
fourth quarter of fiscal 2001. The reserve balance was approximately $0.8
million at September 27, 2002, and the Company anticipates completing the
majority of its remaining restructuring activities during the fourth fiscal
quarter of 2002. These activities consist principally of legal costs and other
expenses required to combine redundant legal entities.
The elements of the reserve at September 27, 2002, on the balance sheet
(included in accrued liabilities) are as follows:
Employee Severance Facility Closure,
and Relocation Legal and Tax
Expense Total
(In thousands)
Total reserve $ 1,945 $ 4,370 $ 6,315
Amounts paid/written off (1,685) (2,788) (4,473)
Revision to estimates (260) (812) (1,072)
-----------------------------------------------
Balance as of September 27, 2002 $ - $ 770 $ 770
===============================================
Amortization of Goodwill, Purchased and Other Intangibles
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
- ------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
<s> <c> <c> <c> <c>
(In thousands)
Amortization of goodwill $ - $ 1,954 $ - $ 5,863
Amortization of purchased intangibles 1,832 5,424 6,134 16,225
Amortization of other intangibles 171 229 641 699
----------------- ----------------- ---------------- -----------------
Total amortization of goodwill, purchased, and other
intangibles $ 2,003 $ 7,607 $ 6,775 $ 22,787
================= ================= ================ =================
</table>
Amortization expense of goodwill, purchased and other intangibles decreased
during the three and nine month periods ended September 27, 2002 by
approximately $5.6 million and $16.0 million. Total amortization expense of
goodwill, purchased and other intangibles represented 2% of revenue in the first
nine month period of fiscal 2002, compared with 4% in the same period in 2001.
The decrease was primarily due to the adoption of SFAS 142, which does not
require the amortization of goodwill and intangible assets with indefinite
useful lives.
Nonoperating income (expense), net
The following table shows nonoperating income (expenses), net for the
periods indicated and should be read in conjunction with the narrative
descriptions of those expenses below:
<table>
<caption>
Three Months Ended Nine Months Ended
September 27, September 28, September 27, September 28,
2002 2001 2002 2001
- ------------------------------------- ---------------- --------------- ---------------- -----------------
- ------------------------------------- ---------------- --------------- ---------------- -----------------
<s> <c> <c> <c> <c>
(In thousands)
Interest income $ 116 $ 210 $ 336 $ 946
Interest expense (3,654) (5,327) (11,232) (16,861)
Foreign exchange gain (loss) (354) 813 (1,123) 549
Expense for affiliated operations, (1,516) - (2,726) -
net
Other income (expense) 156 42 334 (47)
---------------- --------------- ---------------- -----------------
Total $(5,252) $(4,262) $(14,411) $(15,413)
================ =============== ================ =================
</table>
Nonoperating expense, net increased by $1.0 million during the three months
ended September 27, 2002 as compared with same fiscal period in 2001. The
primary reasons for the increase were as follows:
o Expense for affiliated operations of $1.5 million is primarily a result of
transfer pricing effects on transactions between Trimble and the CTCT joint
venture.
o Foreign exchange loss of $0.4 million in the third fiscal quarter of 2002
compared to a $0.8 million gain in third fiscal quarter of 2001.
o The increase above was offset by lower interest expense due to reduction of
the debt balance of approximately $95 million and lower interest rates.
Nonoperating expense, net decreased by $2.7 million during the first nine
months of fiscal 2002 as compared with same fiscal period in 2001. The primary
reasons for the decrease were as follows:
o Lower interest expense due to reduction of the debt balance of
approximately $95 million accounted for $5.6 million.
o Lower interest expense was offset by expense for affiliated operations of
$2.7 million as a result of transfer pricing effects on transactions
between Trimble and the CTCT joint venture and a foreign exchange loss of
$1.1 million in the nine months ended September 27, 2002.
Income Taxes
The Company recorded provisions for income taxes of $0.25 million for the
three months ended September 27, 2002 and $3.3 million for the nine months ended
September 27, 2002. The provisions for income taxes for the comparable periods
in 2001 were $0.2 million and $1.7 million, respectively. These amounts reflect
foreign taxes on profits in foreign jurisdictions, withholding taxes and the
inability to realize the benefit of net operating losses generated in the United
States.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
LIQUIDITY AND CAPITAL RESOURCES
September 27, December 28,
As of 2002 2001
- ------------------------------------------------- ----------------- ------------
(Dollars in thousands)
Cash and cash equivalents $30,352 $31,078
As a percentage of total assets 7.0% 7.4%
Accounts receivable days sales outstanding (DSO) 52 55
Inventory days sales outstanding 92 90
September 27, September 28,
Nine Months Ended 2002 2001
- ------------------------------------------------- --------------- --------------
(Dollars in thousands)
Cash provided by operating activities $25,064 $10,963
Cash used by investing activities (3,805) (12,418)
Cash provided (used) by financing activities (21,985) 2,982
Net increase/(decrease) in cash and
cash equivalents (726) 1,527
At September 27, 2002, Trimble's cash and cash equivalents decreased by
$0.8 million from December 28, 2001. During the first nine months of fiscal
2002, the Company repaid $21.2 million of its debt outstanding under its
subordinated note and $18.5 million of its debt outstanding under its credit
facilities. This was financed by the issuance of common stock, net of issuance
costs of approximately $17.4 million, and cash generated from operating
activities of approximately $25.0 million. The Company also used approximately
$2.2 million for the purchase of certain assets, and approximately $5.5 million
for net capital expenditures. The Company also acquired $3.9 million cash
through the LeveLite acquisition.
At September 27, 2002, Trimble's debt mainly consisted of $77.6 million
outstanding under senior secured credit facilities, and a $69.1 million
subordinated note related to the acquisition of the Spectra Precision Group.
Trimble has relied primarily on cash provided by operating activities to fund
capital expenditures, and other investing activities.
In the first fiscal quarter of 2002, the Company used $21.2 million of net
proceeds from its private placement to retire accrued interest and principal
under its subordinated note with Spectra Physics Holdings USA, Inc., a
subsidiary of Thermo Electron, reducing the outstanding principal amount to
$68.7 million. On June 29, 2002, $465,000 of accrued interest was converted into
principal. In addition, the Company renegotiated the terms of the subordinated
note extending the maturity until July 14, 2004, at the current interest rate of
approximately 10.4% per year. In connection with the renegotiation, on April 12,
2002, the Company issued to Spectra Physics Holdings USA, Inc. a warrant to
purchase up to 376,233 shares of Trimble's common stock over a fixed period of
time. Initially, Spectra Physics' warrant entitles it to purchase 200,000 shares
of common stock over a five-year period at an exercise price of $15.11 per
share. On a quarterly basis beginning on July 14, 2002, Spectra Physics' warrant
became exercisable for an additional 250 shares of common stock for every $1
million of principal and interest outstanding until the note is paid off in
full. These shares are purchasable at a price equal to the average of Trimble's
closing price for the five days immediately preceding the last trading day of
each quarter. On July 14, 2002 additional 17,364 shares became exercisable at an
exercise price of $14.46 per share. On October 14, additional 17,824 shares
became exercisable at an exercise price of $9.18. The additional shares are
exercisable over a 5-year period. Under the terms of the warrant, the total
number of shares issued will not exceed 376,233 shares. The warrant was valued
at approximately $1.3 million and is being amortized to interest expense over
the remaining term of the related subordinated note.
* In the nine months of fiscal 2002, cash provided by operating activities
was $25.0 million, as compared to $11.6 million in the corresponding fiscal
period in 2001. In the first fiscal quarter of 2002, Trimble received a special
cash distribution of $11 million from the joint venture with Caterpillar.
Trimble's ability to continue to generate cash from operations will depend in
large part on revenues, the rate of collections of accounts receivable, and
continued focus on reducing operating costs and profitability. The accounts
receivable days sales outstanding slightly decreased and inventory days
outstanding slightly increased from year end.
Cash flows used in investing activities were $3.8 million in the first nine
months of 2002 as compared to $12.4 million in the corresponding fiscal period
in 2001. Cash used in investing activities in the first nine months of 2002 was
primarily related to the acquisition of an additional 25% equity interest in
Terrasat, a German corporation and the acquisition of property and equipment
partially offset by cash acquired through the LeveLite acquisition.
Cash used by financing activities was $22.0 million in the first nine
months of 2002 as compared with cash provided by financing activities of $3.0
million in the corresponding fiscal period in 2001. During the first nine months
of 2002, the Company made $21.2 million of payments against its subordinated
note and $18.5 million of payments against its credit facilities. These payments
were offset by proceeds from the issuance of common stock to employees pursuant
to Trimble's stock option plan and employee stock purchase plan of $1.9 million,
as well as issuance of common stock under a private equity placement of $17.4
million.
In July 2000, Trimble obtained $200 million of senior, secured credit
facilities (the "Credit Facilities") from a syndicate of banks to support the
acquisition of the Spectra Precision Group and the Company's ongoing working
capital requirements and to refinance certain existing debt (see Note 7 to the
Condensed Consolidated Financial Statements). At September 27, 2002, Trimble had
approximately $77.6 million outstanding under the Credit Facilities, comprised
of $37.6 million under a five-year $100 million term loan, $25 million under a
$50 million three-year U.S. dollar only revolving Credit Facility, and $15
million under a $50 million three-year multi-currency revolver.
The Credit Facilities are secured by all material assets of the Company,
except for assets subject to foreign tax considerations. Financial covenants of
the Credit Facilities, which were amended during the quarter, include leverage,
fixed charge, and minimum net worth tests. At September 27, 2002, the Company is
in compliance with debt covenants. The amounts due under the three-year revolver
loans are paid as the loans mature, and the loan commitment fees are paid on a
quarterly basis. Under the five-year term loan, the Company is due to make
payments (excluding interest) of approximately $5 million in the last quarter of
fiscal 2002, $24.0 million in fiscal 2003 and the remaining $8.6 million in
fiscal 2004.
* Management believes that its cash and cash equivalents, together with its
credit facilities and anticipated renewals, will be sufficient to meet its
anticipated operating cash needs for at least the next twelve months. At
September 27, 2002, the Company had $30.3 million of cash and cash equivalents.
At September 27, 2002, the Company had access to $60 million of cash under the
terms of its three-year revolver loans.
Trimble is currently restricted from paying dividends and is limited as to
the amount of its common stock that it can repurchase under the terms of the
Credit Facilities. We are allowed to pay dividends and repurchase shares of
common stock up to 25% of net income in the previous fiscal year.
We have obligations under noncancelable operating leases for our principal
facilities in the United States that expire at various dates through 2011.
Trimble has options to renew certain of these leases for an additional five
years. The Company also leases facilities under operating leases in the United
Kingdom, Sweden and Germany that expire in 2011. The following table represents
the remaining future minimum payments under the noncancelable operating leases.
Operating
Lease Payments
(In thousands)
Remaining fiscal 2002 $ 3,195
2003 11,916
2004 7,288
2005 6,847
2006 1,795
Thereafter 6,576
--------
Total $ 37,617
========
We also have noncancellable purchase commitments, primarily relating to
inventory in our ordinary course of business, as of September 27, 2002 of
approximately $17.8 million.
* We expect fiscal 2002 capital expenditures to be approximately $7.0
million to $8.0 million, primarily for computer equipment, software, 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.
Trimble has entered into forward foreign currency exchange contracts to
offset the effects of changes in exchange rates on some of its
foreign-denominated intercompany receivables. At September 27, 2002, Trimble had
forward foreign currency exchange contracts to sell approximately 855.0 million
Japanese Yen (of which approximately 295 million Yen was designated to hedge
firm orders to one particular customer), to sell approximately 5.0 million
Mexican Pesos, to sell approximately 17.0 million Euros, to sell approximately
1.6 million Canadian Dollars, to sell approximately 10.7 million Swedish Krona,
and to sell approximately 2.5 million British pounds, to buy approximately 1.6
million British pounds, to buy approximately 180.0 million Swedish Krona, to buy
approximately 1.9 million New Zealand dollars, to buy approximately 4.0 million
Euros at contracted rates that mature over the next twelve months. In July 2002,
the Company expanded its worldwide hedging program to include intercompany
transactions among the former Spectra Precision Group entities in order to
minimize the impact of changes in foreign exchange rates on earnings.
Recent Accounting Pronouncements
Trimble adopted Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets," at the
beginning of fiscal 2002. The effect of adopting SFAS 144 did not have a
material impact on the Company's financial position or results of operations.
Trimble adopted Statement of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets ("SFAS
142"), at the beginning of fiscal 2002. Application of the nonamortization
provisions of SFAS 142 significantly reduced amortization expense of purchased
intangibles and goodwill to approximately $6.1 million for the nine month period
ended September 27, 2002 from $22.1 million in the prior year. The Company
reclassified identifiable intangible assets with indefinite lives, as defined by
SFAS 142, to goodwill at the date of adoption. The Company tested goodwill for
impairment using the two-step process prescribed in SFAS 142. The first step is
a screen for potential impairment, while the second step measures the amount of
the impairment, if any. No impairment charge resulted from the impairment tests.
The effect of adopting SFAS No. 141 and 142 did not have a material impact on
the Company's financial position or results of operations.
In July 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the
financial accounting and reporting for obligations associated with an exit
activity, including restructuring, or with a disposal of long-lived assets. Exit
activities include, but are not limited to, eliminating or reducing product
lines, terminating employees and contracts and relocating plant facilities or
personnel. SFAS No. 146 specifies that a company will record a liability for a
cost associated with an exit or disposal activity only when that liability is
incurred and can be measured at fair value. Therefore, commitment to an exit
plan or a plan of disposal expresses only management's intended future actions
and, therefore, does not meet the requirement for recognizing a liability and
the related expense. SFAS No. 146 is effective prospectively for exit or
disposal activities initiated after December 31, 2002, with earlier adoption
encouraged. The Company does not anticipate that the adoption of SFAS No. 146
will have a material effect on its financial position or results of operations.
Certain Other Risk Factors
Our Credit Agreement Contains Stringent Financial Covenants.
Two of the financial covenants in our Credit Agreement with ABN AMRO Bank,
N.V. and certain other banks, dated as of July 14, 2000 as amended (the "Credit
Agreement"), minimum fixed charge coverage and maximum leverage ratio, are
extremely sensitive to changes in earnings before interest, taxes, depreciation
and amortization ("EBITDA"). In turn, EBITDA is highly correlated to revenues
and cost cutting. Due to uncertainties associated with the downturn in the
worldwide economy, our future revenues by quarter are more difficult to forecast
and we have recently put in place various cost cutting measures, including the
consolidation of service functions and centers, closure of redundant offices,
consolidation of redundant product lines and reductions in staff. If revenues
should decline at a faster pace than the rate of these cost cutting measures, on
a quarter to quarter basis we may not be in compliance with the two above
mentioned financial covenants. If we default on one or more covenants, we will
have to obtain either negotiated waivers or amendments to the Credit Agreement.
If we are 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 material adverse effect on our financial condition
and viability as an operating company. In addition, a default under one of our
debt instruments may also trigger cross-defaults under our other debt
instruments. An event of default under any debt instrument, if not cured or
waived, could have a material adverse effect on us.
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 changes in market demand, competitive market conditions, market
acceptance of new or existing 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
sale of licensing rights, 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 Operating Results in Each Quarter May Not Accurately Reflect Business
Activity in Each Quarter.
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 constant. Engineering and construction
purchases tend to occur in early spring, and governmental agencies tend to
utilize funds available at the end of the government'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 earn 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 were to be 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.
Our Inability to Accurately Predict Orders and Shipments May Affect Our Revenue,
Expenses and Earnings per Share.
Because we have been unable in the past to consistently predict exactly
when our customers will place orders and request shipments, we cannot accurately
plan our manufacturing requirements. As a result, if the orders and shipments
differ from what we predict, we may incur additional expenses and build unneeded
inventory, which may require additional reserves. Any significant change in our
customers' purchasing patterns could have a material adverse effect on our
operating results and reported earnings per share for a particular quarter.
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, since our Engineering and Construction and
Geographic Information Systems (GIS) products generally have higher gross
margins than our Component Technologies products, absent other factors, a shift
in sales toward Engineering and Construction and GIS products would lead to a
gross margin improvement. On the other hand, if market conditions in the highly
competitive Engineering and Construction and GIS market segments forced us to
lower unit prices, we would suffer a decline in gross margin unless we were able
to timely offset the price reduction by a reduction in production costs or by
sales of other products with higher gross margins. A decline in gross margin
could have a material effect on our operating results.
We Are Dependent on a Sole Manufacturer for Many of Our Products and on Sole
Suppliers of Critical Parts for Our Products.
With the selection of Solectron Corporation in August 1999 as an exclusive
manufacturing partner for many of our GPS products previously manufactured out
of our Sunnyvale facilities, we are substantially dependent upon a sole supplier
for the manufacture of many of our products. Under the agreement with Solectron,
we provide to Solectron a twelve-month product forecast and place purchase
orders with Solectron sixty calendar days in advance of the scheduled delivery
of products to our customers. Although purchase orders placed with Solectron are
cancelable, the terms of the agreement would require us to purchase from
Solectron all material 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' delivery requirements or we may accumulate excess inventories, if
such inventories are not usable by other Solectron customers.
In addition, we rely on sole suppliers for a number of our critical ASICS.
We have experienced shortages of supplies, including ASICS, in the past. As an
example, we were affected by industry-wide shortages of memory devices and
electronic components that reached their most severe impact in the third
calendar quarter of 2000. Our current reliance on sole 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, which could have a material
adverse effect on our business.
Our Substantial Indebtedness Could Materially Restrict Our Operations and
Adversely Affect Our Financial Condition.
We now have, and for the foreseeable future will 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.
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 domestic and
international 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. There can be
no assurance that we will be able to implement this strategy successfully, or
that any such products will 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. There can be no assurance that we will be able to compete
successfully against current or future competitors or that competitive pressures
cause us to lose market share or force us to engage in price reductions that
could have a material adverse effect on our business.
We May Encounter Problems Associated With International Operations and Sales.
Our customers are located throughout the world. Sales to unaffiliated
customers in foreign locations represented approximately 49% of our revenues in
our first nine months of fiscal 2002 and 48% in the corresponding fiscal period
for 2001. In addition, we have significant international operations, including
manufacturing facilities, sales personnel and customer support operations. Our
international sales operations include offices in Australia, Canada, China,
France, Germany, Great Britain, Japan, Mexico, New Zealand, Sweden, Russia,
Singapore and others. Our international manufacturing facilities are in Sweden
and Germany, and we have a regional fulfillment center in the Netherlands. Our
international presence exposes us to risks not faced by wholly-domestic
companies. Specifically, we have experienced issues relating to integration of
foreign operations, greater difficulty in accounts receivable collection, longer
payment cycles and currency fluctuations. Additionally, we face the following
risks, among others: unexpected changes in regulatory requirements; tariffs and
other trade barriers; political, legal and economic instability in foreign
markets, particularly in those markets in which we maintain manufacturing and
research facilities; difficulties in staffing and management; language and
cultural barriers; seasonal reductions in business activities in the summer
months in Europe and some other countries; and potentially adverse tax
consequences. Although we implemented a program to attempt to manage foreign
exchange risks through hedging and other strategies, there can be no assurance
that this program will be successful and that currency exchange rate
fluctuations will not have a material adverse effect on our results of
operations. In addition, in certain foreign markets, there may be reluctance to
purchase products based on GPS technology, given the control of GPS by the U.S.
Government.
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. There can be no assurance
that the patents owned or licensed by us will not be invalidated, circumvented,
challenged, or that the rights granted thereunder will provide competitive
advantages to us or that any of our pending or future patent applications will
be issued within the scope of the claims sought by us, if at all. We are
currently defending a lawsuit for alleged patent infringement by some of our
grade control systems, which products accounted for approximately two percent
(2%) of our revenues in our fiscal year 2001. In the event that in this suit our
products are held to be infringing a valid patent, we could be prevented from
continuing to sell these products and could be required to pay substantial
damages, or, alternatively, enter into a royalty-bearing license agreement.
There can be no assurance that others will not 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 foreign countries. There can be no assurance that the steps taken by us
to protect our technology will 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.
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. However, there can be no assurance that development stage products
will be successfully completed or, if developed, will 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 there can be no
assurance that we will 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. No assurance can be given that we will not incur problems in the
future in innovating and introducing new products.
Our Stock Price May Be Volatile.
Our common stock has experienced and can be expected to experience
substantial price volatility in response to actual or anticipated quarterly
variations in results of operations, announcements of technological innovations
or new products by us or our competitors, developments related to patents or
other intellectual property rights, developments in our relationship with
customers, suppliers, or strategic partners and other events or factors. In
addition, any shortfall or changes in revenue, gross margins, earnings, or other
financial results from analysts' expectations could cause the price of our
common stock to fluctuate significantly. Additionally, certain macro-economic
factors such as changes in interest rates as well as market climate for the
high-technology sector could also have an impact on the trading price of our
stock.
We Face Risks of Entering Into and Maintaining Alliances.
We believe that in certain emerging markets our success will depend on our
ability to form and maintain alliances with established system providers and
industry leaders. Our failure to form and maintain such alliances, or the
preemption 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 Risks in Investing in and Integrating New Acquisitions.
We are continuously evaluating external investments in technologies related
to our business, and have made relatively small strategic equity investments in
a number of GPS related technology companies. Acquisitions of companies,
divisions of companies, or products entail numerous risks, including (i) the
potential inability to successfully integrate acquired operations and products
or to realize cost savings or other anticipated benefits from integration; (ii)
diversion of management's attention; (iii) loss of key employees of acquired
operations; and (iv) 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. 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 Are Dependent on Key Customers.
We currently enjoy strong relationships with key customers. An increasing
amount of our revenue is generated from large original equipment manufacturers
such as Siemens VDO Automotive, Nortel, Caterpillar, CNH Global, Bosch, and
others. 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 no assurance that we will be able to continue to realize value from
these relationships in the future.
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 location 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 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,
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 kinematic
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 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 U.S. Government's Global Positioning System
(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-three years by the World Radiocommunication
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 kinematic 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 inband 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 real-time kinematic products, such as our Land Survey 5700,
that use integrated radio communication technology that requires access to
available radio frequencies allocated by the FCC. 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. An inability to obtain access to these radio frequencies could have
an adverse effect on our operating results.
We Are Reliant on the GPS Satellite Network.
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
place 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 would 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 U.S.
Government will remain committed to the operation and maintenance of GPS
satellites over a long period, or that the policies of the U.S. 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 U.S. 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. 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 Must Carefully Manage Our Future Growth.
Any continued growth in our sales or any 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. Specifically we
have experienced strain in our financial and order management system, as a
result of our acquisitions. While we plan to expand our sales, accounting,
manufacturing, and other information systems to meet these challenges, there can
be no assurance that these efforts will succeed, or that any existing or new
systems over time, procedures or controls will be adequate to support our
operations or that our systems, procedures and controls will 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.
Provisions in Our Preferred Share Rights Agreement May Have Anti-Takeover
Effects.
Our preferred share rights agreement gives our board of directors and
shareholders the ability to dilute the ownership of any person acquiring fifteen
percent (15%) or more of our common stock, thereby potentially making any such
acquisition impractical for an acquirer. The existence of this preferred share
rights agreement could delay, defer or prevent a change of control of us in a
transaction not approved by our board of directors.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
We are exposed to market risk related to changes in interest rates and
foreign currency exchange rates. Trimble sometimes uses certain derivative
financial instruments to manage these risks. Trimble does not use derivative
financial instruments for speculative or trading purposes. All financial
instruments are used in accordance with polices approved by Trimble's board of
directors.
Market Interest Rate Risk
The Company is exposed to market risk due to the possibility of changing
interest rates under its senior secured credit facilities. The Company's credit
facilities are comprised of a three-year US dollar-only revolver, a three-year
Multi-Currency revolver, and a five-year term loan. Borrowings under the credit
facility have interest payments based on a floating rate of LIBOR plus a number
of basis points tied to a formula based on the Company's leverage ratio. As of
September 27, 2002, our leverage ratio (total indebtedness, not including
subordinated debt to EBITDA on a rolling four quarter basis) was approximately
1.78. At this leverage ratio our pricing will be LIBOR plus 175 basis points.
The U.S. dollar and the Multi-Currency revolvers run through July 2003 and have
outstanding principal balances at September 27, 2002 of $25 million and $15
million, respectively. As of September 27, 2002 the Company has borrowed from
the Multi-Currency revolver in U.S. currency only. The term loan runs through
June 2004 and has an outstanding principal balance of $37.6 million at September
27, 2002. The three-month LIBOR effective rate at September 27, 2002 was
1.79063% as a result our borrowing rate at September 27, 2002 was 3.54063%. A
hypothetical ten percent increase in three-month LIBOR rates could result in
approximately $139,000 annual increase in interest expense on the existing
principal balances.
In addition, the Company has a $1.8 million promissory note, of which
$12,000 was classified as a current liability at September 27, 2002. The note is
payable in monthly installments, bearing a variable interest rate of 5.4% as of
September 27, 2002. A hypothetical ten percent increase in interest rates would
not have a material impact on the results of operations of the Company.
* 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 Trimble's 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.
Foreign Currency Exchange Rate Risk
Trimble transacts business 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 intercompany
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. These hedge instruments are marked to market through earnings every
period. 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. We
record changes in the fair value of cash flow hedges in accumulated other
comprehensive income (loss), until the firm backlog transaction ships. Upon
shipment, we reclassify the gain or loss on the cash flow hedge to the statement
of operations. For fiscal quarter ended September 27, 2002, Trimble recorded a
$50,000 gain reflected the net change and ending balance in relating 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 twelve
months.
The counterparties in these contracts expose us to credit-related losses in
the event of their nonperformance. To mitigate this risk Trimble uses high
quality counterparties and per our hedging policy establishes maximum limits
and/or percentages for each counterparty. The Company's practice is to settle
the underlying intercompany transactions on a timely basis to reduce our
exposure to fluctuations in exchange rates.
* Trimble does not anticipate any material adverse effect on its
consolidated financial position utilizing our current hedging strategy.
The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of September 27, 2002:
Foreign Currency Contract Value Fair Value in
Amount USD USD
Currency Buy/Sell (in thousands) (in thousands) (in thousands)
- ---------------- ----------- ------------------ ---------------- ---------------
Yen Sell 855,000 $7,033 $6,995
- ----------------
Euro Sell 17,000 $16,658 $16,604
- ----------------
Euro Buy 4,000 $3,936 $3,917
- ----------------
Krona Sell 10,717 $1,154 $1,154
- ----------------
Krona Buy 180,000 $19,305 $19,257
- ----------------
Sterling Sell 2,500 $3,865 $3,924
- ----------------
Sterling Buy 1,650 $2,580 $2,590
- ----------------
Pesos Sell 5,000 $469 $473
- ----------------
NZD Buy 1,850 $873 $860
- ----------------
CAD Sell 1,630 $1,033 $1,026
- ----------------
The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of September 28, 2001:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
- --------------------------------------------------------------------------------
Yen Sell 858,000 $7,259 $7,294
Euro Sell 5,175 $4,504 $4,749
Sterling Buy 1,011 $1,462 $1,485
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, have conducted an evaluation of the effectiveness of
disclosure controls and procedures as defined in the Exchange Act Rule 13a-14 as
of a date within 90 days of the filing date of this quarterly report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the disclosure controls and procedures are effective in alerting
them on a timely basis to material information relating to the Company
(including its consolidated subsidiaries) required to be included in the
Company's reports filed under the Exchange Act.
There have been no significant changes in internal controls, or in factors
that could significantly affect internal controls, subsequent to the date the
Chief Executive Officer and Chief Financial Officer completed their evaluation.
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In January 2001, Philip M. Clegg instituted a lawsuit in the United States
District Court for the District of Utah, Central Division, against
Spectra-Physics Laserplane, Inc., Spectra Precision AB and Trimble Navigation
Limited. The complaint alleges claims of infringement of U.S. Patent No.
4,807,131, breach of contract and unjust enrichment. The suit seeks damages and
an accounting for moneys alleged to be owed under a license agreement, plus
interest and attorney fees.
In August 2001, Lockheed Martin Corporation served a complaint alleging
patent infringement of U.S. Patent No. 4,949,089 on the Company, Spectra
Precision, Inc., Leica Geosystems, Inc., Sokkia Corporation and Carl Zeiss, Inc.
The lawsuit was filed in the United States District Court for the Eastern
District of Texas, Marshall Division. In July 2002, the Company entered into a
settlement agreement with Lockheed Martin and the court action was dismissed.
The settlement did not have a material adverse effect on the financial results
of the Company.
In November 2001, Qualcomm Inc. filed a lawsuit against the Company in the
Superior Court of the State of California. The complaint alleges claims for an
unspecified amount of money damages arising out of Qualcomm's perceived lack of
assurances in early 1999 that the Company's products purchased by Qualcomm would
work properly after a scheduled week number rollover event that took place in
August, 1999. Qualcomm is the only customer to make a claim against the Company
based on the week number rollover event.
In the opinion of management, the resolutions of the foregoing lawsuits are
not expected to have a material adverse effect on the overall financial position
of the Company. However, depending on the amount and timing, an unfavorable
resolution in any one of these matters could materially affect the Company's
future operations or cash flow in a particular period.
The Company is also a party to other disputes incidental to its business.
The Company believes that the ultimate liability of the Company as a result of
such disputes, if any, would not be material to its overall financial position,
results of operations, or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On August 15, 2002, the Company issued 437,084 shares of its Common Stock
(valued at approximately $5.7 million) to the shareholders of LeveLite
Technology, Inc. in exchange for all of the outstanding capital stock of
LeveLite. (See "Business Developments" on page 20 for a description of the
transaction.) Upon a hearing before the California Department of Corporations in
which the terms and conditions of the offer were approved, the shares of Common
Stock 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Restated Articles of Incorporation of Trimble Navigation Limited,
filed June 25, 1986. (1)
3.2 Certificate of Amendment of Articles of Incorporation of Trimble
Navigation Limited, filed October 6, 1988. (1)
3.3 Certificate of Amendment of Articles of Incorporation of Trimble
Navigation Limited, filed July 18, 1990. (1)
3.4 Certificate of Determination of Trimble Navigation Limited, filed
February 19, 1999. (1)
3.8 Amended and Restated Bylaws of Trimble Navigation Limited.
10.1 Amendment No. 4 to Credit Agreement, dated September 10, 2002. (2)
99.1 Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
-------------------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits" of the registrant's Annual Report
on Form 10-K for the fiscal year ended January 1, 1999, as filed with
the SEC on March 29, 1999.
(2) Incorporated by reference to Exhibit number 99.2 to the registrant's
Current Report on Form 8-K, which was filed on September 18, 2002.
(b) Reports on Form 8-K
On July 24, 2002, the Company filed a report on Form 8-K reporting the
financial results for the quarter ended June 28, 2002.
On September 18, 2002, the Company filed a report on Form 8-K
reporting updated financial guidance for the quarter ending September
27, 2002 and the amendment of its Credit Agreement.
On October 24, 2002, the Company filed a report on Form 8-K reporting
the financial results for the quarter ended September 27, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
(Registrant)
By: /s/ Mary Ellen Genovese
----------------------------------------------------------
Mary Ellen Genovese
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
DATE: November 7, 2002
Certification of CEO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Steven W. Berglund, the Chief Executive Officer of Trimble Navigation
Limited, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trimble Navigation
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the date of the
filing of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report, our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 7, 2002 /s/ Steven W. Berglund
----------------------
Steven W. Berglund
Chief Executive Officer
Certification of CFO Pursuant to
Securities Exchange Act Rules 13a-14 and 15d-14
as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Mary Ellen Genovese, the Chief Financial Officer of Trimble Navigation
Limited, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Trimble Navigation
Limited;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which the quarterly report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the date of the
filing of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report, our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and to the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: November 7, 2002 /s/ Mary Ellen Genovese
------------------------
Mary Ellen Genovese
Chief Financial Officer
EXHIBIT INDEX
Exhibit
No. Description
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation of Trimble Navigation Limited,
filed June 25, 1986. (1)
3.2 Certificate of Amendment of Articles of Incorporation of Trimble
Navigation Limited, filed October 6, 1988. (1)
3.3 Certificate of Amendment of Articles of Incorporation of Trimble
Navigation Limited, filed July 18, 1990. (1)
3.4 Certificate of Determination of Trimble Navigation Limited, filed
February 19, 1999. (1)
3.8 Amended and Restated Bylaws of Trimble Navigation Limited.
10.1 Amendment No. 4 to Credit Agreement, dated September 10, 2002. (2)
99.1 Certification of CEO and CFO Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
- --------------------------------------------------------------------------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits" of the registrant's Annual Report
on Form 10-K for the fiscal year ended January 1, 1999, as filed with
the SEC on March 29, 1999.
(2) Incorporated by reference to Exhibit number 99.2 to the registrant's
Current Report on Form 8-K, which was filed on September 18, 2002.