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 APRIL 2, 2004
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)
749 North Mary Avenue, Sunnyvale, CA 94085
------------------------------------------
(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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined under in Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ ]
As of May 5, 2004, there were 50,657,604 shares of Common Stock (no par value)
outstanding.
<page>
TRIMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter ended April 2, 2004
INDEX
PART I. Financial Information Page
ITEM 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets
April 2, 2004 and January 2, 2004 .................... 3
Condensed Consolidated Statements of Operations
Three Months Ended April 2, 2004 and April 4,2003........ 4
Condensed Consolidated Statements of Cash Flows
Three Months Ended April 2, 2004 and April 4, 2003....... 5
Notes to Condensed Consolidated Financial Statements......... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 15
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk... 27
ITEM 4. Controls and Procedures...................................... 28
PART II. Other Information
ITEM 1. Legal Proceedings............................................ 29
ITEM 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities............................... 29
ITEM 6. Exhibits and Reports on Form 8-K............................. 29
Signatures............................................................ 31
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<table>
<caption>
April 2, January 2,
(in thousands) 2004 2004 (1)
- -------------- ---- --------
ASSETS
<s> <c> <c>
Current assets:
Cash and cash equivalents $ 40,201 $ 45,416
Accounts and other receivables, net 124,051 103,350
Inventories, net 64,910 70,826
Deferred income taxes 4,380 4,380
Other current assets 7,887 8,885
----- -----
Total current assets 241,429 232,857
Property and equipment, net 26,758 27,379
Goodwill and other intangible assets, net 267,208 261,166
Deferred income taxes 4,185 4,173
Other assets 20,546 19,328
------ ------
Total non-current assets 318,697 312,046
------- -------
Total assets $ 560,126 $ 544,903
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 12,795 $ 12,885
Accounts payable 36,208 26,019
Accrued compensation and benefits 23,749 25,950
Accrued liabilities 10,584 15,599
Accrued warranty expense 5,627 5,147
Deferred income taxes -- 1,136
Income taxes payable 11,891 9,969
------ -----
Total current liabilities 100,854 96,705
Non-current portion of long-term debt 71,850 77,601
Deferred gain on joint venture 9,694 9,845
Deferred income tax 5,112 4,229
Other non-current liabilities 10,581 8,279
------ -----
Total liabilities 198,091 196,659
------- -------
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock no par value; 3,000 shares authorized;
none outstanding -- --
Common stock, no par value; 90,000 shares authorized;
50,600 and 49,988 shares issued and outstanding, respectively 307,512 303,015
Retained earnings 27,829 14,990
Accumulated other comprehensive income 26,694 30,239
------ ------
Total shareholders' equity 362,035 348,244
------- -------
Total liabilities and shareholders' equity $ 560,126 $ 544,903
=========== ===========
</table>
(1) Derived from the January 2, 2004 audited Consolidated Financial Statements
included in the Annual Report on Form 10-K of Trimble Navigation Limited
for fiscal year 2003.
See accompanying Notes to the Condensed Consolidated Financial Statements.
<page>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<table>
<caption>
Three Months Ended
------------------
April 2, April 4,
2004 2003
---- ----
(in thousands, except per share amounts)
<s> <c> <c>
Revenue (1) $ 156,510 $ 127,325
Cost of revenue 80,750 65,570
------ ------
Gross margin 75,760 61,755
Operating expenses
Research and development 18,848 16,040
Sales and marketing 26,304 23,997
General and administrative 10,386 8,635
Restructuring charges -- 390
Amortization of purchased intangible assets 1,984 1,795
------ ------
Total operating expenses 57,522 50,857
------ ------
Operating income 18,238 10,898
Non-operating income (expense), net
Interest income 98 105
Interest expense (1,076) (3,480)
Foreign currency transaction gain (loss), net (636) 92
Expenses for affiliated operations, net (1,599) (1,215)
Other income (expense), net 80 (47)
------ ------
Total non-operating expense, net (3,133) (4,545)
------- -------
Income before taxes 15,105 6,353
Income tax provision 2,265 1,000
------ ------
Net income $ 12,840 $ 5,353
=========== ============
Basic earnings per share $ 0.25 $ 0.12
Shares used in calculating basic earnings per share 50,418 44,040
Diluted earnings per share $ 0.24 $ 0.12
Shares used in calculating diluted earnings per share 54,215 45,138
</table>
(1) Includes sales to related parties of $0.8 million for fiscal quarter ended
April 2, 2004 and no such sales for the fiscal quarter ended April 4, 2003.
See accompanying Notes to the Condensed Consolidated Financial Statements.
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<table>
<caption>
Three Months Ended
------------------
April 2, April 4,
2004 2003
---- ----
(In thousands)
<s> <c> <c>
Cash flow from operating activities:
Net income $ 12,840 $ 5,353
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 2,191 2,217
Amortization expense 2,035 1,977
Provision for doubtful accounts 390 449
Amortization of debt issuance cost 122 513
Deferred income taxes (93) 461
Other (113) 272
Decrease (increase) in assets and liabilities:
Accounts receivable (17,096) (15,114)
Inventories 6,561 (3,370)
Other current and non-current assets (760) (1,359)
Effect of foreign currency translation adjustment (403) 1,582
Accounts payable 5,600 (158)
Accrued compensation and benefits (1,675) 133
Deferred gain on joint venture (151) (221)
Accrued liabilities (1,588) 29
Income taxes payable 825 685
----- -----
Net cash provided by (used in) operating activities 8,685 (6,551)
----- -------
Cash flow from investing activities:
Acquisition of property and equipment (2,544) (1,485)
Proceeds from sale of assets 47 56
Cost of acquisitions, net of cash acquired (9,179) --
Costs of capitalized patents (26) (4)
---- ---
Net cash used in investing activities (11,702) (1,433)
-------- -------
Cash flow from financing activities:
Issuance of common stock and warrants 4,211 540
(Payment) collection of notes receivable 53 (188)
Proceeds from long-term debt and revolving credit lines 9,000 12,232
Payments on long-term debt and revolving credit lines (14,823) (20,176)
-------- --------
Net cash used in financing activities (1,559) (7,592)
------- -------
Effect of exchange rate changes on cash and cash equivalents (639) 426
Net decrease in cash and cash equivalents (5,215) (15,150)
Cash and cash equivalents, beginning of period 45,416 28,679
------ ------
Cash and cash equivalents, end of period $ 40,201 $ 13,529
========== ==========
</table>
See accompanying Notes to the Condensed Consolidated Financial Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE 1. OVERVIEW AND BASIS OF PRESENTATION
Trimble Navigation Limited ("we," "Trimble" or the "company"), incorporated in
California in 1981, provides positioning product solutions to commercial and
government users in a large number of markets. These markets include surveying,
construction, agriculture, urban and resource management, military,
transportation and telecommunications.
Trimble has a 52-53 week fiscal year, ending on the Friday nearest to December
31, which for fiscal 2003 was January 2, 2004. The first fiscal quarters of 2004
and 2003 ended on April 2, 2004 and April 4, 2003, respectively. Fiscal 2004 and
2003 are 52-week years. Unless otherwise stated, all dates refer to its fiscal
year and fiscal periods.
Trimble has prepared the accompanying financial data for the three months ended
April 2, 2004 and April 4, 2003 pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with accounting
principles generally accepted in the U.S. have been condensed or omitted
pursuant to such rules and regulations. The following discussion should be read
in conjunction with Trimble's 2003 Annual Report on Form 10-K.
In the opinion of management, the accompanying condensed consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly its condensed consolidated financial position as of April 2, 2004 and
January 2, 2004, and condensed consolidated results of operations and cash flow
activities for the three months ended April 2, 2004 and April 4, 2003.
The preparation of financial statements in accordance with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions that affect the amounts reported in its condensed consolidated
financial statements and accompanying notes. Management bases its estimates on
historical experience and various other assumptions believed to be reasonable.
Although these estimates are based on management's best knowledge of current
events and actions that may impact the company in the future, actual results may
be different from the estimates. Trimble's critical accounting policies are
those that affect its financial statements materially and involve difficult,
subjective or complex judgments by management.
NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," was issued in January 2003, and a
revised interpretation of FIN 46 (FIN 46-R) was issued in December 2003. FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The adoption of this
Statement did not have an effect on Trimble's financial statements.
NOTE 3. STOCK-BASED COMPENSATION
In accordance with the provisions of Statement of Financial Accounting Standards
No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" and "Statement
of Financial Accounting Standards No. 148" ("SFAS 148"), "Accounting for
Stock-Based Compensation - Transition and Disclosure," Trimble applies
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations in accounting for its stock
option plans and stock purchase plan. Accordingly, the Company does not
recognize compensation cost for stock options granted at fair market value.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period, and the estimated fair
value of purchases under the employee stock purchase plan is expensed in the
year of purchase as well as the stock-based employee compensation cost, net of
related tax effects, that would have been included in the determination of net
income if the fair value based method had been applied to all awards. The
effects on pro forma disclosure of applying SFAS No. 123 are not likely to be
representative of the effects on pro forma disclosure of future years.
Pro forma information regarding net income and earnings per share is required by
SFAS No. 123 and has been determined as if Trimble had accounted for its
employee stock options and purchases under the employee stock purchase plan
using the fair value method of SFAS No.123. The fair value of options granted
<page>
during the quarter was estimated at the date of grant using a Black-Scholes
option-pricing model with the following weighted-average assumptions at April 2,
2004 and April 4, 2003:
April 2, April 4,
2004 2003
---- ----
Expected dividend yield -- --
Expected stock price volatility 52.14% 61.27%
Risk free interest rate 2.83% 3.13%
Expected life of options after vesting 1.58 1.30
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
Trimble's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of its employee stock options.
Trimble's pro forma information is as follows:
<table>
<caption>
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(dollars in thousands, except per share amounts)
<s> <c> <c>
Net income - as reported $ 12,840 $ 5,353
Stock-based employee compensation expense determined under fair value
method based for all awards, net of related tax effects 2,229 2,078
----- -----
Net income - pro forma $ 10,611 $ 3,275
Basic earnings per share - as reported $ 0.25 $ 0.12
Basic earnings per share - pro forma $ 0.21 $ 0.07
Diluted earnings per share - as reported $ 0.24 $ 0.12
Diluted earnings per share - pro forma $ 0.20 $ 0.07
</table>
NOTE 4. BUSINESS COMBINATIONS
The following is a summary of acquisitions made by Trimble during the first
fiscal quarter of 2004 and fiscal 2003, all of which were accounted for as
purchases. The individual purchase price of these acquisitions were not
significant. We recognized an immaterial amount of goodwill as a result of these
acquisitions and no goodwill was impaired during the first quarter of 2004.
Acquisition Primary Service or Product Acquisition Date
- ----------- -------------------------- ----------------
Applanix Inertial navigation systems and GPS July 7, 2003
MENSI 3D laser scanning technology December 9, 2003
TracerNET Wireless fleet management solutions March 5, 2004
The consolidated condensed financial statements include the results of
operations of acquired companies commencing on the date of acquisition. Pro
forma information is not presented, as these acquisitions did not have a
material effect on the Company's results of operations.
NOTE 5. JOINT VENTURES:
Caterpillar Trimble Control Technologies Joint Venture
On April 1, 2002, Caterpillar Trimble Control Technologies LLC ("CTCT"), a joint
venture formed by Trimble and Caterpillar began operations. CTCT, based in
Dayton, Ohio, is 50% owned by Trimble and 50% owned by Caterpillar, with equal
voting rights. It develops and markets next generation advanced electronic
guidance and control products for earthmoving machines in the construction,
mining, and waste industries. Under the terms of the joint venture agreement,
Caterpillar contributed $11.0 million cash plus selected technology, for a total
contributed value of $14.5 million, and Trimble contributed selected existing
<page>
machine control product technologies valued at $25.5 million. Additionally, both
companies have licensed patents and other intellectual property from their
portfolios to CTCT. During the first fiscal quarter of 2002, Trimble received a
special cash distribution of $11.0 million from CTCT.
Trimble has recorded the cash distribution of $11.0 million as a deferred gain,
being amortized to the extent that losses are attributable from CTCT under the
equity method of accounting. When and if CTCT is profitable on a sustainable
basis, and future operating losses are not anticipated, then Trimble will
recognize as a gain, the un-amortized portion of the $11.0 million. To the
extent that it is possible that the Company will have any future-funding
obligation relating to CTCT, then the relevant amount of the $11.0 million will
be deferred until such a time, as the funding obligation no longer exists. Both
Trimble's share of profits (losses) under the equity method and the amortization
of the $11.0 million deferred gain are recorded under the heading of "Expense
for affiliated operations, net" in Non-operating income (expense).
The expenses for affiliated operations at CTCT, net also includes incremental
costs as a result of purchasing products from CTCT at a higher price than
Trimble's original manufacturing costs, partially offset by contract
manufacturing fees charged to CTCT. In addition, Trimble received reimbursement
of employee-related costs from CTCT for Trimble employees devoted to CTCT
totaling $2.3 million and $1.9 million for the three months ended April 2, 2004
and April 4, 2003, respectively. The reimbursements were offset against
operating expenses.
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(In millions)
CTCT incremental pricing effects, net $ 1.7 $ 1.2
Trimble's 50% share of CTCT's reported losses 0.2 0.2
Amortization of deferred gain (0.2) (0.2)
----- -----
Total CTCT expense for affiliated operations, net (1) $ 1.7 $ 1.2
===== =====
(1) Due to the nature of the relationship between Trimble and CTCT, a related
party, the impact of these agreements is classified under non-operating
income (expense) under the heading of "Expense for affiliated operations,
net".
At April 2, 2004, the net outstanding balance due from CTCT to Trimble was
approximately $0.4 million recorded under the heading of "Accounts and other
receivables, net."
Nikon-Trimble Joint Venture
On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to
form a joint venture in Japan, Nikon-Trimble Co., Ltd., which assumed the
operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of Nikon
Corporation and Trimble Japan KK, a Japanese subsidiary of Trimble.
Nikon-Trimble began operations in July 2003.
Under the terms of the Nikon-Trimble agreement, Nikon contributed (Y)1.2 billion
(approximately US$10 million on June 30, 2003) in cash, while Trimble
contributed (Y)500 million (approximately US$4.1 million on June 30, 2003) in
cash and (Y)700 million of its common stock or 349,251 shares valued at
approximately US$5.9 million on June 30, 2003. The Nikon-Trimble joint venture
purchased certain tangible and intangible assets from Nikon Geotecs Co., Ltd.
and Trimble Japan KK.
Nikon-Trimble is 50% owned by Trimble and 50% owned by Nikon, with equal voting
rights. It focuses on the design and manufacture of surveying instruments
including mechanical total stations and related products. In Japan, this joint
venture will distribute Nikon's survey products as well as Trimble's GPS survey
products and other Engineering and Construction products, including robotic
total stations. Outside Japan, Trimble is the exclusive distributor of Nikon
survey and construction products.
Trimble has adopted the equity method of accounting for its investment in
Nikon-Trimble, with 50% share of profit or loss from this joint venture to be
reported by Trimble in the Non-operating section of the Condensed Consolidated
Statement of Operations under the heading of "Expenses for affiliated
operations, net." During fiscal quarter ended April 2, 2004, Nikon-Trimble
reported a profit of which Trimble's share is $0.1 million. At April 2, 2004,
<page>
the outstanding balance from Nikon-Trimble due to Trimble was approximately $1.6
million primarily related to the transfer of certain tangible and intangible
assets from Trimble Japan KK, recorded under the heading of "Accounts and other
receivables, net" and $1.9 million net payable by Trimble to Nikon-Trimble
related to the purchase and sale of products from and to Nikon-Trimble recorded
under the heading of "Accounts Payable" on the Condensed Consolidated Balance
Sheets.
NOTE 6. GOODWILL AND INTANGIBLE ASSETS:
Goodwill and purchased intangible assets consisted of the following:
<table>
<caption>
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(in thousands)
<s> <c> <c>
Intangible assets:
Intangible assets with definite life:
Existing technology $ 31,964 $ 32,389
Trade names, trademarks, patents, and other intellectual properties 21,835 20,911
------ ------
Total intangible assets with definite life 53,799 53,300
Less accumulated amortization (35,269) (33,559)
-------- --------
Total net intangible assets $ 18,530 $ 19,741
========= =========
Goodwill:
Goodwill, Spectra Precision acquisition $ 202,637 $ 205,562
Goodwill, other acquisitions 46,041 35,863
------ ------
Total goodwill $ 248,678 $ 241,425
========= =========
</table>
NOTE 7. CERTAIN BALANCE SHEET COMPONENTS:
Inventories consisted of the following:
<table>
<caption>
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(in thousands)
<s> <c> <c>
Raw materials $ 17,054 $ 20,927
Work-in-process 1,988 3,876
Finished goods 45,868 46,023
------ ------
$ 64,910 $ 70,826
========= =========
</table>
Property and equipment consisted of the following:
<table>
<caption>
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(in thousands)
<s> <c> <c>
Machinery and equipment $ 68,281 $ 66,634
Furniture and fixtures 9,252 9,085
Leasehold improvements 4,719 4,502
Buildings 5,247 5,236
Land 1,231 1,391
----- -----
88,730 86,848
Less accumulated depreciation (61,972) (59,469)
-------- --------
$ 26,758 $ 27,379
========= =========
</table>
<page>
Other current assets consisted of the following:
<table>
<caption>
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(in thousands)
<s> <c> <c>
Notes receivable $ -- $ 446
Demonstration equipment, net 3,326 3,226
Prepaid expenses 4,310 4,566
Other 251 647
--- ---
$ 7,887 $ 8,885
========= =========
</table>
Other non-current assets consisted of the following:
<table>
<caption>
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(in thousands)
<s> <c> <c>
Debt issuance costs, net $ 1,568 $ 1,691
Nikon-Trimble joint venture investment 12,021 10,717
Other investments 554 553
Deposits 1,136 925
Receivables from employees 769 801
Notes receivable 642 663
Other 3,856 3,978
----- -----
$ 20,546 $ 19,328
========= =========
</table>
NOTE 8. THE COMPANY AND SEGMENT INFORMATION:
Trimble is a designer and distributor of positioning products and applications
enabled by GPS, optical, laser, and wireless communications technology. The
Company designs and markets products, by delivering integrated information
solutions such as collecting, analyzing, and displaying position data to its end
users. Trimble offers an integrated product line for diverse applications in its
targeted markets.
To achieve distribution, marketing, production, and technology advantages in
Trimble's targeted markets, the Company manages its operations in the following
five segments:
o Engineering and Construction -- Consists of products currently used by
survey and construction professionals in the field for positioning data
collection, field computing, data management, and automated machine
guidance and control. These products provide solutions for numerous
applications including surveying, general, road, runway and underground
construction, site preparation and excavation.
o Field Solutions -- Consists of products that provide solutions in a variety
of agriculture and fixed asset applications, primarily in the areas of
precise land leveling, machine guidance, yield monitoring, variable-rate
applications of fertilizers and chemicals, and fixed asset data collection
for a variety of governmental and private entities. Trimble has aggregated
products for these applications under a single general manager in order to
continue to leverage its research and development activities due to the
similarities of products across the segment.
o Component Technologies -- Currently, Trimble markets its GPS component
products through an extensive network of OEM relationships. These products
include proprietary chipsets, modules, and a variety of intellectual
property. The applications into which end users currently incorporate the
component products include: timing applications for synchronizing wireless
networks; in-vehicle navigation and telematics (tracking) systems; fleet
management; security systems; data collection networks; and wireless
handheld consumer products.
o Mobile Solutions -- Consists of products that enable end users to monitor
and manage their mobile assets by communicating location-relevant
information from the field to the office. Trimble offers a range of
products that address a number of sectors of this market including truck
<page>
fleets, security, telematics, and public safety vehicles. Beginning with
the first quarter of fiscal 2004, TracerNET's performance is reported in
this business segment.
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 Trimble's total revenue. During the first two fiscal quarters
of 2003, this segment was comprised solely of the Military and Advanced
Systems business. Beginning with the third quarter of fiscal 2003,
Applanix's performance is reported in this business segment.
Trimble evaluates each of its segment's performance and allocates resources
based on profit and loss from operations before income taxes, and some corporate
allocations. Trimble and each of its segments employ the same accounting
policies.
The following table presents revenues, operating income (loss), and identifiable
assets for the five segments. The information includes the operations of
Applanix after July 7, 2003, MENSI after December 9, 2003, and TracerNET after
March 5, 2004. Operating income (loss) is net revenue less operating expenses,
excluding general corporate expenses, amortization, restructuring charges,
non-operating income (expense), and income taxes. The identifiable assets that
Trimble's Chief Operating Decision Maker views by segment are accounts
receivable and inventory.
<table>
<caption>
Reporting Segments
------------------
Engineering and Field Component Mobile Portfolio
Three Months Ended Construction Solutions Technologies Solutions Technologies Total
- ------------------ ------------ --------- ------------ --------- ------------ -----
(In thousands)
<s> <c> <c> <c> <c> <c> <c>
Three Months Ended April 2, 2004
External net revenues $ 102,482 $ 24,713 $ 16,415 $ 5,262 $ 7,638 $ 156,510
Operating income
(loss) before corporate
allocations 16,498 6,054 3,926 (1,643) 902 25,737
Three Months Ended April 4, 2003
External net revenues $ 85,663 $ 20,681 $ 15,866 $ 3,168 $ 1,947 $ 127,325
Operating income
(loss) before corporate
allocations 12,240 3,314 3,855 (687) (752) 17,970
As of April 2, 2004
Accounts receivable (1) $ 92,924 $ 22,061 $ 10,940 $ 6,312 $ 7,997 $ 140,234
Inventories 49,652 4,961 2,424 2,873 5,000 64,910
As of January 2, 2004
Accounts receivable (1) $ 84,897 $ 16,589 $ 10,003 $ 4,103 $ 7,321 $ 122,913
Inventories 56,008 3,398 2,021 3,038 6,361 70,826
</table>
(1) As presented, accounts receivable excludes cash received in advance and
allowances for doubtful accounts, which are not allocated between segments.
The following are reconciliations corresponding to totals in the accompanying
condensed consolidated financial statements:
<table>
<caption>
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(in thousands)
<s> <c> <c>
Operating income:
Total for reportable divisions (1) $ 25,737 $ 17,970
Unallocated corporate expenses (7,499) (7,072)
------- -------
Operating income from continuing operations $ 18,238 $ 10,898
========== ==========
</table>
<table>
<caption>
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(in thousands)
<s> <c> <c>
Assets:
Accounts receivable total for reportable segments $ 140,234 $ 122,913
Unallocated (1) (16,183) (19,563)
-- ------- -------
Total $ 124,051 $ 103,350
========== ==========
</table>
(1) Includes cash received in advance, other receivables, and accruals that are
not allocated by segment.
NOTE 9. LONG-TERM DEBT:
Long-term debt consisted of the following:
April 2, January 2,
As of 2004 2004
- ----- ---- ----
(In thousands)
Credit Facilities:
Term loan $ 40,625 $ 43,750
Revolving credit facility 43,000 44,000
Promissory notes and other 1,020 2,736
----- -----
84,645 90,486
Less current portion of long-term debt (12,795) (12,885)
------- -------
Non-current portion $ 71,850 $ 77,601
=========== ===========
Credit Facilities
On June 25, 2003, Trimble obtained a $175 million secured Credit Facility ("2003
Credit Facility") from a syndicate of nine banks to repay the Subordinated Note
and refinance $200 million of senior, secured credit facilities (the "2000
Credit Facility") obtained in July of 2000. The 2003 Credit Facility will be
used to pay fees and expenses related to this new credit facility, and for
ongoing working capital and general corporate needs.
At April 2, 2004, Trimble had approximately $83.6 million of borrowings under
the 2003 Credit Facility, comprised of a $40.6 million term loan and $43.0
million of a $125 million revolver. The Company has access to an additional $82
million of cash under the terms of the revolving credit facility. The Company
has commitment fees on the unused portion of 0.5% if the Leverage Ratio (which
is defined as total indebtedness to Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA), as defined in the related agreement) is
2.0 or greater and 0.375% if the Leverage Ratio is less than 2.0.
Pricing of interest for borrowings under the 2003 Credit Facility as of April 2,
2004 is at LIBOR plus a spread of 1.50%. The spread is tied to a formula based
on the Leverage Ratio.
The Credit Facility is secured by all of the Company's material assets, except
for assets that are subject to foreign tax considerations. Financial covenants
of the 2003 Credit Facility include leverage, fixed charge, and minimum net
worth tests. At April 2, 2004, Trimble was in compliance with all financial debt
covenants. The amount due under the revolver loan is paid as the loan matures on
June 25, 2006, and the loan commitment fees are paid on a quarterly basis.
<page>
Under the terms of the 2003 Credit Facility, the Company is allowed to pay
dividends and repurchase shares of common stock up to 25% of net income in the
previous fiscal year, under the existing terms of the credit facilities.
Promissory Note and Others
As of April 2, 2004, the Company had other notes payable totaling $1.0 million.
During the quarter, Trimble extinguished the promissory note related to the
purchase of a building for Trimble's Corvallis, Oregon site for $1.7 million.
The balance outstanding at April 2, 2004 primarily consists of other government
loans in our foreign subsidiaries.
Weighted Average Cost of Debt
Our weighted average interest rate was approximately 2.7%. Our total weighted
average cost of debt, which includes amortization of debt issuance costs, was
approximately 5.1% for the fiscal quarter ended April 2, 2004.
NOTE 10. PRODUCT WARRANTIES:
While Trimble engages in extensive product quality programs and processes
including actively monitoring and evaluating the quality of component suppliers,
the Company's warranty obligation is affected by product failure rates, material
usage, and service delivery costs incurred in correcting a product failure.
Should actual product failure rates, material usage, or service delivery costs
differ from the estimates, revisions to the estimated warranty accrual and
related costs may be required.
Changes in the Company's product warranty liability during the three-months
ended April 2, 2004 and April 4, 2003 are as follows:
April 2, April 4,
2004 2003
---- ----
Three Months Ended
- ------------------
(In thousands)
Beginning balance $ 5,147 $ 6,394
Warranties accrued 1,611 1,318
Warranty claims (1,131) (1,283)
------- -------
Ending Balance $ 5,627 $ 6,429
========== =========
The product warranty liability is classified as accrued warranty in the
accompanying condensed consolidated balance sheets.
NOTE 11. SHAREHOLDER'S EQUITY:
3-for-2 Stock Split
Trimble's Board of Directors approved a 3-for-2 split of all outstanding shares
of the Company's Common Stock, payable March 4, 2004 to stockholders of record
on February 17, 2004. Cash was paid in lieu of fractional shares. All share and
per share information has been adjusted to reflect the stock split on a
retroactive basis for all periods presented.
NOTE 12. EARNINGS PER SHARE:
The following data show the amounts used in computing earnings per share and the
effect on the weighted-average number of shares of potentially dilutive Common
Stock.
<table>
<caption>
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(in thousands, except per share amounts)
<s> <c> <c>
Numerator:
Income available to common shareholders:
Used in basic and diluted earnings per share $ 12,840 $ 5,353
========== ===========
Denominator:
Weighted-average number of common shares used in basic earnings
per share 50,418 44,040
Effect of dilutive securities (using treasury stock method):
Common stock options 2,961 1,080
Common stock warrants 836 18
------ ------
Weighted-average number of common shares and dilutive potential
common shares used in diluted earnings per share 54,215 45,138
====== ======
Basic earnings per share $ 0.25 $ 0.12
========== ===========
Diluted earnings per share $ 0.24 $ 0.12
========== ===========
</table>
NOTE 13. COMPREHENSIVE INCOME:
The components of comprehensive income, net of related tax as follows:
April 2, April 4,
Three Months Ended 2004 2003
------------------ ---- ----
(in thousands)
Net income $ 12,840 $ 5,353
Foreign currency translation adjustments (3,645) 4,208
Net gain (loss) on hedging transactions 98 (7)
Net unrealized gain on investments -- 28
-------- --------
Comprehensive income $ 9,293 $ 9,582
======== ========
The components of accumulated other comprehensive income, net of related tax as
follows:
April 2, January 2,
Three Months Ended 2004 2004
------------------ ---- ----
(in thousands)
Cumulative foreign currency translation
adjustments $ 26,523 $ 30,166
Net gain on hedging transactions 98 --
Net unrealized gain on investments 73 73
-- --
Accumulated other comprehensive income $ 26,694 $ 30,239
========= =========
NOTE 14. RELATED-PARTY TRANSACTIONS:
Related-Party Lease
Trimble currently leases office space in Ohio from an association of three
individuals, one of whom is an employee of one of the company's US operating
units, under a non-cancelable operating lease arrangement expiring in 2011. The
annual rent is subject to adjustment based on the terms of the lease. The
Condensed Consolidated Statements of Operations include expenses from this
operating lease of $86,351 for fiscal quarter ended April 2, 2004, and $96,882
for fiscal quarter ended April 2, 2003.
Related-Party Notes Receivable
Trimble has notes receivable from officers and employees of approximately $0.8
million as of April 2, 2004 and $0.8 million as of January 2, 2004. The notes
bear interest from 4.49% to 6.62% and have an average remaining life of 1.27
years as of April 2, 2004.
See Note 5 to the Notes to the Condensed Consolidated Financial Statements for
additional information regarding Trimble's related party transactions with joint
venture partners.
NOTE 15. LITIGATION:
From time to time, the Company is involved in litigation arising out of the
ordinary course of its business. There are no known claims or pending litigation
expected to have a material effect on the Company's overall financial position,
results of operations, or liquidity.
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
"Risks and Uncertainties" below and elsewhere in this report as well as in the
Company's Annual Report on Form 10-K for fiscal year 2002 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
The discussion and analysis of our 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 10-K for fiscal 2003.
RECENT BUSINESS DEVELOPMENTS
TracerNET Corporation
* On March 5, 2004 we acquired TracerNET which we believe will augment our
current fleet management capabilities, extend our customer base and provide us
with increased sales. TracerNET's performance is reported under our Mobile
Solutions segment. TracerNET brings us additional capabilities, such as the
experience and ability to integrate fleet management solutions into a company's
enterprise software system.
RESULTS OF OPERATIONS
The following table shows revenue and operating income by segment for the
periods indicated and should be read in conjunction with the narrative
descriptions below. Operating income by segment excludes unallocated corporate
expenses which are comprised primarily of general and administrative costs,
amortization of purchased intangibles as well as other items not controlled by
the business segment.
<page>
<table>
<caption>
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(Dollars in thousands)
<s> <c> <c>
Total consolidated revenue $ 156,510 $ 127,325
Total consolidated segment operating income $ 25,737 $ 17,970
Engineering and Construction
Revenue $ 102,482 $ 85,663
Segment revenue as a percent of total revenue 66% 67%
Operating income $ 16,498 $ 12,240
Operating income as a percent of segment revenue 16% 14%
Field Solutions
Revenue $ 24,713 $ 20,681
Segment revenue as a percent of total revenue 16% 16%
Operating income $ 6,054 $ 3,314
Operating income as a percent of segment revenue 24% 16%
Component Technologies
Revenue $ 16,415 $ 15,866
Segment revenue as a percent of total revenue 10% 13%
Operating income $ 3,926 $ 3,855
Operating income as a percent of segment revenue 24% 24%
Mobile Solutions
Revenue $ 5,262 $ 3,168
Revenue as a percent of total revenue 3% 2%
Operating loss $ (1,643) $ (687)
Operating loss as a percent of segment revenue (31%) (22%)
Portfolio Technologies
Revenue $ 7,638 $ 1,947
Segment revenue as a percent of total revenue 5% 2%
Operating income (loss) $ 902 $ (752)
Operating income (loss) as a percent of segment revenue 12% (39%)
</table>
A reconciliation of our consolidated segment operating income to consolidated
income before income taxes follows:
April 2, April 4,
Three Months Ended 2004 2003
------------------ ---- ----
(In thousands)
Consolidated segment operating income $ 25,737 $ 17,970
Unallocated corporate expense (5,515) (4,887)
Amortization of purchased intangible assets (1,984) (1,795)
Restructuring charges -- (390)
Non-operating expense, net (3,133) (4,545)
------ ------
Consolidated income before income taxes $ 15,105 $ 6,353
======== ========
Revenue
In fiscal quarter ended April 2, 2004, total revenue increased by $29.2 million
or 23% to $156.5 million from $127.3 million in fiscal quarter April 4, 2003.
The increase was primarily due to stronger performances in all of our operating
segments driven by the new product offerings, increased acceptance of our
products in the markets we serve, acquisitions, expanded distribution, and the
positive impact of the weaker US dollar on revenues generated in foreign
currencies, primarily the Euro.
International Revenues
* Total revenue outside the United States comprised approximately 50% for the
three months ended April 2, 2004, and 50% for the three months ended April 4,
2003. During the first fiscal quarter of 2004, North and South America
represented 57%, Europe, the Middle East and Africa represented 30%, and
Asia/Pacific Rim represented 13% of total revenues. We anticipate that sales to
international customers will continue to account for a significant portion of
our revenue.
Gross Margin
Gross margin as a percentage of total revenues was 48.4% for the three months
ended April 2, 2004 and 48.5% for the three months ended April 4, 2003. The
stronger than anticipated demand for our Nikon-branded products was the main
reason gross margins decreased when compared to the first quarter of 2003.
Although favorable to the bottom line with a double-digit operating margin,
these sales negatively impacted gross margin by approximately 1.7%.
* Because of potential product mix changes within and among the industry
markets, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, including increases in component prices and other factors,
current level gross margins cannot be assured. In addition, should the global
economic conditions deteriorate, gross margin could be further adversely
impacted.
Engineering and Construction
When comparing the first fiscal quarter of 2004 to the same quarter in 2003,
Engineering and Construction revenues increased by $16.8 million or 19.6% and
segment operating income increased by $4.3 million or 34.8%. An improving
economic environment, the addition of the Nikon-branded product line in July
2003, and an early start to the buying season resulted in increased sales across
all product categories. These enabled the segment operating income to increase
from 14% to 16% of revenues.
Field Solutions
When comparing the first fiscal quarter of 2004 to the same quarter in 2003,
Field Solutions revenues increased by approximately $4.0 million or 19.5%, and
segment operating income increased by $2.7 million or 82.7%. Revenue increases
were a result of higher sales of high end automated guidance products, coupled
with strong demand for our newly released manual guidance product into the
agricultural market. Sales of our GeoExplorer(TM) series handhelds through
current and new distribution channels also contributed to increased revenues.
Segment operating income increased in the first fiscal quarter of 2004 from the
comparative period of 2003 primarily due to higher revenues. This enabled the
segment operating income to increase from 16% to 24% of revenues.
Component Technologies
When comparing the first fiscal quarter of 2004 to the same quarter in 2003,
Component Technologies revenues increased by $0.5 million or 3.5%, and segment
operating income increased by $0.1 million or 1.8%. The increase in revenues was
primarily due to higher demand from our existing wireless infrastructure
customers. The segment operating income increase was primarily due to increased
revenues partially offset by an increase in spending as we develop new
categories of products.
Mobile Solutions
When comparing the first fiscal quarter of 2004 to the same quarter in 2003,
Mobile Solutions revenues increased by $2.1 million or 66.1%, and segment
operating loss increased by $1.0 million or 139.2%. Revenues grew due to an
increase in sales into the construction vertical market and our dealer channel.
Operating losses increased relative to the first quarter of 2003 due to the
positive impact of the reversal of certain product related allowances for
inventory which had been sold, which was not repeated in the current period.
Portfolio Technologies
When comparing the first fiscal quarter of 2004 to the same quarter in 2003,
Portfolio Technologies revenues increased by $5.7 million or 292.3%, and segment
operating income increased by $1.7 million or 219.9%. The increase in revenues
and operating income was primarily due to the inclusion of Applanix acquired in
July 2003 and higher sales of military-related products.
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:
<page>
April 2, April 4,
Three Months Ended 2004 2003
------------------ ---- ----
(In thousands)
Research and development $ 18,848 $ 16,040
Sales and marketing 26,304 23,997
General and administrative 10,386 8,635
Restructuring charges -- 390
Amortization of purchased intangible assets 1,984 1,795
----- -----
Total operating expenses $ 57,522 $ 50,857
======== ========
Research and Development
Research and development expenses increased by $2.8 million during the first
fiscal quarter of 2004 representing 12% of total revenues, compared with 12.6%
in the same corresponding period in fiscal 2003. This was due to continued
investment in next generation technologies, the weakness of the US dollar versus
major European and New Zealand currencies, and also the inclusion of the
research and development expenses from the acquisitions of Applanix in July 2003
and Mensi in December 2003. All of our research and development costs have been
expensed as incurred.
* We believe that the development and introduction of new products are critical
to our future success and we expect to continue active development of new
products.
Sales and Marketing
Sales and marketing expenses increased by $2.3 million in the first fiscal
quarter of 2004 over the same corresponding period in fiscal 2003 primarily due
to higher revenue, increased sales efforts mostly in emerging geographic areas
such as China and Russia, the impact of the weaker US dollar in Europe, and the
inclusion of Applanix sales and marketing expenses not applicable in the prior
fiscal quarter. As a percentage of revenue, sales and marketing expenses
decreased from 18.8% to 16.8%.
* Our future growth will depend in part on the timely development and continued
viability of the markets in which we currently compete as well as our ability to
continue to identify and exploit new markets for our products.
General and Administrative
General and administrative expenses increased by $1.8 million in the first
fiscal quarter of 2004 over the same corresponding period in fiscal 2003
primarily due to higher compensation costs and the inclusion of Applanix and
Mensi expenses not applicable in the prior fiscal quarter. As a percentage of
revenue, general and administrative decreased slightly to 6.6% from 6.8% the
corresponding period of fiscal 2003.
Restructuring Charges
There were no restructuring charges for the first fiscal quarter ended April 2,
2004 and $0.4 million were recorded for the fiscal quarter ended April 4, 2003,
all of which related to severance costs. As of April 2, 2004, the restructuring
accrual balance related to pre-existing restructuring plans was approximately
$0.2 million, which will be paid over the remaining term of the related lease
through 2006.
Amortization of Purchased and Other Intangible Assets
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(in thousands)
Amortization of purchased intangibles $ 1,984 $ 1,795
Amortization of other intangible assets 54 182
---- ----
Total amortization of purchased, and other
intangible assets $ 2,035 $ 1,977
======= ========
<page>
Non-operating Expense, Net
The following table shows non-operating expense, net, for the periods indicated
and should be read in conjunction with the narrative descriptions of those
expenses below:
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(in thousands)
Interest income $ 98 $ 105
Interest expense (1,076) (3,480)
Foreign exchange gain (loss) (636) 92
Expenses for affiliated operations, net (1,599) (1,215)
Other income (expense) 80 (47)
-- ----
Total non-operating expense, net $ (3,133) $ (4,545)
========= =========
Non-operating expense, net decreased by $1.4 million or 31.1% during the first
fiscal quarter of 2004 as compared with the corresponding period in fiscal 2003.
This was primarily due to the reduction in interest expense of approximately
$2.4 million due to continued debt repayment ($46.7 million net decrease in debt
from April 4, 2003), combined with the effect of lower interest rates. In
addition, we had a foreign exchange loss of $0.6 million mainly due to the fact
that the U.S. dollar was weaker, on average, against the Euro and Swedish Krona,
during the quarter as compared to the corresponding quarter in fiscal 2003.
Income Tax Provision
We recorded provisions for income taxes of $2.3 million for the three months
ended April 2, 2004 and $1.0 million for the three months ended April 4, 2003.
These amounts reflect taxes on profits in foreign and US jurisdictions and the
benefit from utilizing net operating loss and credit carryforwards.
OFF-BALANCE SHEET FINANCINGS AND LIABILITIES
Other than lease commitments incurred in the normal course of business, we do
not have any off-balance sheet financing arrangements or liabilities, guarantee
contracts, retained or contingent interests in transferred assets, or any
obligation arising out of a material variable interest in an unconsolidated
entity. We do not have any majority-owned subsidiaries that are not included in
the condensed consolidated financial statements. Additionally, we do not have
any interest in, or relationship with, any special purpose entities.
LIQUIDITY AND CAPITAL RESOURCES
April 2, April 4,
Three Months Ended 2004 2003
- ------------------ ---- ----
(dollars in thousands)
Cash and cash equivalents $ 40,201 $ 13,529
As a percentage of total assets 7.2% 3.0%
Accounts receivable days sales outstanding 57 56
Inventory turns per year 5 4
Total debt $ 84,645 $ 131,350
Net cash provided by (used in) operating activities $ 8,685 $ (6,551)
Net cash used in investing activities $(11,702) $ (1,433)
Net cash used in financing activities $ (1,559) $ (7,592)
Net decrease in cash and cash equivalents $ (5,215) $(15,150)
Cash and Cash Equivalents
Cash and cash equivalents were $40.2 million as of April 2, 2004, a decrease of
$5.2 million or 11.5% from $45.4 million at January 2, 2004. The decrease was
primarily due to the net repayment of debt of $5.8 million and cash used for
acquisitions of $9.2 million.
<page>
* For the first three months of 2004, cash provided by operating activities was
$8.7 million, compared to $6.6 million cash used in operating activities during
the first three months of 2003. This increase was driven by increased net income
and a decrease in accounts payable and inventories, offset by an increase in
accounts receivable. Our ability to continue to generate cash from operations
will depend in large part on our profitability, the rate of collections of
accounts receivable, inventory turns, and our ability to manage other areas of
working capital. Our accounts receivable days sales outstanding decreased to 57
days from 60 days at the end of fiscal 2003. Inventory turns were five in the
first quarter of fiscal 2004, compared with four in the fourth quarter of fiscal
2003.
We used $11.7 million in net cash for investing activities during the first
three months of 2004, compared to $1.4 million in the first three months of
2003. We continue to invest in capital expenditures, primarily to upgrade our
information systems as well as add new tools and test equipment to
manufacturing. In addition, we used $9.2 million in cash for acquisitions.
We used $1.6 million in net cash for financing activities in the first three
months of 2004, compared to $7.6 million in the first three months of 2003. This
decrease was primarily a result of less debt repayments (net $5.8 million)
compared to net repayments of $7.2 million during the same period in 2003. This
net debt payment was funded primarily by proceeds from cash generated from
operations and the issuance of common stock to employees pursuant to our stock
option plan of approximately $4.2 million.
* We believe that our cash and cash equivalents, together with our credit
facilities, will be sufficient to meet our anticipated operating cash needs for
at least the next twelve months. At April 2, 2004, we had $40.2 million of cash
and cash equivalents as well as access to $82 million of cash under the terms of
our revolver loans.
* We expect fiscal 2004 capital expenditures to be approximately $12 million to
$14 million, primarily for computer equipment, software, manufacturing tools and
test equipment, and leasehold improvements associated with business expansion.
Decisions related to how much cash is used for investing are influenced by the
expected amount of cash to be provided by operations.
Debt
At April 2, 2004, our total debt was approximately $84.6 million as compared
with approximately $90.5 million at the end of fiscal 2003. This balance
primarily consists of $40.6 million outstanding under a term loan and $43.0
million outstanding under a senior secured revolving credit facility.
Our Credit Facility is secured by all material assets of our Company, except for
a portion of assets that are not pledged due to foreign tax considerations.
Financial covenants of the Credit Facility include leverage, fixed charge, and
minimum net worth tests. At April 2, 2004 and as of the date of this report, we
are in compliance with all debt covenants. The amortized principal, interest,
and commitment fees due under the Credit Facility are paid quarterly. Under the
four-year term loan portion of the Credit Facility, we are due to make payments
(excluding interest) of approximately $12.5 million in each of the next three
fiscal years (2004, 2005, and 2006), and $6.3 million in fiscal 2007.
Under the terms of the Credit Facility, we are allowed to pay dividends and
repurchase shares of our common stock up to 25% of net income in the previous
fiscal year. For additional discussion of our debt, see Note 9 of Notes to the
Condensed Consolidated Financial Statements.
New Accounting Standards
Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities," was issued in January 2003, and a
revised interpretation of FIN 46 (FIN 46-R) was issued in December 2003. FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. The adoption of this
Statement did not have an effect on our financial statements.
<Page>
RISKS AND UNCERTAINTIES
You should carefully consider the following risk factors, in addition to the
other information contained in this Form 10-Q and in any other documents to
which we refer you in this Form 10-Q, before purchasing our securities. The
risks and uncertainties described below are not the only ones we face.
Our Inability to Accurately Predict Orders and Shipments May Affect Our Revenue,
Expenses and Earnings per Share.
We have not been able in the past to consistently predict when our customers
will place orders and request shipments so that we cannot always accurately plan
our manufacturing requirements. As a result, if orders and shipments differ from
what we predict, we may incur additional expenses and build excess inventory,
which may require additional reserves and allowances. Any significant change in
our customers' purchasing patterns could have a material adverse effect on our
operating results and reported earnings per share for a particular quarter.
Our Operating Results in Each Quarter May Be Affected by Special Conditions,
Such As Seasonality, Late Quarter Purchases, Weather, and Other Potential
Issues.
Due in part to the buying patterns of our customers, a significant portion of
our quarterly revenues occurs from orders received and immediately shipped to
customers in the last few weeks and days of each quarter, although our operating
expenses tend to remain fairly predictable. Engineering and construction
purchases tend to occur in early spring, and governmental agencies tend to
utilize funds available at the end of the government's fiscal year for
additional purchases at the end of our third fiscal quarter in September of each
year. Concentrations of orders sometimes also occur at the end of our other two
fiscal quarters. Additionally, a majority of our sales force earns commissions
on a quarterly basis which may cause concentrations of orders at the end of any
fiscal quarter. If for any reason expected sales are deferred, orders are not
received, or shipments are delayed a few days at the end of a quarter, our
operating results and reported earnings per share for that quarter could be
significantly impacted.
We Are Dependent on a Specific Manufacturer and Assembler for Many of Our
Products and on Specific Suppliers of Critical Parts for Our Products.
We are substantially dependent upon Solectron Corporation in California, China
and Mexico as our preferred manufacturing partner for many of our GPS products
previously manufactured out of our Sunnyvale facilities. Under the agreement
with Solectron, we provide to Solectron a twelve-month product forecast and
place purchase orders with Solectron at least thirty calendar days in advance of
the scheduled delivery of products to our customers depending on production lead
time. Although purchase orders placed with Solectron are cancelable, the terms
of the agreement would require us to purchase from Solectron all inventory not
returnable or usable by other Solectron customers. Accordingly, if we
inaccurately forecast demand for our products, we may be unable to obtain
adequate manufacturing capacity from Solectron to meet customers' delivery
requirements or we may accumulate excess inventories, if such inventories are
not usable by other Solectron customers.
Our current contract with Solectron continues in effect until either party gives
the other ninety days written notice.
Solectron is assembling certain products in China. Although this initiative in
China has brought cost savings over assembling in California, we may experience
quality control issues, shipping delays, or other problems associated with
manufacturing in China.
In addition, we rely on specific suppliers for a number of our critical
components. We have experienced shortages of components in the past. Our current
reliance on specific or a limited group of suppliers involves several risks,
including a potential inability to obtain an adequate supply of required
components and reduced control over pricing. Any inability to obtain adequate
deliveries or any other circumstance that would require us to seek alternative
sources of supply or to manufacture such components internally could
significantly delay our ability to ship our products, which could damage
relationships with current and prospective customers and could harm our
reputation and brand, and could have a material adverse effect on our business.
<page>
Our Annual and Quarterly Performance May Fluctuate.
Our operating results have fluctuated and can be expected to continue to
fluctuate in the future on a quarterly and annual basis as a result of a number
of factors, many of which are beyond our control. Results in any period could be
affected by:
o changes in market demand,
o competitive market conditions,
o market acceptance of existing or new products,
o fluctuations in foreign currency exchange rates,
o the cost and availability of components,
o our ability to manufacture and ship products,
o the mix of our customer base and sales channels,
o the mix of products sold,
o our ability to expand our sales and marketing organization effectively,
o our ability to attract and retain key technical and managerial employees,
o the timing of shipments of products under contracts and sale of licensing
rights, and
o general global economic conditions.
In addition, demand for our products in any quarter or year may vary due to the
seasonal buying patterns of our customers in the agricultural and engineering
and construction industries. Due to the foregoing factors, our operating results
in one or more future periods are expected to be subject to significant
fluctuations. The price of our common stock could decline substantially in the
event such fluctuations result in our financial performance being below the
expectations of public market analysts and investors, which are based primarily
on historical models that are not necessarily accurate representations of the
future.
Our Gross Margin Is Subject to Fluctuation.
Our gross margin is affected by a number of factors, including product mix,
product pricing, cost of components, foreign currency exchange rates and
manufacturing costs. For example, sales of Nikon-branded products generally have
lower gross margins as compared to our GPS survey products. Absent other
factors, a shift in sales towards Nikon-branded products would lead to a
reduction in our overall gross margins. A decline in gross margin could
potentially negatively impact our earnings per share.
Our Business is Subject to Disruptions and Uncertainties Caused by War or
Terrorism.
Acts of war or acts of terrorism could have a material adverse impact on our
business, operating results, and financial condition. The threat of terrorism
and war and heightened security and military response to this threat, or any
future acts of terrorism, may cause further disruption to our economy and create
further uncertainties. To the extent that such disruptions or uncertainties
result in delays or cancellations of orders, or the manufacture or shipment of
our products, our business, operating results, and financial condition could be
materially and adversely affected.
Our Credit Agreement Contains Financial Covenants.
On June 25, 2003, we executed a Credit Agreement with Scotia Capital and certain
other banks which provides for financial commitments totaling up to $175
million. This credit facility contains financial covenants regarding minimum
fixed charge coverage and maximum leverage ratio which are extremely sensitive
to changes in earnings before interest, taxes, depreciation and amortization, or
EBITDA. In turn, EBITDA is highly correlated to revenues and costs. If we
default on one or more covenants, we will have to obtain either negotiated
waivers or amendments to the Credit Agreement. If we were unable to obtain such
waivers or amendments, the banks would have the right to accelerate the payment
of our outstanding obligations under the Credit Agreement which would have a
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.
<page>
We Rely on Key Customers.
We generate a portion of our revenue from large original equipment manufacturers
such as Siemens VDO Automotive AG and Nortel. A reduction or loss of business
with these customers could have a material adverse effect on our financial
condition and results of operations. There can be no assurance that we will be
able to continue to realize value from these relationships in the future. No
single customer accounted for 10% or more of Trimble's total revenues in our
first fiscal quarter of 2004 and fiscal year 2003.
We Are Dependent on New Products.
Our future revenue stream depends to a large degree on our ability to bring new
products to market on a timely basis. We must continue to make significant
investments in research and development in order to continue to develop new
products, enhance existing products and achieve market acceptance of such
products. We may incur problems in the future in innovating and introducing new
products. Our development stage products may not be successfully completed or,
if developed, may not achieve significant customer acceptance. If we were unable
to successfully define, develop and introduce competitive new products, and
enhance existing products, our future results of operations would be adversely
affected. Development and manufacturing schedules for technology products are
difficult to predict, and we might not achieve timely initial customer shipments
of new products. The timely availability of these products in volume and their
acceptance by customers are important to our future success. A delay in new
product introductions could have a significant impact on our results of
operations.
We May Not Be Able to Enter Into or Maintain Important Alliances.
We believe that in certain business opportunities our success will depend on our
ability to form and maintain alliances with industry participants, such as
Caterpillar, Nikon, McNeilus, and CNH Global. Our failure to form and maintain
such alliances, or the pre-emption of such alliances by actions of other
competitors or us, will adversely affect our ability to penetrate emerging
markets. No assurances can be given that we will not experience problems from
current or future alliances or that we will realize value from any such
strategic alliances.
We Are Dependent on the Availability of Allocated Bands Within the Radio
Frequency Spectrum.
Our GPS technology is dependent on the use of the Standard Positioning Service
("SPS") provided by the US Government's GPS. The GPS SPS operates in radio
frequency bands that are globally allocated for radio navigation satellite
services. International allocations of radio frequency are made by the
International Telecommunications Union ("ITU"), a specialized technical agency
of the United Nations. These allocations are further governed by radio
regulations that have treaty status and which may be subject to modification
every two to three years by the World Radio Communication Conference.
Any ITU reallocation of radio frequency bands, including frequency band
segmentation or sharing of spectrum, may materially and adversely affect the
utility and reliability of our products, which would, in turn, cause a material
adverse effect on our operating results. Many of our products use other radio
frequency bands, together with the GPS signal, to provide enhanced GPS
capabilities, such as real-time kinematic precision. The continuing availability
of these non-GPS radio frequencies is essential to provide enhanced GPS products
to our precision survey and construction machine controls markets. Any
regulatory changes in spectrum allocation or in allowable operating conditions
may materially and adversely affect the utility and reliability of our products,
which would, in turn, cause a material adverse effect on our operating results.
In addition, unwanted emissions from mobile satellite services and other
equipment operating in adjacent frequency bands or in-band from licensed and
unlicensed devices may materially and adversely affect the utility and
reliability of our products, which could result in a material adverse effect on
our operating results. The FCC continually receives proposals for novel
technologies and services, such as ultra-wideband technologies, which may seek
to operate in, or across, the radio frequency bands currently used by the GPS
SPS and other public safety services. Adverse decisions by the FCC that result
in harmful interference to the delivery of the GPS SPS and other radio frequency
spectrum also used in our products may materially and adversely affect the
utility and reliability of our products, which could result in a material
adverse effect on our business and financial condition.
<page>
We Are Subject to the Adverse Impact of Radio Frequency Congestion.
We have certain products, such as GPS RTK systems, surveying and mapping
systems, and Robotic Total Stations, that use integrated radio communication
technology requiring access to available radio frequencies allocated by the FCC
(or the NTIA in the case of federal government users of this equipment) for
which the end user is required to obtain a license in order to operate their
equipment. In addition, access to these frequencies by state agencies is under
management by state radio communications coordinators. Some bands are
experiencing congestion that excludes their availability for access by state
agencies in some states, including the State of California. To reduce
congestion, the FCC announced that it will require migration of radio technology
from wideband to narrowband operations in these bands. In December 2003, the FCC
stayed the effectiveness of its new rules until it acts on petitions requesting
a reconsideration of this new requirement. The stay is indefinite at this point
and the outcome of this proceeding is unknown at this time. An inability to
obtain access to these radio frequencies by end users, and for new products to
comply with FCC requirements, could have an adverse effect on our operating
results.
Many of Our Products Rely on the GPS Satellite System.
The GPS satellites and their ground support systems are complex electronic
systems subject to electronic and mechanical failures and possible sabotage. The
satellites were originally designed to have lives of 7.5 years and are subject
to damage by the hostile space environment in which they operate. However, of
the current deployment of 28 satellites in place, some have already been in
operation for 13 years. To repair damaged or malfunctioning satellites is
currently not economically feasible. If a significant number of satellites were
to become inoperable, there could be a substantial delay before they are
replaced with new satellites. A reduction in the number of operating satellites
may impair the current utility of the GPS system and the growth of current and
additional market opportunities.
In addition, there can be no assurance that the US Government will remain
committed to the operation and maintenance of GPS satellites over a long period,
or that the policies of the US Government for the use of GPS without charge will
remain unchanged. However, a 1996 Presidential Decision Directive marks the
first time in the evolution of GPS that access for civilian use free of direct
user fees is specifically recognized and supported by Presidential policy. In
addition, Presidential policy has been complemented by corresponding
legislation, signed into law. Because of ever-increasing commercial applications
of GPS, other US Government agencies may become involved in the administration
or the regulation of the use of GPS signals. Any of the foregoing factors could
affect the willingness of buyers of our products to select GPS-based systems
instead of products based on competing technologies.
Many of our products also use signals from systems that augment GPS, such as the
Wide Area Augmentation System (WAAS) and National Differential GPS System
(NDGPS). Many of these augmentation systems are operated by the federal
government and rely on continued funding and maintenance of these systems. Any
curtailment of the operating capability of these systems could result in
decreased user capability thereby impacting our markets.
The European governments have expressed interest in building an independent
satellite navigation system, known as Galileo. We believe we will have access to
the signal design to develop compatible receivers. However, if access to the
signal structure is delayed it may have a materially adverse effect on our
business and operating results.
We Face Risks in Investing in and Integrating New Acquisitions.
Acquisitions of companies, divisions of companies, or products entail numerous
risks, including:
o potential inability to successfully integrate acquired operations and
products or to realize cost savings or other anticipated benefits from
integration;
o diversion of management's attention;
o loss of key employees of acquired operations;
o the difficulty of assimilating geographically dispersed operations and
personnel of the acquired companies;
o the potential disruption of our ongoing business;
o unanticipated expenses related to such integration;
o the correct assessment of the relative percentages of in-process research
and development expense that can be immediately written off as compared to
the amount which must be amortized over the appropriate life of the asset;
o the impairment of relationships with employees and customers of either an
acquired company or our own business;
o the potential unknown liabilities associated with acquired business; and
o inability to recover strategic investments in development stage entities.
<page>
As a result of such acquisitions, we have significant assets that include
goodwill and other purchased intangibles. The testing of these intangibles under
established accounting guidelines for impairment requires significant use of
judgment and assumptions. Changes in business conditions could require
adjustments to the valuation of these assets. In addition, losses incurred by a
company in which we have an investment may have a direct impact on our financial
statements or could result in our having to write-down the value of such
investment. Any such problems in integration or adjustments to the value of the
assets acquired could harm our growth strategy and have a material adverse
effect on our business, financial condition and compliance with debt covenants.
We Face Competition in Our Markets.
Our markets are highly competitive and we expect that both direct and indirect
competition will increase in the future. Our overall competitive position
depends on a number of factors including the price, quality and performance of
our products, the level of customer service, the development of new technology
and our ability to participate in emerging markets. Within each of our markets,
we encounter direct competition from other GPS, optical and laser suppliers and
competition may intensify from various larger US and non-US competitors and new
market entrants, some of which may be our current customers. The competition in
the future, may, in some cases, result in price reductions, reduced margins or
loss of market share, any of which could materially and adversely affect our
business, operating results and financial condition. We believe that our ability
to compete successfully in the future against existing and additional
competitors will depend largely on our ability to execute our strategy to
provide systems and products with significantly differentiated features compared
to currently available products. We may not be able to implement this strategy
successfully, and our products may not be competitive with other technologies or
products that may be developed by our competitors, many of whom have
significantly greater financial, technical, manufacturing, marketing, sales and
other resources than we do.
We Are Dependent on Proprietary Technology.
Our future success and competitive position is dependent upon our proprietary
technology, and we rely on patent, trade secret, trademark and copyright law to
protect our intellectual property. The patents owned or licensed by us may be
invalidated, circumvented, and challenged. The rights granted under these
patents may not provide competitive advantages to us. Any of our pending or
future patent applications may not be issued within the scope of the claims
sought by us, if at all.
Others may develop technologies that are similar or superior to our technology,
duplicate our technology or design around the patents owned by us. In addition,
effective copyright, patent and trade secret protection may be unavailable,
limited or not applied for in certain countries. The steps taken by us to
protect our technology might not prevent the misappropriation of such
technology.
The value of our products relies substantially on our technical innovation in
fields in which there are many current patent filings. We recognize that as new
patents are issued or are brought to our attention by the holders of such
patents, it may be necessary for us to withdraw products from the market, take a
license from such patent holders, or redesign our products. We do not believe
any of our products currently infringe patents or other proprietary rights of
third parties, but we cannot be certain they do not do so. In addition, the
legal costs and engineering time required to safeguard intellectual property or
to defend against litigation could become a significant expense of operations.
Such events could have a material adverse effect on our revenues or
profitability.
We Must Carefully Manage Our Future Growth.
Growth in our sales or continued expansion in the scope of our operations could
strain our current management, financial, manufacturing and other resources, and
may require us to implement and improve a variety of operating, financial and
other systems, procedures, and controls. Specifically we have experienced strain
in our financial and order management system. We are expanding our sales,
accounting, manufacturing, and other information systems to meet these
challenges. Problems associated with any improvement or expansion of these
systems, procedures or controls may adversely affect our operations and these
systems, procedures or controls may not be designed, implemented or improved in
a cost-effective and timely manner. Any failure to implement, improve and expand
such systems, procedures, and controls in a timely and efficient manner could
harm our growth strategy and adversely affect our financial condition and
ability to achieve our business objectives.
<page>
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 May Encounter Problems Associated With International Operations and Sales.
Our customers are located throughout the world. Sales to unaffiliated customers
in non-US locations represented approximately 50% of our revenues in our first
fiscal quarter of 2004 and 51% in our fiscal year 2003. In addition, we have
significant international operations, including manufacturing facilities, sales
personnel and customer support operations. We have sales offices outside the US.
Our non-US manufacturing facilities are in Sweden and Germany, and we have a
regional fulfillment center in the Netherlands. Our non-US presence exposes us
to risks not faced by wholly US companies.
Specifically, we have experienced issues relating to integration of non-US
operations, greater difficulty in accounts receivable collection, longer payment
cycles, and currency fluctuations. Additionally, we face the following risks,
among others:
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o political, legal and economic instability in non-US markets, particularly
in those markets in which we maintain manufacturing and research
facilities;
o difficulties in staffing and management;
o language and cultural barriers;
o seasonal reductions in business activities in the summer months in Europe
and some other countries;
o war and acts of terrorism; and
o potentially adverse tax consequences.
In certain non-US markets, there may be reluctance to purchase products based on
GPS technology, given the control of GPS by the US Government.
We Are Exposed to Fluctuations in Currency Exchange Rates.
A significant portion of our business is conducted outside the United States,
and as such, we face exposure to adverse movements in non-US currency exchange
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on our financial results and cash flows. In
the first fiscal quarter of 2004, the US dollar continued to weaken against
several major currencies in which we do business, adversely impacting our
financial results. The weaker US dollar negatively impacts our operating income
due to significant manufacturing, distribution, research and development, and
selling expenses incurred outside of the US, while the weaker US dollar
positively impacts our revenues generated in foreign currencies, primarily the
Euro.
Currently, we hedge only those currency exposures associated with certain assets
and liabilities denominated in non-functional currencies and periodically will
hedge anticipated foreign currency cash flows. The hedging activities undertaken
by us are intended to offset the impact of currency fluctuations on certain
non-functional currency assets and liabilities. Our attempts to hedge against
these risks may not be successful resulting in an adverse impact on our net
income.
We Are Subject to the Impact of Governmental and Other Similar Certifications.
We market certain products that are subject to governmental and similar
certifications before they can be sold. For example, CE certification for
radiated emissions is required for most GPS receiver and data communications
products sold in the European Union. An inability to obtain such certifications
in a timely manner could have an adverse effect on our operating results. Also,
our products that use integrated radio communication technology require an end
user to obtain licensing from the Federal Communications Commission (FCC) for
frequency-band usage. These are secondary licenses that are subject to certain
restrictions. During the fourth quarter of 1998, the FCC temporarily suspended
the issuance of licenses for certain of our real-time kinematics products
because of interference with certain other users of similar radio frequencies.
<page>
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.
The Volatility of Our Stock Price Could Adversely Affect Your Investment in Our
Common Stock.
The market price of our common stock has been, and may continue to be, highly
volatile. During the first fiscal quarter of 2004, our stock price ranged from
$20.15 to $28.78. We believe that a variety of factors could cause the price of
our common stock to fluctuate, perhaps substantially, including:
o announcements and rumors of developments related to our business or the
industry in which we compete;
o quarterly fluctuations in our actual or anticipated operating results and
order levels;
o general conditions in the worldwide economy, including fluctuations in
interest rates;
o announcements of technological innovations;
o new products or product enhancements by us or our competitors;
o developments in patents or other intellectual property rights and
litigation;
o developments in our relationships with our customers and suppliers; and
o any significant acts of terrorism against the United States.
In addition, in recent years the stock market in general and the markets for
shares of "high-tech" companies in particular, have experienced extreme price
fluctuations which have often been unrelated to the operating performance of
affected companies. Any such fluctuations in the future could adversely affect
the market price of our common stock, and the market price of our common stock
may decline.
We are Subject to Environmental Laws and Potential Exposure to Environmental
Liabilities.
We are subject to various federal, state and local environmental laws and
regulations that govern our operations, including the handling and disposal of
non-hazardous and hazardous wastes, and emissions and discharges into the
environment. Failure to comply with such laws and regulations could result in
costs for corrective action, penalties, or the imposition of other liabilities.
We also are subject to laws and regulations that impose liability and clean-up
responsibility for releases of hazardous substances into the environment. Under
certain of these laws and regulations, a current or previous owner or operator
of property may be liable for the costs of remediating hazardous substances or
petroleum products on or from its property, without regard to whether the owner
or operator knew of, or caused, the contamination, as well as incur liability to
third parties impacted by such contamination. The presence of, or failure to
remediate properly, such substances could adversely affect the value and the
ability to transfer or encumber such property. Based on currently available
information, although there can be no assurance, we believe that such
liabilities will not have a material impact on our business.
Provisions in Our Charter Documents and Under California Law Could Prevent or
Delay a Change of Control, which Could Reduce the Market Price of Our Common
Stock.
Certain provisions of our articles of incorporation, as amended and restated,
our bylaws, as amended and restated, and the California General Corporation Law
may be deemed to have an anti-takeover effect and could discourage a third party
from acquiring, or make it more difficult for a third party to acquire, control
of us without approval of our board of directors. These provisions could also
limit the price that certain investors might be willing to pay in the future for
shares of our common stock. Certain provisions allow the board of directors to
authorize the issuance of preferred stock with rights superior to those of the
common stock.
We have adopted a Preferred Shares Rights Agreement, commonly known as a "poison
pill." The provisions described above, our poison pill and provisions of the
California General Corporation Law may discourage, delay or prevent a third
party from acquiring us.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
We are exposed to market risk related to changes in interest rates and foreign
currency exchange rates. We use certain derivative financial instruments to
manage these risks. We do not use derivative financial instruments for
<page>
speculative or trading purposes. All financial instruments are used in
accordance with policies approved by our board of directors.
Market Interest Rate Risk
We are exposed to market risk due to the possibility of changing interest rates
under our secured Credit Facility. Our Credit Facility is comprised of a
three-year, US dollar-only revolver that expires on June 25, 2006, and a
four-year term loan that expires on June 25, 2007. Borrowings under the Credit
Facility have interest payments based on a floating rate of LIBOR plus a number
of basis points tied to a formula based on our Leverage Ratio. The revolver
matures on June 25, 2006 and has an outstanding principal balance of $43
million, while the term loan matures on June 25, 2007 and has an outstanding
principal balance of $40.6 million, as of April 2, 2004 (all in US currency
only). The three-month LIBOR effective rate at April 2, 2004 was 1.11%. A
hypothetical 10% increase in three-month LIBOR rates could result in
approximately $92,000 annual increase in interest expense on the existing
principal balances. We have hedged the market risk with an interest rate swap on
50% of our term loan. The rate on that interest rate swap is 2.517%.
* The hypothetical changes and assumptions made above will be different from
what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by our management should the hypothetical
market changes actually occur over time. As a result, actual earnings effects in
the future will differ from those quantified above.
Foreign Currency Exchange Rate Risk
We enter into foreign exchange forward contracts to minimize the short-term
impact of foreign currency fluctuations on certain trade and inter-company
receivables and payables, primarily denominated in Australian, Canadian, New
Zealand, and Swedish currencies, the Euro, and the British pound. These
contracts reduce the exposure to fluctuations in exchange rate movements as the
gains and losses associated with foreign currency balances are generally offset
with the gains and losses on the forward contracts. These instruments are marked
to market through earnings every period and generally range from one to three
months in original maturity. We do not enter into foreign exchange forward
contract for trading purposes.
Foreign exchange forward contracts outstanding as of April 2, 2004 are
summarized as follows (in thousands):
April 2, 2004
-------------
Nominal Amount Fair Value
-------------- ----------
Forward contracts:
Purchased $ 15,420 $ (173)
Sold $ 30,493 $ 984
* We do not anticipate any material adverse effect on our consolidated financial
position utilizing our current hedging strategy.
ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures.
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act.
(b) Internal Control Over Financial Reporting.
There have not been any changes in the Company's internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the fiscal quarter to which this report relates
that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
<page>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation arising out of
the ordinary course of its business. There are no known claims or pending
litigation expected to have a material effect on the Company's overall financial
position, results of operations, or liquidity.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 15, 2004, Trimble issued 45,000 shares of common stock at a price of
$6.50 per share (as adjusted for the 3-for-2 stock split on March 4, 2004) to
James Sorden, a former executive officer of Trimble, pursuant to the exercise of
a Nonstatutory Stock Option Agreement dated March 29, 1999. The stock was exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
because the stock was issued as a result of a privately negotiated transaction
that did not involve a public offering by Trimble.
Our merger agreement with LeveLite provides for us to make earn-out payments not
to exceed an aggregate $3.9 million (in common stock and cash payment) based on
certain future revenues and payments received. Upon a hearing before the
California Department of Corporations in which the terms and conditions of the
offer to the LeveLite shareholders were approved, the shares of Common Stock to
be issued in the transaction were exempt from registration by reason of
qualification under Section 3(a)(10) of the Securities Act of 1933, as amended.
On January 26, 2004, we issued 10,491 shares of common stock, valued at $27.31
(each as adjusted for the 3-for-2 stock split on March 4, 2004) to the former
shareholders of Levelite pursuant to the merger agreement.
In the first fiscal quarter of 2004, the Company paid cash in lieu of fractional
shares of its common stock in connection with the 3-for-2 stock split on March
4, 2004 in the amounts shown in the table below.
<table>
<caption>
ISSUER PURCHASES OF EQUITY SECURITIES
-------------------------------------
Total Number of Shares Maximum Number (or Approximate
Total Number Average Purchased as Part of Dollar Value) of Shares that May
of Shares Price Paid Publicly Announced Plans Yet Be Purchased Under the Plans
Period Purchased per Share or Programs or Programs (1)
- ------ --------- --------- ----------- ---------------
<s> <c> <c> <c> <c>
February 7 -
March 5, 2004 997.5 $23.60 997.5 N/A
----- ------ -----
Total 997.5 $23.60 997.5 N/A
</table>
(1) Trimble's Board of Directors approved a 3-for-2 split of all outstanding
shares of the Company's Common Stock, payable March 4, 2004 to stockholders of
record on February 17, 2004. No further shares may be purchased by the Company
as a result of the 3-for-2 stock split on March 4, 2004. The Company has no
other plans for repurchase of its common stock in effect.
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)
<page>
3.4 Certificate of Determination of Trimble Navigation Limited, filed February
19, 1999. (1)
3.5 Certificate of Amendment of Articles of Incorporation of Trimble Navigation
Limited, filed May 29, 2003. (2)
3.6 Certificate of Amendment of Articles of Incorporation of Trimble Navigation
Limited, filed March 4, 2004. (4)
3.8 Amended and Restated Bylaws of Trimble Navigation Limited. (3)
31.1 Certification of Chief Executive Officer pursuant to Securities Exchange
Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 dated May 5, 2004. (4)
31.2 Certification of Chief Financial Officer pursuant to Securities Exchange
Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 dated May 5, 2004. (4)
32.1 Certification of Chief Executive Officer pursuant to section 18 U.S.C.
section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 dated May 5, 2004. (4)
32.2 Certification of Chief Financial Officer pursuant to section 18 U.S.C.
section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 dated May 5, 2004. (4)
- -------------------------
(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 3.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended July 4, 2003.
(3) Incorporated by reference to exhibit number 3.8 to the registrant's Annual
Report on Form 10-K for the fiscal year ended January 2, 2004.
(4) Filed herewith.
(b) Reports on Form 8-K
On February 3, 2004, the Company filed a report on Form 8-K to announce
that its Board of Directors approved a 3-for-2 split of all outstanding
shares of the Company's common stock, payable March 4, 2004 to stockholders
of record on February 17, 2004 and to announce its financial results for
the quarter and year ended January 2, 2004.
On February 17, 2004, the Company filed a report on Form 8-K to announce
that it had agreed to acquire privately-held TracerNET Corporation of
Chantilly, Virginia.
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: May 5, 2004
EXHIBIT INDEX
Exhibit Description
No.
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)
3.5 Certificate of Amendment of Articles of Incorporation of Trimble Navigation
Limited, filed May 29, 2003. (2)
3.6 Certificate of Amendment of Articles of Incorporation of Trimble Navigation
Limited, filed March 4, 2004. (4)
3.8 Amended and Restated Bylaws of Trimble Navigation Limited. (3)
31.1 Certification of Chief Executive Officer pursuant to Securities Exchange
Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 dated May 5, 2004. (4)
31.2 Certification of Chief Financial Officer pursuant to Securities Exchange
Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 dated May 5, 2004. (4)
32.1 Certification of Chief Executive Officer pursuant to section 18 U.S.C.
section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 dated May 5, 2004. (4)
32.2 Certification of Chief Financial Officer pursuant to section 18 U.S.C.
section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 dated May 5, 2004. (4)
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(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 3.5 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended July 4, 2003.
(3) Incorporated by reference to exhibit number 3.8 to the registrant's Annual
Report on Form 10-K for the fiscal year ended January 2, 2004.
(4) Filed herewith.