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 1, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number: 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact 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 in Rule 12b-2 of the Exchange Act).
Yes [ X ] No [ ]
As of May 6, 2005, there were 52,765,548 shares of Common Stock (no par value)
outstanding.
<page>
TRIMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter ended April 1, 2005
INDEX
PART I. Financial Information Page
ITEM 1. Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets --
April 1, 2005 and December 31, 2004 ................... 3
Condensed Consolidated Statements of Income --
Three Months Ended April 1, 2005 and April 2, 2004........ 4
Condensed Consolidated Statements of Cash Flows --
Three Months Ended April 1, 2005 and April 2, 2004........ 5
Notes to Condensed Consolidated Financial Statements.......... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.... 29
ITEM 4. Controls and Procedures....................................... 30
PART II. Other Information
ITEM 1. Legal Proceedings............................................. 30
ITEM 6. Exhibits...................................................... 31
SIGNATURES............................................................... 33
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
<table>
<caption>
April 1, December 31,
As at 2005 2004
(in thousands) (UNAUDITED) (1)
<s> <c> <c>
ASSETS
Current assets:
Cash and cash equivalents $ 50,193 $ 71,872
Accounts receivable, net 154,540 123,938
Other receivables 3,605 4,182
Inventories, net 91,309 87,745
Deferred income taxes 21,684 21,852
Other current assets 9,377 7,878
Total current assets 330,708 317,467
------- -------
Property and equipment, net 31,264 30,991
Goodwill and other intangible assets, net 274,879 273,357
Deferred income taxes 8,054 8,019
Other assets 23,982 24,144
------ ------
Total non-current assets 338,179 336,511
------- -------
Total assets $ 668,887 $ 653,978
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 12,500 $ 12,500
Accounts payable 45,672 43,551
Accrued compensation and benefits 27,928 31,202
Accrued liabilities 11,328 11,510
Deferred revenues 10,775 9,317
Accrued warranty expense 6,844 6,425
Deferred income taxes 1,466 2,521
Income taxes payable 16,823 11,951
------ ------
Total current liabilities 133,336 128,977
Non-current portion of long-term debt 16,336 26,496
Deferred gain on joint venture 9,304 9,179
Deferred income tax 6,363 5,435
Other non-current liabilities 13,360 11,730
------ ------
Total liabilities 178,699 181,817
------- -------
Commitments and contingencies -- --
Shareholders' equity:
Preferred stock no par value; 3,000 shares authorized; none outstanding -- --
Common stock, no par value; 90,000 shares authorized;
52,680 and 52,213 shares issued and outstanding at April 1, 2005 and
December 31, 2004, respectively 354,449 345,127
Retained earnings 100,109 82,670
Accumulated other comprehensive income 35,630 44,364
------ ------
Total shareholders' equity 490,188 472,161
------- -------
Total liabilities and shareholders' equity $ 668,887 $ 653,978
========== ==========
</table>
(1) Derived from the December 31, 2004 audited Consolidated Financial
Statements included in the Annual Report on Form 10-K of Trimble Navigation
Limited for fiscal year 2004.
See accompanying Notes to the Condensed Consolidated Financial Statements.
<page>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<table>
<caption>
Three Months Ended
------------------
April 1, April 2,
2005 2004
---- ----
(in thousands, except per share amounts)
<s> <c> <c>
Revenue (1) $ 195,383 $ 156,510
Cost of revenue 97,576 80,750
------ ------
Gross margin 97,807 75,760
Operating expenses
Research and development 21,828 18,848
Sales and marketing 30,371 26,304
General and administrative 12,832 10,386
Restructuring charges 278 --
Amortization of purchased intangible assets 2,298 1,984
----- -----
Total operating expenses 67,607 57,522
------ ------
Operating income 30,200 18,238
Non-operating income (expense), net
Interest income 129 98
Interest expense (740) (1,076)
Foreign currency transaction loss, net (157) (636)
Expenses for affiliated operations, net (3,039) (1,599)
Other income, net 30 80
-- --
Total non-operating expense, net (3,777) (3,133)
------ ------
Income before taxes 26,423 15,105
Income tax provision 8,984 2,265
----- -----
Net income $ 17,439 $ 12,840
============ ============
Basic earnings per share $ 0.33 $ 0.25
============ ============
Shares used in calculating basic earnings per share 52,500 50,418
============ ============
Diluted earnings per share $ 0.31 $ 0.24
============ ============
Shares used in calculating diluted earnings per share 56,371 54,215
</table>
(1) Sales to related parties were $2.2 million and $0.8 million for the three
month periods ended April 1, 2005 and April 2, 2004, respectively, while cost of
sales to those related parties were $0.9 and $0.3 million for the comparable
periods.
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 1, April 2,
2005 2004
---- ----
(In thousands)
<s> <c> <c>
Cash flow from operating activities:
Net income $ 17,439 $ 12,840
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation expense 2,512 2,191
Amortization expense 2,339 2,035
Provision for doubtful accounts 388 390
Amortization of debt issuance cost 122 122
Deferred income taxes 488 (93)
Other (51) (113)
Decrease (increase) in assets and liabilities:
Accounts receivable, net (32,155) (18,479)
Deferred revenues 1,513 685
Other receivables 456 698
Inventories (4,739) 6,561
Other current and non-current assets 1,054 (760)
Effect of foreign currency translation
adjustment 943 (403)
Accounts payable 2,121 5,600
Accrued compensation and benefits (3,033) (1,675)
Deferred gain on joint venture 125 (151)
Accrued liabilities 765 (1,588)
Income taxes payable 8,521 825
----- ---
Net cash provided by (used in) operating activities (1,192) 8,685
------ -----
Cash flow from investing activities:
Acquisition of property and equipment (3,164) (2,544)
Proceeds from sale of assets - 47
Cost of acquisitions, net of cash acquired (11,197) (9,179)
Costs of capitalized patents (75) (26)
--- ---
Net cash used in investing activities (14,436) (11,702)
------- -------
Cash flow from financing activities:
Issuance of common stock and warrants 5,566 4,211
Collection of notes receivable 110 53
Proceeds from long-term debt and revolving credit lines -- 9,000
Payments on long-term debt and revolving credit lines (10,125) (14,823)
------- -------
Net cash used in financing activities (4,449) (1,559)
------ ------
Effect of exchange rate changes on cash and cash equivalents (1,602) (639)
Net decrease in cash and cash equivalents (21,679) (5,215)
Cash and cash equivalents, beginning of period 71,872 45,416
------ ------
Cash and cash equivalents, end of period $ 50,193 $ 40,201
============= ============
</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 2004 was December 31. The first fiscal quarters of 2005 and
2004 ended on April 1, 2005 and April 2, 2004, respectively. Fiscal 2005 and
2004 are 52-week years. Unless otherwise stated, all dates refer to its fiscal
year and fiscal periods.
The accompanying financial data as of April 1, 2005 and for the three months
ended April 1, 2005 and April 2, 2004 has been prepared by the Company, without
audit, 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 2004 Annual Report on Form 10-K.
In the opinion of management, all adjustments (which include normal recurring
adjustments) necessary to present a fair statement of financial position as of
April 1, 2005, results of operations for the three months ended April 1, 2005
and April 2, 2004 and cash flows for the three months ended April 1, 2005 and
April 2, 2004, as applicable, have been made. The results of operations for the
three months ended April 1, 2005 are not necessarily indicative of the operating
results for the full fiscal year or any future periods.
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
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R requires employee stock options and rights to purchase shares under stock
participation plans to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing
model for estimating fair value, which is amortized to expense over the service
periods. The requirements of SFAS No. 123R are effective for fiscal periods
beginning after December 15, 2005. If the Company had applied the provisions of
SFAS No. 123R to the financial statements for the three month ended April 1,
2005 and April 2, 2004, assuming that adoption would result in amounts similar
to the current pro forma disclosures under SFAS 123, net income would have been
reduced by approximately $2.1 million and $2.2 million, respectively. SFAS No.
123R allows for either prospective recognition of compensation expense or
retrospective recognition, which may be back to the original issuance of SFAS
No. 123 or only to interim periods in the year of adoption. The Company is
currently evaluating these transition methods.
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 generally 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
<page>
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.
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.
Options
The fair value of options granted 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 1, 2005 and April 2, 2004:
Fiscal Years Ended April 1, April 2,
2005 2004
---- ----
Expected dividend yield -- --
Expected stock price volatility 57.42% 52.14%
Risk free interest rate 4.16% 2.83%
Expected life of options after vesting 1.71 1.58
An analysis of historical information is used to determine the Company's
assumptions, to the extent that historical information is relevant, based on the
terms of the grants being issued in any given period. The expected life for
options granted reflects options granted to existing employees that generally
vest ratably over five years from the date of grant.
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:
Three Months Ended
------------------
April 1, April 2,
2005 2004
---- ----
(in thousands, except per share amounts)
Net income - as reported $ 17,439 $ 12,840
Stock-based compensation expense, net of tax(1) 2,062 2,229
---------- ---------
Net income - pro forma $ 15,377 $ 10,611
Basic earnings per share - as reported $ 0.33 $ 0.25
---------- ---------
Basic earnings per share - pro forma $ 0.29 $ 0.21
---------- ---------
Diluted earnings per share - as reported $ 0.31 $ 0.24
---------- ---------
Diluted earnings per share - pro forma $ 0.27 $ 0.20
---------- ---------
(1) Our stock-based compensation expense reflects effective tax rates of 34% and
15% for the first three months of fiscal 2005 and 2004, respectively, consistent
with the income tax provision for the same periods.
NOTE 4. 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, as described in
Trimble's 2004 Annual Report on Form 10-K. The joint venture is equally owned by
Trimble and Caterpillar, with equal voting rights.
<page>
During the first quarter of fiscal 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. This un-amortized portion of the
deferred gain was approximately $9.3 million at April 1, 2005 and $9.2 million
at December 31, 2004. Both Trimble's share of profits (losses) under the equity
method and the amortization of the $11.0 million deferred gain are included in
expense for affiliated operations, net in the Condensed Consolidated Statements
of Income.
The net expenses for affiliated operations at CTCT 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 dedicated to CTCT
totaling $2.6 million and $2.3 million for the three months ended April 1, 2005
and April 2, 2004, respectively. The reimbursements were offset against
operating expenses.
April 1, April 2,
Three Months Ended 2005 2004
- ------------------ ---- ----
(In millions)
CTCT incremental pricing effects, net $ 3.1 $ 1.7
Trimble's 50% share of CTCT's reported (gain) loss (0.3) 0.2
Amortization of deferred gain 0.0 (0.2)
--- ----
Total CTCT expense for affiliated operations, net (1) $ 2.8 $ 1.7
===== =====
(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 1, 2005, the net outstanding balance due to CTCT from Trimble was
approximately $0.5 million recorded under the heading of accounts payable. The
net outstanding balance due from CTCT was $0.7 million at December 31, 2004 and
is included in account 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., as described in
Trimble's 2004 Annual Report on Form 10-K. Nikon-Trimble began operations in
July, 2003 and is equally owned by Trimble and Nikon, with equal voting rights.
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 Income under the heading of "Expenses for affiliated operations,
net." For the three months ended April 1, 2005 and April 2, 2004, Trimble
reported a loss of $0.2 million and a profit of $0.1 million, respectively, as
its proportionate share of the net income. At April 1, 2005 and December 31,
2004, the net payable by Trimble to Nikon-Trimble related to the purchase and
sale of products from and to Nikon-Trimble is $0.2 million and $2.5 million,
respectively, recorded under the heading of "Accounts Payable" on the Condensed
Consolidated Balance Sheets.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS:
Goodwill and purchased intangible assets consisted of the following:
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Intangible assets:
Intangible assets with definite life:
Existing technology $ 36,144 $ 35,037
Trade names, trademarks, patents, and other
intellectual properties 21,529 22,111
------ ------
Total intangible assets with definite life 57,673 57,148
Less accumulated amortization (44,864) (43,313)
------- -------
Total net intangible assets $ 12,809 $ 13,835
========== ==========
Total goodwill $ 262,070 $ 259,522
========== ==========
NOTE 6. CERTAIN BALANCE SHEET COMPONENTS:
Inventories consisted of the following:
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Raw materials $ 28,658 $ 26,062
Work-in-process 5,814 3,989
Finished goods 56,837 57,694
------ ------
$ 91,309 $ 87,745
======== ========
Property and equipment consisted of the following:
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Machinery and equipment $ 74,225 $ 71,882
Furniture and fixtures 11,176 10,521
Leasehold improvements 5,950 5,861
Buildings 5,298 5,297
Land 1,231 1,231
97,880 94,792
Less accumulated depreciation (66,616) (63,801)
------- -------
$ 31,264 $ 30,991
========== =========
Other current assets consisted of the following:
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Prepaid expenses $ 6,201 $ 5,775
Other 3,176 2,103
----- -----
$ 9,377 $ 7,878
======== ========
NOTE 7. 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 provides products for diverse applications in its targeted markets.
To achieve distribution, marketing, production, and technology advantages, the
Company manages its operations in the following five segments:
<page>
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 machine guidance and
control. The applications served include surveying, road, runway,
construction, site preparation and building construction.
o Field Solutions -- Consists of products that provide solutions in a variety
of agriculture and geographic information systems (GIS) applications. In
agriculture these include precise land leveling and machine guidance
systems. In GIS they include handheld devices and software that enable the
collection of data on assets for a variety of governmental and private
entities.
o Component Technologies -- Consists of products including proprietary
chipsets, printed circuit boards, modules, licenses of intellectual
property and end user devices. The applications into which end users
currently incorporate the component products include timing applications
for synchronizing wireless networks, in-vehicle navigation systems, fleet
management, and security systems.
o Mobile Solutions -- Consists of products that enable end users to monitor
and manage their mobile assets by communicating location and
activity-relevant information from the field to the office. Trimble offers
a range of products that address a number of sectors of this market
including truck fleets, security, and public safety vehicles.
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. This segment is comprised of the
Military and Advanced Systems and Applanix businesses, as well as Trimble
Outdoors which was introduced during the fourth quarter of fiscal 2004.
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. 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
Construction Solutions Technologies Solutions Technologies Total
------------ --------- ------------ --------- ------------ -----
(In thousands)
<s> <c> <c> <c> <c> <c> <c>
Three Months Ended April 1, 2005
External net revenues $120,198 $ 45,425 $ 14,197 $ 7,401 $ 8,162 $195,383
Operating income
(loss) before corporate
allocations 21,490 15,577 2,600 (636) 632 39,663
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
As of April 1, 2005
Accounts receivable (1) 105,511 36,047 8,525 7,969 7,919 165,971
Inventories 64,518 9,672 6,977 5,211 4,931 91,309
Goodwill 232,876 - - 16,189 13,005 262,070
As of December 31, 2004
Accounts receivable (1) 90,743 19,141 9,377 9,073 8,283 136,617
Inventories 65,116 7,016 5,271 5,735 4,607 87,745
Goodwill (2) 230,856 - - 15,605 13,061 259,522
</table>
(1) As presented, accounts receivable represents trade receivables, gross, which
are specified between segments.
(2) Our December 31, 2004 disclosure of goodwill by segment included $7.9
million in Engineering and Construction that should have been included in Mobile
Solutions. The classification has been corrected for the purposes of the April
1, 2005 Form 10-Q.
The following are reconciliations corresponding to totals in the accompanying
condensed consolidated financial statements:
April 1, April 2,
Three Months Ended 2005 2004
- ------------------ ---- ----
(in thousands)
Operating income:
Total for reporting segments $ 39,663 $ 25,737
Unallocated corporate expenses (9,463) (7,499)
------ ------
Operating income from continuing operations $ 30,200 $ 18,238
=========== ==========
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Assets:
Accounts receivable total for reporting segments $ 165,971 $ 136,617
Unallocated (1) (11,431) (12,679)
------- -------
Total $ 154,540 $ 123,938
========== ==========
(1) Includes trade-related accruals and cash received in advance that are not
allocated by segment.
NOTE 8. LONG-TERM DEBT:
Long-term debt consisted of the following:
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Credit Facilities:
Term loan $ 28,125 $ 31,250
Revolving credit facility - 7,000
Promissory notes and other 711 746
--- ---
28,836 38,996
Less current portion of long-term debt (12,500) (12,500)
------- -------
Non-current portion $ 16,336 $ 26,496
=========== ============
<page>
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 a Subordinated Note
and refinance $200 million of senior, secured credit facilities obtained in July
of 2000. The 2003 Credit Facility is used for ongoing working capital and
general corporate needs.
At April 1, 2005, Trimble had approximately $28.1 million of borrowings under
the 2003 Credit Facility, consisting of a $28.1 million term loan. The Company
has access to an additional $125 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 1,
2005 is at LIBOR plus a spread of 1.50%. The spread is tied to a formula based
on the Leverage Ratio.
The 2003 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 1, 2005 and as of the date of this report,
Trimble was in compliance with all financial debt covenants. The amount due
under the revolver loan is payable as the loan matures on June 25, 2006, and the
loan commitment fees are paid on a quarterly basis.
Under the terms of the 2003 Credit Facility, the Company is allowed to pay
dividends and repurchase shares of common stock up to 25% of net income in the
previous fiscal year.
Promissory Note and Others
As of April 1, 2005, the Company had other notes payable totaling approximately
$0.7 million primarily consisting of government loans in its foreign
subsidiaries.
NOTE 9. PRODUCT WARRANTIES:
Changes in the Company's product warranty liability during the three months
ended April 1, 2005 and April 2, 2004 are as follows:
April 1, April 2,
2005 2004
---- ----
Three Months Ended
(In thousands)
Beginning balance
$ 6,425 $ 5,147
Warranties accrued 2,357 1,611
Warranty claims (1,938) (1,131)
------ ------
Ending Balance $ 6,844 $ 5,627
=========== ============
The product warranty liability is classified as accrued warranty in the
accompanying condensed consolidated balance sheets.
NOTE 10. RESTRUCTURING CHARGES:
During the first quarter of fiscal 2005, the Company recorded a restructuring
charge of approximately $0.2 million associated with closure of one of its
offices as a result of integration efforts of a previous acquisition. The
restructuring amount is expected to be paid over several years based on the
underlying lease agreement. Payments of $0.1 million were made during the
quarter relating to previous restructuring plans. As of April 1, 2005, the
remaining restructuring accrual balance is $0.5 million of which $0.3 million
relates to employee severance costs expected to be paid by the end of fiscal
year 2005 under previous restructuring plans and approximately $0.2 million
associated with the exit under the plan previously described above. The
restructuring accrual is included on the Condensed Consolidated Balance Sheets
under the heading of "Accrued Liabilities". No restructuring charges were
recorded during the three months ended April 2, 2004.
NOTE 11. EARNINGS PER SHARE:
The following data was used in computing earnings per share and the effect on
the weighted-average number of shares of potentially dilutive Common Stock.
<page>
<table>
<caption>
April 1, April 2,
Three Months Ended 2005 2004
- ------------------ ---- ----
(in thousands, except per share amounts)
<s> <c> <c>
Numerator:
Income available to common shareholders:
Used in basic and diluted earnings per share $ 17,439 $ 12,840
=========== ============
Denominator:
Weighted-average number of common shares used in basic earnings
per share 52,571 50,418
Effect of dilutive securities (using treasury stock method):
Common stock options 3,009 2,961
Common stock warrants 791 836
--- ---
Weighted-average number of common shares and dilutive potential 56,371 54,215
common shares used in diluted earnings per share
Basic earnings per share $ 0.33 $ 0.25
=========== ============
Diluted earnings per share $ 0.31 $ 0.24
=========== ============
</table>
NOTE 12. COMPREHENSIVE INCOME:
The components of comprehensive income, net of related tax as follows:
April 1, April 2,
Three Months Ended 2005 2004
- ------------------ ---- ----
(in thousands)
Net income $ 17,439 $ 12,840
Foreign currency translation adjustments, net of tax (8,828) (3,645)
Net gain (loss) on hedging transactions 118 98
Net unrealized gain (loss) on foreign currency (24) --
---
Total comprehensive income $ 8,705 $ 9,293
========= ========
The components of accumulated other comprehensive income, net of related tax as
follows:
April 1, December 31,
As of 2005 2004
- ----- ---- ----
(in thousands)
Accumulated foreign currency translation adjustments $ 35,363 $ 44,191
Accumulated net gain on hedging transactions 224 106
Accumulated net unrealized gain on foreign currency 43 67
-- --
Total accumulated other comprehensive income $ 35,630 $ 44,364
========= =========
NOTE 13. 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 the Company, under a non-cancelable
operating lease arrangement expiring in 2011. The annual rent is subject to
adjustment based on the terms of the lease. The Condensed Consolidated
Statements of Income include expenses from this operating lease of approximately
$86,000 for both of the three months ended April 1, 2005 and April 2, 2004.
Related-Party Notes Receivable
<page>
Trimble has notes receivable from officers and employees of approximately $0.2
million as of April 1, 2005 and $0.4 million as of December 31, 2004. The notes
bear interest from 4.52% to 6.62% and have an average remaining life of 0.8
years as of April 1, 2005.
See Note 4 to the Notes to the Condensed Consolidated Financial Statements for
additional information regarding Trimble's related party transactions with joint
venture partners.
NOTE 14. 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 2004 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 2004.
RECENT BUSINESS DEVELOPMENTS
Apache
* During the second quarter of fiscal 2005, we acquired Apache Technologies,
Inc. Apache designs, manufactures, and distributes professional laser products
for construction leveling and alignment applications. We expect the Apache
acquisition to extend our laser product portfolio for handheld laser detectors
and entry-level machine displays and control systems. Apache's performance will
be reported under our Engineering and Construction segment.
Pacific Crest
* During the first quarter of fiscal 2005, we acquired Pacific Crest
Corporation, a supplier of wireless data communication systems for positioning
and environmental monitoring applications. We expect the Pacific Crest
acquisition to further enhance our wireless data communications capabilities in
the Engineering and Construction business segment.
Trimble Outdoors
* During the fourth quarter of fiscal 2004 we launched Trimble Outdoors. Trimble
Outdoors is a consumer business utilizing GPS enabled cell phones to provide
information for outdoor recreational activities. Trimble Outdoors' performance
is reported under our Portfolio segment.
GeoNav
* During the third quarter of fiscal 2004 we acquired GeoNav GmbH, a small
provider of customized field data collection solutions for the cadastral survey
market in Europe. We expect the acquisition to augment our capability for
localization of our products in Europe. GeoNav's performance is reported under
our Engineering and Construction segment.
<page>
The effects of these acquisitions were not material to our results.
RESULTS OF OPERATIONS
Overview
The following table is a summary of revenue and operating income for the periods
indicated and should be read in conjunction with the narrative descriptions
below.
Three Months Ended
------------------
April 1, April 2,
2005 2004
---- ----
(in thousands)
Total consolidated revenue $ 195,383 $ 156,510
Gross margin 97,807 75,760
Total consolidated operating income 30,200 18,238
Revenue
In the fiscal quarter ended April 1, 2005, total revenue increased by $38.9
million or 24.8%, as compared to the same corresponding period in fiscal 2004.
The increase was primarily due to stronger performances in most of our operating
segments, particularly our Engineering and Construction and Field Solutions
businesses. Additionally, revenue was favorably impacted by new products such as
the Trimble S6 Total Station, AgGPS(R) EZ-Steer(TM) systems, and the GCS Grade
Control systems. Continued subscriber growth in the Mobile Solutions business
also contributed to revenue growth in the quarter.
Total revenue outside the United States comprised approximately 46% and 50% for
the three months ended April 1, 2005 and April 2, 2004, respectively. During the
first quarter of fiscal 2005, North and South America represented 63%, Europe,
the Middle East and Africa represented 25%, and Asia/Pacific Rim represented 12%
of total revenues. For the comparable period in fiscal 2004, North and South
America represented 57%, Europe, the Middle East and Africa represented 30%, and
Asia/Pacific Rim represented 13% of total revenues.
Gross Margin
Gross margin as a percentage of total revenues was 50.1% and 48.4% for the first
quarter of fiscal 2005 and 2004, respectively. The increase was primarily due to
higher margins in new agriculture products in our Field Solutions business, and
a move towards profitability in the Mobile Solutions business, partially offset
by a decline in margins in the Component Technologies business.
* Gross margin could be impacted by product mix, changes in unit selling prices,
fluctuations in unit manufacturing costs and foreign currencies, and alternative
sourcing strategies.
Operating Income
Operating income as a percentage of total revenue was 15.5% and 11.7% for the
first quarter of fiscal 2005 and 2004, respectively. The increase is driven by
an increase in revenues, higher gross margins, and greater leverage of operating
expenses.
Results by Segment
To achieve distribution, marketing, production, and technology advantages in our
targeted markets, we manage our operations in the following five segments:
Engineering and Construction, Field Solutions, Component Technologies, Mobile
Solutions, and Portfolio Technologies. Operating income (loss) is net revenue
less cost of revenue and operating expenses, excluding general corporate
expenses, amortization of purchased intangibles, restructuring charges,
non-operating income (expense), and income taxes.
The following table is a breakdown of revenue and operating income by segment
(in thousands, except percentages):
<page>
Three Months Ended
------------------
April 1, April 2,
2005 2004
---- ----
Engineering and Construction
Revenue 120,198 102,482
Segment revenue as a percent of total revenue 62% 66%
Operating income 21,490 16,498
Operating income as a percent of segment revenue 18% 16%
Field Solutions
Revenue 45,425 24,713
Segment revenue as a percent of total revenue 23% 16%
Operating income 15,577 6,054
Operating income as a percent of segment revenue 34% 24%
Component Technologies
Revenue 14,197 16,415
Segment revenue as a percent of total revenue 7% 10%
Operating income 2,600 3,926
Operating income as a percent of segment revenue 18% 24%
Mobile Solutions
Revenue 7,401 5,262
Revenue as a percent of total revenue 4% 3%
Operating loss (636) (1,643)
Operating loss as a percent of segment revenue (9%) (31%)
Portfolio Technologies
Revenue 8,162 7,638
Segment revenue as a percent of total revenue 4% 5%
Operating income 632 902
Operating income as a percent of segment revenue 8% 12%
A reconciliation of our consolidated segment operating income to consolidated
income before income taxes follows:
April 1, April 2,
Three Months Ended 2005 2004
------------------ ---- ----
(In thousands)
Consolidated segment operating income $ 39,663 $ 25,737
Unallocated corporate expense (6,887) (5,515)
Amortization of purchased intangible assets (2,298) (1,984)
Restructuring charges (278) --
Non-operating expense, net (3,777) (3,133)
------ ------
Consolidated income before income taxes $ 26,423 $ 15,105
========= ========
Engineering and Construction
Engineering and Construction revenues increased by $17.7 million or 17.3% while
segment operating income increased $5.0 million or 30.3% for the three months
ended April 1, 2005 as compared to the same corresponding period in fiscal 2004.
Demand for machine control and survey products solutions, in particular the new
survey product, Trimble S6 Total Station, resulted in increased sales across all
product categories. Sales of the S6 Total Station are driven by product
upgrades, while machine control products are penetrating the engineering and
construction markets as these markets increasingly move toward technology
solutions to reduce rework and increase productivity. Segment operating income
increased as a result of higher revenues and leveraging of operating expense.
Field Solutions
<page>
Field Solutions revenues increased by $20.7 million or 83.8% while segment
operating income increased $9.5 million or 157.3% for the three months ended
April 1, 2005 as compared to the same corresponding periods in fiscal 2004.
Revenues increased primarily as a result of higher demand for both automated and
manual guidance products into the agricultural market. Guidance products are now
beginning to penetrate the agriculture market as farmers begin to utilize
technology to increase yields and improve productivity. For example, in the last
year the Company has introduced several new products into the market including
the AgGPS(R) EZ-Guide(R) and AgGPS(R) EZ-Steer(TM) systems. The increase in
segment operating income was primarily due to higher revenues and a more
favorable product mix.
Component Technologies
Component Technologies revenues decreased by $2.2 million or 13.5% while segment
operating income decreased by $1.3 million or 33.8% for the three months ended
April 1, 2005 as compared to the corresponding period in fiscal 2004. The
decrease in revenues for the three months ended April 1, 2005 as compared to the
same period in fiscal 2004 was primarily due to the decline in demand for our
in-vehicle navigation and higher margin timing businesses. The segment operating
income decrease was primarily due to lower revenues and a less favorable product
mix.
Mobile Solutions
Mobile Solutions revenues increased by $2.1 million or 40.6% while segment
operating loss decreased by $1.0 million or 61.3% for the three months ended
April 1, 2005 as compared to the corresponding period in fiscal 2004. Revenues
grew due to increased subscriber growth which was up by approximately 300%
compared to the same prior fiscal quarter, an increase in sales into the
construction materials vertical, primarily ready-mix suppliers, and increased
sales from our dealer channel as we continue to develop and extend this channel.
Losses decreased for the first three months of fiscal 2005 versus the same
period last year due to increased revenues.
Portfolio Technologies
Portfolio Technologies revenues increased by $0.5 million or 6.9% while
operating income decreased by $0.3 million or 29.9% for the three months ended
April 1, 2005 as compared to the corresponding period in fiscal 2004. The
increase in revenue was primarily due to strong performance of Applanix'
Airborne Business Unit and in particular its Digital Sensor System (DSS) product
which was launched in 2004, offset by lower sales of defense products. Operating
income decreased primarily due to investment in our recently announced business,
Trimble Outdoors.
Research and Development, Sales and Marketing, and General and Administrative
Expenses
Research and development ("R&D"), sales and marketing, and general and
administrative ("G&A") expenses are summarized in the following table (in
thousands, except percentages):
Three Months Ended
------------------
Variance Variance
April 1, April 2, in in
2005 2004 Dollars Percent
---- ---- ------- -------
Research and development $ 21,828 $ 18,848 $ 2,980 15.8%
Percentage of revenue 11.2% 12.0%
Sales and marketing 30,371 26,304 4,067 15.5%
Percentage of revenue 15.5% 16.8%
General and administrative 12,832 10,386 2,446 23.6%
Percentage of revenue 6.6% 6.6%
--- ---
Total 65,031 55,538 9,493 17.1%
------ ------ ----- ----
Percentage of revenue 33.3% 35.5%
The increase in R&D expenses in the first quarter of fiscal 2005 as compared
with the first quarter of fiscal 2004 was primarily due to the continued
investment in next generation technologies and spending on the development of
new products, primarily within our Engineering and Construction and Field
Solutions businesses. All of our R&D costs have been expensed as incurred.
<page>
* 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.
The increase in sales and marketing expenses in the first quarter of fiscal 2005
as compared with the first quarter of fiscal 2004 was primarily due to increased
promotional activities associated with the launch of new products (primarily
related to the Engineering and Construction and Field Solutions businesses),
trade show expense, increased commissions as a result of higher revenues, and
higher compensation costs.
* 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 develop new markets for our products.
The increase in G&A expenses in the first quarter of fiscal 2005 as compared
with the first quarter of fiscal 2004 was primarily due to higher compensation
costs and compliance costs including those related to Section 404 of the
Sarbanes Oxley Act.
Restructuring Charges
During the first quarter of fiscal 2005, we recorded a restructuring charge of
approximately $0.2 million associated with closure of one of our offices as a
result of integration efforts of a previous acquisition. The restructuring
amount is expected to be paid over several years based on the underlying lease
agreement. Payments of $0.1 million were made during the quarter relating to
previous restructuring plans. As of April 1, 2005, the remaining restructuring
accrual balance is $0.5 million of which $0.3 million relates to employee
severance costs expected to be paid by the end of fiscal year 2005 under
previous restructuring plans and approximately $0.2 million associated with the
exit under the plan previously described above. The restructuring accrual is
included on the Condensed Consolidated Balance Sheets under the heading of
"Accrued Liabilities". No restructuring charges were recorded during the three
months ended April 2, 2004.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets included in operating expenses was
$2.3 million in the first quarter of fiscal 2005, compared with $2.0 million in
the first quarter of fiscal 2004. The increase was primarily due to the
acquisition of certain technology and patent intangibles as a result of the
Pacific Crest and GeoNav acquisitions not applicable in the comparable periods
of fiscal 2004.
Non-operating Expense, Net
The components of non-operating expense, net, are as follows (in thousands):
Three Months Ended
------------------
April 1, April 2,
2005 2004
---- ----
Interest income $ 129 $ 98
Interest expense (740) (1,076)
Foreign currency transaction loss, net (157) (636)
Expenses for affiliated operations, net (3,039) (1,599)
Other income, net 30 80
-- --
Total non-operating expense, net $ (3,777) $ (3,133)
-------- --------
Non-operating expense, net increased by $0.6 million or 20.5% during the first
quarter of fiscal 2005, as compared with the corresponding period in fiscal 2004
primarily due to an increase in expense for affiliated operations, offset by a
reduction in foreign currency transaction loss and interest expense. The
increase in expense for affiliated operations was primarily due to transfer
pricing effects of transactions between us and the Caterpillar joint venture.
Income Tax Provision
Our income tax provision reflects an effective tax rate of 34% for the three
months ended April 1, 2005 and 15% for the three months ended April 2, 2004. The
2004 first fiscal quarter tax rate of 15% reflects benefits from utilizing net
operating loss and tax credit carry-forwards. The 2005 first fiscal quarter tax
rate of 34% is higher than the 2004 first fiscal quarter tax rate due to higher
levels of profits and limited remaining benefits of tax carry-forwards and other
deferred tax assets.
<page>
In October 2004, The American Jobs Creation Act of 2004 was signed into law
providing changes in the tax law including an incentive to repatriate
undistributed earnings of foreign subsidiaries. We are currently evaluating the
potential impact of these provisions, including assessing the details of the
Act, analyzing the funds available for repatriation, the economic cost of doing
so and assessing the qualified uses of repatriated funds. However, given the
preliminary stage of our evaluation, it is not possible to determine the impact
to our fiscal year 2005 income tax provision. The Company expects to complete
its evaluation in the latter part of 2005.
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 1, December 31,
As of 2005 2004
- ----- ---- ----
(dollars in thousands)
Cash and cash equivalents $ 50,193 $ 71,872
Accounts receivable days sales outstanding 62 63
Inventory turns per year 4 4
Total debt $ 28,836 $ 38,996
April 1, April 2,
Three Months Ended 2005 2004
- ------------------ ---- ----
(in thousands)
Net cash provided by (used in) operating activities $ (1,192) $ 8,685
Net cash used in investing activities (14,436) (11,702)
Net cash used in financing activities (4,449) (1,559)
Net decrease in cash and cash equivalents (21,679) (5,215)
Cash and Cash Equivalents
Cash and cash equivalents decreased by $21.7 million or 30.2% from December 31,
2004 primarily due to acquisitions and payment of our debt.
* For the first three months of fiscal 2005, cash used in operating activities
was $1.2 million, compared to $8.7 million cash provided by operating activities
during the first three months of fiscal 2004. This decrease was driven by an
increase in accounts receivable of $32.2 million, offset by an increase in net
income. 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 62 days from 63 days at
the end of fiscal 2004. Inventory turns were four in both the first quarter of
fiscal 2005 and in the fourth quarter of fiscal 2004.
We used $14.4 million in net cash for investing activities during the first
three months of 2005, compared to $11.7 million in the first three months of
2004. The increase was primarily due to cash acquisitions.
* We expect fiscal 2005 capital expenditures to be approximately $14 million to
$15 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.
We used $4.4 million in net cash for financing activities in the first three
months of 2005, compared to $1.6 million in the first three months of 2004. This
increase was primarily a result of more debt repayments ($10.1 million) compared
to net repayments of $5.8 million during the same period in 2004.
<page>
* We believe that our cash and cash equivalents, together with available funds
under our credit facilities ($125 million as of April 1, 2005), will be
sufficient to meet our anticipated operating cash needs for at least the next
twelve months.
Debt
At April 1, 2005, our total debt was approximately $28.8 million as compared
with approximately $39.0 million at the end of fiscal 2004. This balance
primarily consists of a term loan. The senior secured revolving credit facility
has been fully repaid.
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 1, 2005 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 $9.3 million in fiscal 2005, $12.5 million
in fiscal 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 8 of Notes to the
Condensed Consolidated Financial Statements.
New Accounting Standards
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment." SFAS No.
123R requires employee stock options and rights to purchase shares under stock
participation plans to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS No. 123. SFAS No. 123R requires the use of an option pricing
model for estimating fair value, which is amortized to expense over the service
periods. The requirements of SFAS No. 123R are effective for fiscal periods
beginning after December 15, 2005. SFAS No. 123R allows for either prospective
recognition of compensation expense or retrospective recognition, which may be
back to the original issuance of SFAS No. 123 or only to interim periods in the
year of adoption. We are currently evaluating these transition methods.
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.
<page>
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.
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.
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
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.
<page>
Failure to maintain effective internal controls in compliance with Section 404
of the Sarbanes-Oxley Act could have an adverse effect on our business and stock
price.
Section 404 of the Sarbanes-Oxley Act requires us to include an internal control
report of management in our Annual Report on Form 10-K. For fiscal 2004 we
satisfied the requirements of Section 404, which requires annual management
assessments of the effectiveness of our internal controls over financial
reporting and a report by our independent auditors addressing these assessments.
A system of controls, however well designed and operated, cannot provide
absolute assurance that the objectives of the system will be met. In addition,
the design of a control system is based in part upon certain assumptions about
the likelihood of future events. Because of the inherent limitations of control
systems, there is only reasonable assurance that our controls will succeed in
achieving their stated goals under all potential future conditions.
We Are Dependent on New Products.
Our future revenue stream depends to a large degree on our ability to bring new
products to market on a timely basis. We must continue to make significant
investments in research and development in order to continue to develop new
products, enhance existing products and achieve market acceptance of such
products. We may incur problems in the future in innovating and introducing new
products. Our development stage products may not be successfully completed or,
if developed, may not achieve significant customer acceptance. If we were unable
to successfully define, develop and introduce competitive new products, and
enhance existing products, our future results of operations would be adversely
affected. Development and manufacturing schedules for technology products are
difficult to predict, and we might not achieve timely initial customer shipments
of new products. The timely availability of these products in volume and their
acceptance by customers are important to our future success. A delay in new
product introductions could have a significant impact on our results of
operations.
Our products may contain errors or defects, which could result in damage to our
reputation, lost revenues, diverted development resources and increased service
costs, warranty claims and litigation.
Our devices are complex and must meet stringent requirements. We warrant that
our products will be free of defect for various periods of time, depending on
the product. In addition, certain of our contracts include epidemic failure
clauses. If invoked, these clauses may entitle the customer to return or obtain
credits for products and inventory, or to cancel outstanding purchase orders
even if the products themselves are not defective.
We must develop our products quickly to keep pace with the rapidly changing
market, and we have a history of frequently introducing new products. Products
and services as sophisticated as ours could contain undetected errors or
defects, especially when first introduced or when new models or versions are
released. In general, our products may not be free from errors or defects after
commercial shipments have begun, which could result in damage to our reputation,
lost revenues, diverted development resources, increased customer service and
support costs and warranty claims and litigation which could harm our business,
results of operations and financial condition.
We May Not Be Able to Enter Into or Maintain Important Alliances.
We believe that in certain business opportunities our success will depend on our
ability to form and maintain alliances with industry participants, such as
Caterpillar, Nikon, and CNH Global. Our failure to form and maintain such
alliances, or the pre-emption of such alliances by actions of other competitors
or us, will adversely affect our ability to penetrate emerging markets. No
assurances can be given that we will not experience problems from current or
future alliances or that we will realize value from any such strategic
alliances.
We 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.
<page>
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.
We Are Subject to the Adverse Impact of Radio Frequency Congestion.
We have certain products, such as GPS RTK systems, and surveying and mapping
systems that use integrated radio communication technology requiring access to
available radio frequencies allocated by the FCC (or the NTIA in the case of
federal government users of this equipment) for which the end user is required
to obtain a license in order to operate their equipment. In addition, access to
these frequencies by state agencies is under management by state radio
communications coordinators. Some bands are experiencing congestion that
excludes their availability for access by state agencies in some states. To
reduce congestion, the FCC announced that it will require migration of radio
technology from wideband to narrowband operations in these bands. 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 29 satellites in place, some have already been in
operation for 12 years. To repair damaged or malfunctioning satellites is
currently not economically feasible. If a significant number of satellites were
to become inoperable, there could be a substantial delay before they are
replaced with new satellites. A reduction in the number of operating satellites
may impair the current utility of the GPS system and the growth of current and
additional market opportunities.
In 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
reaffirmed in 2004. 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 begun development of an independent satellite
navigation system, known as Galileo. We believe we will have access to the
signal design to develop compatible receivers. However, if access to the signal
structure is delayed it may have a materially adverse effect on our business and
operating results.
<page>
Our Business is Subject to Disruptions and Uncertainties Caused by War or
Terrorism.
Acts of war or acts of terrorism could have a material adverse impact on our
business, operating results, and financial condition. The threat of terrorism
and war and heightened security and military response to this threat, or any
future acts of terrorism, may cause further disruption to our economy and create
further uncertainties. To the extent that such disruptions or uncertainties
result in delays or cancellations of orders, or the manufacture or shipment of
our products, our business, operating results, and financial condition could be
materially and adversely affected.
We Face Risks in Investing in and Integrating New Acquisitions.
Acquisitions of companies, divisions of companies, or products entail numerous
risks, including:
o potential inability to successfully integrate acquired operations and
products or to realize cost savings or other anticipated benefits from
integration;
o diversion of management's attention;
o loss of key employees of acquired operations;
o the difficulty of assimilating geographically dispersed operations and
personnel of the acquired companies;
o the potential disruption of our ongoing business;
o unanticipated expenses related to such integration;
o the correct assessment of the relative percentages of in-process
research and development expense that can be immediately written off
as compared to the amount which must be amortized over the appropriate
life of the asset;
o the impairment of relationships with employees and customers of either
an acquired company or our own business;
o the potential unknown liabilities associated with acquired business;
and
o inability to recover strategic investments in development stage
entities.
As a result of such acquisitions, we have significant assets that include
goodwill and other purchased intangibles. The testing of these intangibles under
established accounting guidelines for impairment requires significant use of
judgment and assumptions. Changes in business conditions could require
adjustments to the valuation of these assets. In addition, losses incurred by a
company in which we have an investment may have a direct impact on our financial
statements or could result in our having to write-down the value of such
investment. Any such problems in integration or adjustments to the value of the
assets acquired could harm our growth strategy and have a material adverse
effect on our business, financial condition and compliance with debt covenants.
We Face Competition in Our Markets.
Our markets are highly competitive and we expect that both direct and indirect
competition will increase in the future. Our overall competitive position
depends on a number of factors including the price, quality and performance of
our products, the level of customer service, the development of new technology
and our ability to participate in emerging markets. Within each of our markets,
we encounter direct competition from other GPS, optical and laser suppliers and
competition may intensify from various larger US and non-US competitors and new
market entrants, some of which may be our current customers. The competition in
the future may, in some cases, result in price reductions, reduced margins or
loss of market share, any of which could materially and adversely affect our
business, operating results and financial condition. We believe that our ability
to compete successfully in the future against existing and additional
competitors will depend largely on our ability to execute our strategy to
provide systems and products with significantly differentiated features compared
to currently available products. We may not be able to implement this strategy
successfully, and our products may not be competitive with other technologies or
products that may be developed by our competitors, many of whom have
significantly greater financial, technical, manufacturing, marketing, sales and
other resources than we do.
We Are Dependent on Proprietary Technology.
Our future success and competitive position is dependent upon our proprietary
technology, and we rely on patent, trade secret, trademark and copyright law to
protect our intellectual property. The patents owned or licensed by us may be
invalidated, circumvented, and challenged. The rights granted under these
<page>
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.
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 locations 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 46% of our revenues in our first
fiscal quarter of 2005 and 50% in our fiscal year 2004. In addition, we have
significant international operations, including a joint venture, manufacturing
facilities, sales personnel and customer support operations. We have sales
offices outside the US. Our non-US manufacturing facilities are in Sweden,
Canada, France, 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.
<page>
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 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
quarter of fiscal 2005, 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. The hedging activities
undertaken by us are intended to offset the impact of currency fluctuations on
certain non-functional currency assets and liabilities. Our attempts to hedge
against these risks may not be successful resulting in an adverse impact on our
net income.
We Are Subject to the Impact of Governmental and Other Similar Certifications.
We market certain products that are subject to governmental and similar
certifications before they can be sold. For example, CE certification for
radiated emissions is required for most GPS receiver and data communications
products sold in the European Union. An inability to obtain such certifications
in a timely manner could have an adverse effect on our operating results. Also,
some of our products that use integrated radio communication technology require
an end user to obtain licensing from the Federal Communications Commission (FCC)
for frequency-band usage. These are secondary licenses that are subject to
certain restrictions. During the fourth quarter of 1998, the FCC temporarily
suspended the issuance of licenses for certain of our real-time kinematic
products because of interference with certain other users of similar radio
frequencies. An inability or delay in obtaining such certifications or changes
to the rules by the FCC could adversely affect our ability to bring our products
to market which could harm our customer relationships and have a material
adverse effect on our business.
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 2005, our stock price ranged from
$38.24 to $30.04. 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 may be Materially Affected by New Regulatory Requirements.
We face increasing complexity in our product design and procurement operations
as we adjust to new and upcoming requirements relating to the materials
composition of many of our products. The European Union ("EU") has adopted two
directives to facilitate the recycling of electrical and electronic equipment
sold in the EU. The first of these is the Waste Electrical and Electronic
Equipment (WEEE) directive, which directs EU member states to enact laws,
regulations, and administrative provisions to ensure that producers of
electrical and electronic equipment are financially responsible for specified
<page>
collection, recycling, treatment and environmentally sound disposal of products
placed on the market after August 13, 2005 and from products in use prior to
that date that are being replaced. The EU has also adopted the Restriction on
the Use of Certain Hazardous Substances in Electrical and Electronic Equipment
("RoHS") directive. The RoHS directive restricts the use of lead, mercury and
certain other substances in electrical and electronic products placed on the
market in the European Union after July 1, 2006.
Similar laws and regulations have been or may be enacted in other regions,
including in the United States, China and Japan. Other environmental regulations
may require us to reengineer our products to utilize components which are more
environmentally compatible and such reengineering and component substitution may
result in additional costs to us. Although we do not anticipate any material
adverse effects based on the nature of our operations and the effect of such
laws, there is no assurance that such existing laws or future laws will not have
a material adverse effect on our business.
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
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 has
an outstanding principal balance of $0, while the term loan has an outstanding
principal balance of $28.1 million, as of April 1, 2005 (all in US currency
only). The three-month LIBOR effective rate at April 1, 2005 was 3.0925%. A
hypothetical 10% increase in three-month LIBOR rates could result in
approximately $87,000 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 at a fixed rate (LIBOR) of 2.517%.
<page>
* 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
contracts for trading purposes.
Foreign exchange forward contracts outstanding as of April 1, 2005 are
summarized as follows (in thousands):
April 1, 2005
-------------
Nominal Amount Fair Value
-------------- ----------
Forward contracts:
Purchased $ (18,145) $ (221)
Sold $ 25,713 $ 338
* 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.
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.
<page>
ITEM 6. EXHIBITS
3.1 Restated Articles of Incorporation of the Company filed June 25, 1986. (3)
3.2 Certificate of Amendment of Articles of Incorporation of the Company filed
October 6, 1988. (3)
3.3 Certificate of Amendment of Articles of Incorporation of the Company filed
July 18, 1990. (3)
3.4 Certificate of Determination of the Company filed February 19, 1999. (3)
3.5 Certificate of Amendment of Articles of Incorporation of the Company filed
May 29, 2003. (7)
3.6 Certificate of Amendment of Articles of Incorporation of the Company filed
March 4, 2004. (9)
3.8 Amended and Restated Bylaws of the Company. (8)
4.1 Specimen copy of certificate for shares of Common Stock of the Company. (1)
4.2 Preferred Shares Rights Agreement dated as of February 18, 1999. (2)
4.3 Agreement of Substitution and Amendment of Preferred Shares Rights
Agreement dated September 10, 2004. (10)
4.4 First Amended and Restated Stock and Warrant Purchase Agreement between and
among the Company and the investors thereto dated January 14, 2002. (4)
4.5 Form of Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(5)
4.6 Form of Warrant dated April 12, 2002. (6)
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 10, 2005. (11)
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 10, 2005. (11)
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 10, 2005. (11)
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 10, 2005. (11)
- ----------
(1) Incorporated by reference to exhibit number 4.1 to the registrant's
Registration Statement on Form S-1, as amended (File No. 33-35333), which
became effective July 19, 1990.
(2) Incorporated by reference to exhibit number 1 to the registrant's
Registration Statement on Form 8-A, which was filed on February 18, 1999.
(3) Incorporated by reference to identically numbered exhibits to the
registrant's Annual Report on Form 10-K for the fiscal year ended January
1, 1999.
(4) Incorporated by reference to exhibit number 4.1 to the registrant's Current
Report on Form 8-K filed on January 16, 2002.
(5) Incorporated by reference to exhibit number 4.2 to the registrant's Current
Report on Form 8-K filed on January 16, 2002.
<page>
(6) Incorporated by reference to exhibit number 4.1 to the registrant's
Registration Statement on Form S-3 filed on April 19, 2002.
(7) 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.
(8) Incorporated by reference to exhibit number 3.8 to the registrant's Annual
Report on Form 10-K for the year ended January 2, 2004.
(9) Incorporated by reference to exhibit number 3.6 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended April 2, 2004.
(10) Incorporated by reference to exhibit number 4.3 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2004.
(11) Filed herewith.
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/ Rajat Bahri
---------------
Rajat Bahri
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
DATE: May 10, 2005
EXHIBIT INDEX
Exhibit
No. Description
3.1 Restated Articles of Incorporation of the Company filed June 25, 1986. (3)
3.2 Certificate of Amendment of Articles of Incorporation of the Company filed
October 6, 1988. (3)
3.3 Certificate of Amendment of Articles of Incorporation of the Company filed
July 18, 1990. (3)
3.4 Certificate of Determination of the Company filed February 19, 1999. (3)
3.5 Certificate of Amendment of Articles of Incorporation of the Company filed
May 29, 2003. (7)
3.6 Certificate of Amendment of Articles of Incorporation of the Company filed
March 4, 2004. (9)
3.8 Amended and Restated Bylaws of the Company. (8)
4.1 Specimen copy of certificate for shares of Common Stock of the Company. (1)
4.2 Preferred Shares Rights Agreement dated as of February 18, 1999. (2)
4.3 Agreement of Substitution and Amendment of Preferred Shares Rights
Agreement dated September 10, 2004. (10)
4.4 First Amended and Restated Stock and Warrant Purchase Agreement between and
among the Company and the investors thereto dated January 14, 2002. (4)
4.5 Form of Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(5)
4.6 Form of Warrant dated April 12, 2002. (6)
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 10, 2005. (11)
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 10, 2005. (11)
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 10, 2005. (11)
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 10, 2005. (11)
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(1) Incorporated by reference to exhibit number 4.1 to the registrant's
Registration Statement on Form S-1, as amended (File No. 33-35333), which
became effective July 19, 1990.
(2) Incorporated by reference to exhibit number 1 to the registrant's
Registration Statement on Form 8-A, which was filed on February 18, 1999.
(3) Incorporated by reference to identically numbered exhibits to the
registrant's Annual Report on Form 10-K for the fiscal year ended January
1, 1999.
(4) Incorporated by reference to exhibit number 4.1 to the registrant's Current
Report on Form 8-K filed on January 16, 2002.
(5) Incorporated by reference to exhibit number 4.2 to the registrant's Current
Report on Form 8-K filed on January 16, 2002.
(6) Incorporated by reference to exhibit number 4.1 to the registrant's
Registration Statement on Form S-3 filed on April 19, 2002.
(7) 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.
(8) Incorporated by reference to exhibit number 3.8 to the registrant's Annual
Report on Form 10-K for the year ended January 2, 2004.
(9) Incorporated by reference to exhibit number 3.6 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended April 2, 2004.
(10) Incorporated by reference to exhibit number 4.3 to the registrant's Annual
Report on Form 10-K for the year ended December 31, 2004.
(11) Filed herewith.