UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 3, 1998
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
incorporation or organization) identification No.)
645 North Mary Avenue, Sunnyvale, California 94088
(Address of Principal Executive Offices) (Zip Code)
(408) 481-8000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of April 3, 1998, there were 22,788,600 shares of Common Stock (no par
value) outstanding.
TRIMBLE NAVIGATION LIMITED
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
indicated in the forward-looking statements as a result of the risk factors set
forth in this report. The Company has attempted to identify forward-looking
statements in this report by placing an asterisk (*) in the left-hand margin of
paragraphs containing those statements.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 3, 1998 and January 2, 1998 3
Condensed Consolidated Statements of Operations -
Three Months ended April 3, 1998 and March 31, 1997 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended April 3, 1998 and March 31, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
April 3, January 2,
1998 1998
- -------------------------------------------------------------------------------
(In thousands) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 16,931 $ 19,951
Short term investments 53,524 53,171
Accounts and other receivable, net 48,986 49,101
Inventories 52,887 47,773
Other current assets 4,002 4,195
------------- ------------
Total current assets 176,330 174,191
Net property and equipment 21,629 21,965
Intangible assets 3,563 3,725
Deferred income taxes 335 356
Other assets 7,161 7,426
------------- ------------
Total assets $ 209,018 $ 207,663
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 166 $ 44
Accounts payable 16,748 18,724
Accrued compensation and benefits 7,509 5,830
Customer advances 823 830
Accrued liabilities 10,261 9,391
Income taxes payable 2,466 2,664
------------- ------------
Total current liabilities 37,973 37,483
------------- ------------
Noncurrent portion of long-term debt and other
liabilities 30,607 30,697
------------- ------------
Total liabilities 68,580 68,180
------------- ------------
Shareholders' equity:
Common stock 131,894 132,655
Common stock warrants 700 700
Retained earnings (accumulated deficit) 8,591 6,676
Unrealized gain on short term investments 13 8
Foreign currency translation adjustment (760) (556)
------------- ------------
Total shareholders' equity 140,438 139,483
------------- ------------
Total liabilities and shareholders' equity $ 209,018 $ 207,663
============= ============
See accompanying notes to condensed consolidated financial statements.
3
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
April 3, January 2,
1998 1998
- -------------------------------------------------------------------------------
(In thousands, except per share data)
Total revenue $ 76,608 $ 60,551
---------------- ----------------
Operating expenses:
Cost of sales 38,644 29,045
Research and development 11,827 9,001
Sales and marketing 16,458 14,348
General and administrative 7,484 6,406
---------------- ----------------
74,413 58,800
---------------- ----------------
Operating income 2,195 1,751
---------------- ----------------
Nonoperating income (expense):
Interest income 1,043 1,053
Interest and other expenses (858) (966)
Foreign exchange gain , net 35 91
---------------- ----------------
220 178
---------------- ----------------
Income before income taxes 2,415 1,929
Income tax provision 500 500
---------------- ----------------
Net income $ 1,915 $ 1,429
================ ================
Basic net income per share $ 0.08 $ 0.06
================ ================
Shares used in calculating basic
net income per share 22,780 22,066
================ ================
Diluted net income per share $ 0.08 $ 0.06
================ ================
Shares used in calculating diluted
net income per share 23,620 22,434
================ ================
See accompanying notes to condensed consolidated financial statements.
4
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation:
The condensed consolidated financial statements for the three month periods
ended April 3, 1998, and March 31, 1997 presented in this Quarterly Report on
Form 10-Q are unaudited. The balance sheet at January 2, 1998, has been derived
from the audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
these statements include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair statement of the results for the interim
periods presented. The condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report to Shareholders for the year
ended January 2, 1998.
During fiscal year 1997 and effective as of the Company's 1997 fiscal year end,
the Company changed from a calendar fiscal year end and adopted a 52-53 week
fiscal year ending on the Friday nearest to December 31, which for fiscal 1998
will be January 1, 1999. The Company does not expect the effects of any
differences due to the change of fiscal years to have a material impact on the
Company's financial results of operations.
The results of operations for the three month period ended April 3, 1998 are not
necessarily indicative of the results that may be expected for the year ending
January 1, 1999.
NOTE 2 - Inventories:
Inventories consist of the following:
April 3, January 2,
1998 1998
- --------------------------------------------------------------------------
(In thousands)
Raw materials $ 34,317 $ 32,123
Work-in-process 8,066 7,123
Finished goods 10,504 8,527
--------------- ----------------
$ 52,887 $ 47,773
--------------- ----------------
5
NOTE 3 - New Accounting Standards:
As of January 3, 1998, the Company adopted Statement 130 (SFAS 130), "Reporting
Comprehensive Income." SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components; however, the adoption of
SFAS 130 did not have any impact on the Company's net income or shareholders'
equity for the period ended April 3, 1998. SFAS 130 requires unrealized gains or
losses to be reported on the Company's securities which are available for sale
and foreign currency translation adjustments, which prior to adoption were
reported separately as part of shareholders' equity and which were included in
other comprehensive income. Prior year financial statements have been
reclassified to conform with the requirements of SFAS 130.
The components of comprehensive income, net of related tax for the three months
ended April 3, 1998 and March 31, 1997 are as follows:
April 3, January 2,
1998 1998
- ------------------------------------------------------------------------------
(In thousands)
Net income $ 1,915 $ 1,429
Unrealized gains/(losses) on securities 5 (63)
Foreign currency translation adjustments (204) (231)
------------- ------------
Comprehensive income $ 1,716 $ 1,135
============= ============
The components of accumulated other comprehensive income, net of related taxes
at April 3, 1998 and January 2, 1998 are as follows:
April 3, January 2,
1998 1998
- ------------------------------------------------------------------------------
(In thousands)
Unrealized gains/(losses) on securities $ 13 $ 8
Foreign currency translation adjustments (760) (556)
------------- ------------
Accumulated comprehensive income $ (747) $ (548)
============= ============
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, (SFAS 131) "Disclosures about Segments
of an Enterprise and Related Information, which is effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Because SFAS 131 is effective for
6
financial statements for fiscal years beginning after December 15, 1997, the
Company will adopt the new requirements for reporting in fiscal year 1998 and
retroactively restate fiscal year 1997. Management has not completed its review
of SFAS 131, but does not anticipate that the adoption of this statement will
have a significant effect on the Company's reported segments.
NOTE 4 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended
April 3, January 2,
1998 1998
- -------------------------------------------------------------------------------
(in thousands except per share amounts)
Numerator:
Income available to common shareholders
used in basic and diluted income per share $ 1,915 $ 1,429
Denominator:
Weighted-average number of Common
Shares used in basic income per share 22,780 22,066
Effect of dilutive securities:
Common stock options 658 309
Common stock warrants 182 59
----------- ----------
Weighted-average number of Common
Shares and dilutive potential Common Shares
used in diluted income per share 23,620 22,434
=========== ==========
Basic income per share $ 0.08 $ 0.06
=========== ==========
Diluted income per share $ 0.08 $ 0.06
=========== ==========
NOTE 5 - Contingencies:
Shareholder Litigation
On December 6, 1995, two shareholders filed a class action lawsuit against the
Company and certain directors and officers of the Company. Subsequent to that
date, additional lawsuits were filed by other shareholders. The lawsuits were
7
subsequently amended and consolidated into one complaint which was filed on
April 5, 1996. The amended consolidated complaint sought to bring an action as a
class action consisting of all persons who purchased the common stock of the
Company during the period April 18, 1995, through December 5, 1995 (the "Class
Period"). The plaintiffs alleged that the defendants sought to induce the
members of the Class to purchase the Company's common stock during the Class
Period at artificially inflated prices. The plaintiffs seek recissory or
compensatory damages with interest thereon, as well as reasonable attorneys'
fees and extraordinary equitable and/or injunctive relief. The Company filed a
motion to dismiss, which was heard by the Court on August 16, 1996. The court
rejected the plaintiffs' lawsuit, but allowed thirty days to resubmit its
complaint. On September 24, 1996, the plaintiffs filed an amended complaint. On
April 28, 1997, the Court granted in part, and denied in part, the Company's
motion to dismiss. The Court further granted the plaintiffs leave to replead
certain dismissed claims. On June 19, 1997, the plaintiffs filed a third amended
and consolidated complaint. The Company has answered the complaint by denying
all liability. The Company does not believe that it is possible to predict the
outcome of this litigation.
Other Litigation
On January 31, 1997, counsel for one Philip M. Clegg wrote to Trimble asserting
that a license under Clegg's U.S. Patent No. 4,807,131, which was issued
February 21, 1989, would be required by Trimble because of a joint venture
Trimble had entered into with Caterpillar Corporation concerning the use of
Trimble GPS products in combination with earth moving equipment. To date, no
infringement action has been initiated on behalf of Mr. Clegg. The Company does
not believe that there will be any adverse consequences to the Company as a
result of this inquiry.
A former shareholder has filed an action against the Company claiming rights to
shares that were previously canceled on the Company's stock records pursuant to
lost stock certificate indemnification agreements. The complaint was dismissed
for a lack of jurisdiction. The Company does not believe that there will be any
adverse consequences to the Company as a result of this case.
In October 1995, an employee who was terminated by the Company in 1992 filed a
complaint against the Company, alleging that his incentive stock options
continued to vest subsequent to his termination. He sought damages of
approximately $1,000,000. The Company filed a general denial in answer to the
complaint. The trial was concluded on September 25, 1997, and the jury rendered
its verdict in favor of the Company on all causes of action. It is unclear
whether the time for appeal has past, although no appeal has been filed to date.
The Company does not believe that an appeal, if any, would be successful.
8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues for the three months ended April 3, 1998 and March 31, 1997, were
$76,608,000 and $60,551,0000, respectively. The table below breaks out the
Company's revenues by business unit:
Three Months Ended April 3,
------------------------------------------
April 3, March 31, Increase/
1998 1997 (Decrease)
- -------------------------------------------------------------------------------
(In thousands)
Commercial Systems $ 49,594 $ 38,122 30%
Software & Component Technologies 8,947 9,575 (7)%
Aerospace 18,067 12,854 41%
-------------- ------------ ----------
Total $ 76,608 $ 60,551 27%
-------------- ------------ ----------
Commercial Systems
Commercial Systems revenues increased for the three months ended April 3, 1998
as compared to the corresponding period for 1997. The increase was primarily in
the Land Survey, Mapping and GIS Systems, and Mobile Positioning and
Communications vertical markets.
The Land Survey market increase in the first quarter of 1998 over the first
quarter of 1997 is due in part to strong customer acceptance of the new GPS
Total Station 4800 product, which was introduced late the third quarter of 1997.
Mapping and GIS sales increased in the first quarter of 1998 as strong demand
for the product line continued.
9
Mobile Positioning and Communications revenues for the first quarter of 1998
were higher than the first quarter of 1997 due to increased demand for vehicle
tracking units and to sales of the Galaxy Sentinel product which was introduced
in the second quarter of 1997.
Software and Component Technologies
* Software and Component Technologies revenues decreased for the three months
ended April 3, 1998, as compared with the corresponding period for 1997 due
primarily to the slow down in the U.S. market in embedded GPS products. The
company expects this condition to continue at least through the second quarter
of fiscal year 1998. However, the Company believes that it has been able to
maintained its market share worldwide.
Aerospace
* Aerospace revenues increased for the three months ending April 3, 1998,
compared with the corresponding period for 1997 due to shipments to the U.S.
Government under the CUGR program and strong sales for Honeywell-Trimble (HT
9100), as well as strong sales for the Terra by Trimble product.
* Military sales are highly dependent on contracts that are subject to
government approval and are, therefore, expected to continue to fluctuate from
period to period. The Company believes that opportunities in this market have
been substantially reduced by cutbacks in U.S. and foreign military spending.
Revenue outside the US
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 47% and 48% of revenue in the first three months of 1998 and 1997,
respectively. During the first three months of 1998, the Company experienced
higher revenues in the U.S. due primarily to strong customer acceptance of the
new GPS total station 4800 product The Company anticipates that export revenue
and sales made by its subsidiaries in locations outside the U.S. will continue
to account for a significant portion of its revenue and, therefore, the Company
is subject to the risks inherent in these sales, including unexpected changes in
regulatory requirements, exchange rates, governmental approval, tariffs or other
barriers. Even though the U.S. Government announced on March 29, 1996, that it
would support and maintain the GPS system, as well as eliminate the use of
Selective Availability (S/A) (a method of degrading GPS accuracy), customers in
certain foreign markets may be reluctant to purchase products based on GPS
technology given the control of GPS by the U.S. Government. The Company's
results of operations could be adversely affected if the Company were unable to
continue to generate significant sales in locations outside the U.S.
Gross Margin
* Gross margin varies on a quarterly basis due to a number of factors, including
product mix, technology license fees, domestic versus international sales,
10
customer type, the effects of production volumes and fixed manufacturing costs
on unit product costs and new product start-up costs. Gross margin as a
percentage of total product revenue was 50% for the three months ended April 3,
1998, as compared with 52% in the corresponding 1997 period. The decrease in the
gross margin percentages primarily reflects increased labor costs from new
product introductions, expediting fees and rework for materials, and the use of
outside manufacturing to relieve the over-capacity the Company is currently
experiencing. In addition, because of mix changes within and among the business
units, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, and other factors, there is no assurance that current
margins will be sustained. While commercial systems products have the highest
gross margins of all the Company's products, their margins have decreased,
primarily due to the need to lower prices in response to competition. The
Company expects competition to increase in its commercial system markets, and it
is therefore likely that further price erosion will occur, with consequent lower
gross margin percentages.
* The Company also expects that a higher percentage of its business in the
future will be conducted through alliances with larger strategic partners such
as Honeywell, Caterpillar and Case. As a result of volume pricing and the
assumption of certain operating costs in connection with such partners, margins
are likely to be lower than sales directly to end-users.
Operating Expenses
The following table shows operating expenses for the periods indicated and
should be read in conjunction with the narrative descriptions of those operating
expenses below:
Three Months Ended
----------------------------------------------
April 3, March 31,
1998 1997 Increase
- -------------------------------------------------------------------------
(In Thousands)
Research and development $ 11,827 $ 9,001 31%
Sales and marketing 16,458 14,348 15%
General and administrative 7,484 6,406 17%
------------- -------------- -------------
Total $ 35,769 $ 29,755 20%
------------- -------------- -------------
Research and Development
Research and development expenses increased in the three months ended April 3,
1998, as compared with the corresponding 1997 period. The higher research and
development expense in the 1998 period is due to an increase in personnel and
the related expenses which accompany an increase in the number of employees.
11
There was also an increase in the number of specialized engineering consultants
and temporary employees. The increase in research and development is part of the
Company's continuing aggressive development of future products.
* The Company expects that a significant portion of its future revenues and
operating income will continue to be derived from sales of newly introduced
products. Consequently, the Company's future success depends, in part, on its
ability to continue to advance product technology and to develop and manufacture
new competitive products with high gross profit margins. Development and
manufacturing schedules for technology products are difficult to predict, and
there can be no assurance that the Company will achieve timely initial customer
shipments of new products. The timely availability of these products in volume
and their acceptance by customers are important to the future success of the
Company. In addition, certain of the Company's products are subject to
governmental and similar certifications before they can be sold. For example,
FAA certification is required for all aviation products. An inability or delay
in obtaining such certifications could have an adverse effect on the Company's
operating results.
Sales and Marketing
The increase in sales and marketing expenses for the three months ended April 3,
1998, as compared with the corresponding period in 1997 is due primarily to an
increase in personnel and related expenses which accompany an increase in the
number of employees. In addition, the Company experienced increases in
advertising and promotional items incurred by Commercial Systems group for trade
shows which occurred in the first quarter of 1998 including a world wide sales
conference held by the Company in the first quarter of 1998, which resulted in
increased travel expenses, as compared with the first quarter of 1997.
* The Company's future growth will also depend upon the timely development and
continued viability of the markets in which the Company currently competes and
upon the Company's ability to continue to identify and exploit new markets for
its products. In addition, the Company has encountered significant competition
in selected markets, and the Company expects such competition to intensify as
the market for GPS applications receives acceptance. Several of the Company's
competitors are major corporations with substantially greater financial,
technical, marketing and manufacturing resources. Increased competition is
likely to result in reduced market share and in price reductions of GPS-based
products, which could adversely affect the Company's revenues and profitability.
General and Administrative
The increase in general and administrative expense for the three months ended
April 3, 1998, as compared with the corresponding period for 1997, is primarily
do to an increase in personnel and the related expenses which accompany an
increase in the number of employees. There was also an increase in the number of
information system consultants and temporary employees.
12
Income Taxes
The income tax rates of 21% and 26% for the three months ended April 3, 1998 and
March 31, 1997, respectively, are less than the federal statutory rate of 35%
primarily due to realization of previously reserved deferred tax assets. The
1998 rate is lower than the 1997 rate primarily due to lower taxes on foreign
income.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
* At April 3 1998, the Company had cash and cash equivalents of
$16,931,000 and short-term investments of $53,524,000. The Company has relied
primarily on cash provided by operating and financing activities and net sales
of short-term investments to fund capital expenditures, the repurchase of the
Company's common stock (see further explanation below), and other investing
activities. Management believes that its cash, cash equivalents and short-term
investment balances, together with its existing credit line, will be sufficient
to meet its anticipated cash needs for at least one-year.
For the three month period ended April 3, 1998, net cash provided from operating
activities was $1,029,000 as compared to cash provided of $6,152,00 in the
corresponding period in 1997. Inventory as of April 3, 1998 increased by
$5,100,000 from the 1997 year end levels primarily due to purchases of strategic
parts, and an increase in work in process and finished goods that could not be
shipped prior to the Company's revenue recognition cut off for the quarter. The
Company's ability to continue to generate cash from operations will depend in a
large part on revenues, the rate of collections of accounts receivable and
management of inventory levels.
Cash provided by sales of common stock in 1998 represents the proceeds from
purchases made pursuant to the Company's stock option and employee stock
purchase plans and totaled $1,097,000 for the three months ended April 3, 1998.
In August 1997, the Company entered into a three year $50,000,000 unsecured
revolving credit facility with four banks (the "Credit Agreement"). This credit
facility replaced the previous two year $30,000,000 unsecured line that expired
in August 1997. The Credit Agreement enables the Company to borrow up to
$50,000,000, provided that certain financial and other covenants are met. Under
a separate agreement the Company has an additional $5,000,000 line of credit
provided only by the lead bank under the Credit Agreement for "Letter of Credit"
purposes, and this is also subject to the covenants in the main facility. The
Credit Agreement provides for payment of a commitment fee of 0.25% and
borrowings to bear interest at 1% over LIBOR if the total funded debt to EBITDA
is less than or equal to 1.00 times, 0.3% and borrowings to bear interest at
1.25% over LIBOR if the ratio is greater than 1.00 times and less than or equal
13
to 2.00 times, or 0.4% and borrowings to bear interest at 1.75% over LIBOR if
the ratio is greater than 2.00 times. In addition to borrowing at the specified
LIBOR rate, the Company has the right to borrow with interest at the higher of
(i) one of the bank's annual prime rate and (ii) the federal funds rate plus
0.5%. To date, the Company has not made any borrowings under the lines. In
addition, the Company is restricted from paying dividends under the terms of the
Credit Agreement.
In February 1996, the Company announced that it had approved a discretionary
program whereby up to 600,000 shares of its common stock could be repurchased by
the Company to offset the potential dilutive effects to earnings per share from
the issuance of stock options. The Company intends to use existing cash, cash
equivalents and short-term investments to finance any such stock repurchases
under this program. In 1996, the Company purchased 250,000 shares at a cost of
$3,545,000. In 1997, the Company purchased 139,500 shares at a cost of
$1,834,000. In the first quarter of 1998, the Company purchased 95,000 shares at
a cost of $1,859,000.
The Company is continually evaluating potential external investments in
technologies related to its business and, to date, has made relatively small
investments in a number of GPS related technology companies. There can be no
assurance that investments made to date and potential future investments will be
successful.
Year 2000 / GPS Week Number Rollover Issues
In prior years, certain computer programs were written using two digits rather
than four to define the applicable year. These programs were written without
considering the impact of the upcoming change in the century and may experience
problems handling dates beyond the year 1999. This could cause computer
applications to fail or to create erroneous results unless corrective measures
are taken. Incomplete or untimely resolution of the Year 2000 issue could have a
material adverse impact on our Company's business, operations or financial
condition in the future.
The GPS week number rollover (WNRO) issue is peculiar to GPS technology. The
constellation of GPS satellites, which are operated by the United States
government, broadcast time in the form of a "GPS week number", and a time offset
into each "GPS week." Week numbers range from 0 to 1023. Week 0 started on
January 6, 1980, and week 1023 will end on August 21, 1999, at which time the
week number will roll over back to 0. This may cause GPS receivers to
erroneously interpret high-week-number, pre-WNRO data as post-dating later
low-week-number, post-WNRO data. This may cause satellite positions to be
miscalculated and produce gross position fix errors. Receivers that process and
display calendar dates based on "weeks since 1980" may generate date calculation
errors.
Trimble has been assessing the impact that the Year 2000 issue will have on the
Company's internal computer systems. In response to these assessments, which are
ongoing, the Company has developed a plan to inventory critical systems and
develop solutions to those systems that are found to have date-related
deficiencies. Project plans call for the completion of the solution
implementation phase and testing of those solutions prior to any anticipated
14
impact on our systems. The Company is also surveying critical suppliers and
customers to determine the status of their Year 2000 compliance programs.
Trimble is also assessing the capability of its products sold to customers over
a period of years to handle the Year 2000 / GPS WNRO issues. The Company has
developed a test plan that is based upon the U.S. Government supplied GPS
Receiver Boundary Rollover Test Plan. The Company's test plan has been
customized for each of its products and includes, at a minimum, the tests
included in the U.S. Government supplied test plan. To perform these tests
Trimble must rely upon commercially available simulators to simulate the
satellites during WNRO. We have received compliance statements from the
simulator suppliers. Based on work to date, assuming the accuracy of the
simulators, and assuming that the proposed project plans, which continue to
evolve, can be implemented as planned, the Company believes future costs
relating to the Year 2000 / GPS WNRO issues will not have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
Other Risk Factors
The Company's revenues have historically tended to fluctuate on a quarterly
basis due to the timing of shipments of products under contracts and the sale of
licensee rights. A significant portion of the Company's quarterly revenues
occurs from orders received and immediately shipped to customers in the last few
weeks and days of a quarter. If orders are not received, or if shipments were to
be delayed a few days at the end of a quarter, the operating results and
reported earnings per share for that quarter could be significantly impacted.
Future revenues are difficult to predict, and projections are based primarily on
historical models, which are not necessarily accurate representations of the
future.
* The Company has a relatively fixed cost structure in the short term which is
determined by the business plans and strategies the Company intends to implement
in the three markets it addresses. This effective leveraging means that
increases or decreases in revenues have more than a proportional impact on net
income or losses. The Company estimates that a change in product revenue of $1
million would change earnings per share by 2 to 3 cents
* The Company believes that its Software and Component Technologies business
unit will produce a significant portion of the Company's business in the future.
The Software and Component Technologies business unit differs in nature from
most of the Company's markets because volumes are high and margins are
relatively low. Software and Component Technologies customers are extremely
price sensitive. As costs decrease through technological advances, these
advances are typically passed on to the customer. To compete in the Software and
Component Technologies market requires high-volume production and manufacturing
techniques. Customers expect high quality standards with very low defect rates.
Compared to competitors which have far greater resources in such high-volume
manufacturing and associated support activities, the Company is relatively
inexperienced.
15
The Company's stock price is subject to significant volatility. If revenues
and/or earnings fail to meet the expectations of the investment community, there
could be an immediate and significant impact on the trading price of the
Company's stock.
The value of the Company's products relies substantially on the Company's
technical innovation in fields in which there are many current patent filings.
The Company recognizes that as new patents are issued or are brought to the
Company's attention by the holders of such patents, it may be necessary for the
Company to withdraw products from the market, take a license from such patent
holders, or redesign its products. The Company does not believe any of its
products infringe patents or other proprietary rights of third parties, but
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 the Company's revenues or profitability.
(See Note 5 to the Condensed Consolidated Financial Statements - Contingencies:
Other Litigation)
The Company is continuously evaluating alliances and external investments in
technologies related to its business, and has already entered into alliances and
made relatively small investments in a number of GPS related technology
companies. Acquisitions of companies, divisions of companies, or products and
alliances entail numerous risks, including (i) the potential inability to
successfully integrate acquired operations and products or to realize
anticipated synergies, economies of scale, or other value; (ii) diversion of
management's attention; and (iii) loss of key employees of acquired operations.
Any such problems could have a material adverse effect on the Company's
business, financial condition, and results of operations. No assurances can be
given that the Company will not incur problems from current or future alliances,
acquisitions, or investments. Furthermore, there can be no assurance that the
Company will realize value from any such alliances, acquisitions, or
investments.
The Company's products rely on signals from the GPS Navstar satellite system
built and maintained by the U.S. Department of Defense. Navstar satellites and
their ground support systems are complex electronic systems subject to
electronic and mechanical failures and possible sabotage. The satellites have
design lives of 7.5 years and are subject to damage by the hostile space
environment in which they operate. To repair damaged or malfunctioning
satellites is not economically feasible. If a significant number of satellites
were to become inoperable, there could be a substantial delay before they are
replaced with new satellites. A reduction in the number of operating satellites
would impair the current utility of the GPS system and the growth of current and
additional market opportunities. In addition, there can be no assurance that the
U.S. Government will remain committed to the operation and maintenance of GPS
satellites over a long period of time, or that the policies of the U.S.
Government for the use of GPS without charge will remain unchanged. However, the
1996 Presidential Decision Directive marks the first time in the evolution of
GPS that access and use for the consumer, civilian and commercial use has a
solid foundation in law. Because of ever-increasing commercial applications of
GPS, other U.S. Government agencies may become involved in the administration or
the regulation of the use of GPS signals in the future. Any of the foregoing
factors could affect the willingness of buyers of the Company's products to
16
select GPS-based systems instead of products based on competing technologies.
Any resulting change in market demand for GPS products would have a material
adverse effect on the Company's financial results. In 1995, certain European
government organizations expressed concern regarding the susceptibility of GPS
equipment to intentional or inadvertent signal interference. Such similar
concern could translate into reduced demand for GPS products in certain
geographic regions in the future.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
A. Exhibits Number
3.8 Bylaws of the Company, as amended 20-43
10.59 1993 Stock Option Plan, as amended 44-53
10.60 1988 Employee Stock Purchase Plan, as 54-67
amended
27.0 Financial Data Schedule for the quarters
ended April 3, 1998 and March 31, 1997 68
B. Reports on Form 8-K
There were no reports on Form 8-K filed
during the quarter ended April 3, 1998
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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/ Dennis R. Ing
Dennis R. Ing
(Executive Vice President Finance, Chief Financial
Officer)
DATE: May 15, 1998
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