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 July 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 organizatio 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 July 3, 1998, there were 22,582,900 shares of Common Stock (no par value)
outstanding.
1
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 Statements of Operations -
Three and Six Months ended July 3, 1998 and June 30, 1997 4
Condensed Consolidated Statements of Cash Flows -
Six Months ended July 3, 1998 and June 30, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
July 3, January 2,
1998 1998
-----------------------------------------------------------------------------------------
(In thousands) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 23,180 $ 19,951
Short term investments 43,492 53,171
Accounts and other receivable, net 45,874 49,101
Inventories 55,563 47,773
Other current assets 4,508 4,195
------------- -----------
Total current assets 172,617 174,191
Net property and equipment 21,507 21,965
Intangible assets 3,407 3,725
Deferred income taxes 316 356
Other assets 7,015 7,426
------------- -----------
Total assets $ 204,862 $ 207,663
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,262 $ 44
Accounts payable 15,600 18,724
Accrued compensation and benefits 6,073 5,830
Customer advances 379 830
Accrued liabilities 11,656 9,391
Income taxes payable 2,344 2,664
------------- ------------
Total current liabilities 37,314 37,483
------------- ------------
Noncurrent portion of long-term debt and
other liabilities 31,920 30,697
------------- ------------
Total liabilities 69,234 68,180
------------- ------------
Shareholders' equity:
Common stock 127,104 132,655
Common stock warrants 700 700
Retained earnings 8,846 6,676
Unrealized gain (loss) on short term investments (4) 8
Foreign currency translation adjustment (1,018) (556)
------------- ------------
Total shareholders' equity 135,628 139,483
------------- ------------
Total liabilities and shareholders' equity $ 204,862 $ 207,663
============= ============
See accompanying notes to condensed consolidated financial statements.
3
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
July 3, June 30, July 3, June 30,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Total revenue $ 75,850 $ 68,944 $ 152,458 $ 129,495
----------------- ----------------- ----------------- -----------------
Operating expenses:
Cost of sales 39,556 32,255 78,200 61,300
Research and development 11,842 10,113 23,669 19,114
Sales and marketing 16,457 14,916 32,915 29,264
General and administrative 7,937 7,306 15,421 13,712
----------------- ----------------- ----------------- -----------------
75,792 64,590 150,205 123,390
----------------- ----------------- ----------------- -----------------
Operating income 58 4,354 2,253 6,105
----------------- ----------------- ----------------- -----------------
Nonoperating income (expense):
Interest income 971 1,089 2,014 2,142
Interest and other expenses (819) (818) (1,677) (1,784)
Foreign exchange gain , net 245 63 280 154
----------------- ----------------- ----------------- -----------------
397 334 617 512
----------------- ----------------- ----------------- -----------------
Income before income taxes 455 4,688 2,870 6,617
Income tax provision 200 823 700 1,323
----------------- ----------------- ----------------- -----------------
Net income $ 255 $ 3,865 $ 2,170 $ 5,294
================= ================= ================= =================
Basic net income per share $ 0.01 $ 0.18 $ 0.10 $ 0.24
================= ================= ================= =================
Shares used in calculating basic
net income per share 22,693 22,081 22,737 22,073
================= ================= ================= =================
Diluted net income per share $ 0.01 $ 0.17 $ 0.09 $ 0.24
================= ================= ================= =================
Shares used in calculating diluted
net income per share 23,300 22,544 23,458 22,484
================= ================= ================= =================
See accompanying notes to condensed consolidated financial statements.
4
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
July 3, June 30,
1998 1997
- -------------------------------------------------------------------------------------------------------------------------
(In thousands)
Net cash provided by operating activities $ 1,962 $ 12,104
----------------- -----------------
Cash flow from investing activities:
Purchase of short term investments (62,268) (50,160)
Maturities of short term investments 71,947 32,875
Sales of short term investments - 20,124
Equity investments - (886)
Acquisition of property and equipment (4,520) (5,889)
Capitalized patent expenditures (574) (341)
----------------- -----------------
Net cash provided (used) in investing activities 4,585 (4,277)
----------------- -----------------
Cash flow from financing activities:
Issuance of common stock 3,203 2,703
Repurchase of common stock (8,754) (1,834)
Payment of notes receivable (294) (9)
Proceeds from long-term debt and revolving
credit facilities 2,527 85
----------------- -----------------
Net cash provided (used) by financing activities (3,318) 945
----------------- -----------------
Net increase in cash and cash equivalents 3,229 8,772
Cash and cash equivalents -- beginning of period 19,951 22,671
----------------- -----------------
Cash and cash equivalents -- end of period $ 23,180 $ 31,443
================= =================
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 811 $ 898
Income taxes (benefit), net of refunds $ 983 $ (180)
See accompanying notes to condensed consolidated financial statements.
5
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 July 3, 1998, and June 30, 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 position, results of operations, or cash flows.
The results of operations for the three month period ended July 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:
July 3, January 2,
1998 1998
- --------------------------------------------------------------------------------
(In thousands)
Raw materials $ 36,189 $ 32,123
Work-in-process 6,192 7,123
Finished goods 13,182 8,527
--------------- ----------------
$ 55,563 $ 47,773
--------------- ----------------
6
NOTE 3 - Sales Leaseback Transaction:
In April 1998, the Company entered into a sale-leaseback arrangement. Under
the arrangement, the Company sold existing computer equipment and has leased it
back for a period of 18 months. The leaseback has been accounted for as an
operating lease. The gain of $711,684 realized in this transaction has been
deferred and will be amortized to income in proportion to rental expense over
the term of the lease.
NOTE 4 - 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 presentation 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 three and six month periods ended July 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 and restated to conform
with the requirements of SFAS 130.
The components of comprehensive income, net of related tax for the three
and six months ended July 3, 1998 and June 30, 1997 are as follows:
Three Months Ended Six Months Ended
July 3, June 30, July 3, June 30,
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
(In thousands)
Net income $ 255 $ 3,865 $ 2,170 $ 5,294
Unrealized gains/(losses) on securities (17) 69 (12) 6
Foreign currency translation adjustments (258) (51) (462) (282)
------------ ------------ ---------- -----------
Comprehensive income $ (20) $ 3,883 $ 1,696 $ 5,018
============ ============ ========== ===========
The components of accumulated other comprehensive income, net of related
taxes at July 3, 1998 and January 2, 1998 are as follows:
July 3, January 2,
1998 1998
- -------------------------------------------------------------------
(In thousands)
Unrealized gains/(losses) on securities $ (4) $ 8
Foreign currency translation adjustments (1,018) (556)
---------- -----------
Accumulated comprehensive income $ (1,022) $ (548)
========== ===========
7
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
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 5 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Six Months Ended
July 3, June 30, July 3, June 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
Numerator:
Income available to common shareholders
used in basic and diluted income per share $ 255 $ 3,865 $ 2,170 $ 5,294
Denominator:
Weighted-average number of Common
Shares used in basic income per share 22,693 22,081 22,737 22,073
Effect of dilutive securities:
Common stock options 448 374 551 336
Common stock warrants 159 89 170 75
--------------- --------------- --------------- ---------------
Weighted-average number of Common
Shares and dilutive potential Common Shares
used in diluted income per share 23,300 22,544 23,458 22,484
=============== =============== =============== ===============
Basic income per share $ 0.01 $ 0.18 $ 0.10 $ 0.24
=============== =============== =============== ===============
Diluted income per share $ 0.01 $ 0.17 $ 0.09 $ 0.24
=============== =============== =============== ===============
8
NOTE 6 - 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 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 May 8, 1998, Satloc, Inc. a Trimble customer and competitor, filed a
lawsuit in the United States District Court for the District of Arizona, action
no. CIV 98-0837 PHX PGR. The complaint alleged misappropriation of trade secrets
and confidential business information, intentional interference with contractual
relations, intentional interference with prospective contractual relations,
unfair competition, and unjust enrichment, arising from Trimble's hiring of Kent
Carroll, a former Satloc sales person. The complaint seeks injunctive relief,
compensatory and punitive damages, an accounting, and attorney fees. Trimble has
answered the complaint. The case is in the discovery stage. The Company does not
believe there will be any adverse consequences to the Company as a result of
this case.
On December 1, 1997, Ira McMillian, a Trimble former employee, filed a
lawsuit in the United States District Court for the Western District of Texas,
Austin Division, and action no. A97CA 731. The complaint alleged violation of
the Americans With Disabilities Act, U.S.C. Section 12101 et seq., arising from
Trimble's alleged discrimination, harassment, and demotion of the plaintiff in
violation of the Act. Trimble has answered the complaint. The case is in the
discovery stage. The Company does not believe there will be any adverse
consequences to the Company as a result of this case.
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
9
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.
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. The judgment in the
Company's favor is now final and nonappealable.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues for the three and six month periods ended July 3, 1998 were
$75,850,000 and $152,458,000, respectively compared with $68,944,000 and
$129,495,000 in the corresponding 1997 periods. The table below breaks out the
Company's revenues by business unit:
Three Months Ended Six Months Ended
-------------------------------------------- ----------------------------------------
July 3, June 30, Increase/ July 3, June 30, Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
- ------------------------------------------------------------------------------------------ ----------------------------------------
(In thousands)
Commercial Systems $ 51,592 $ 45,042 15% $ 101,186 $ 83,163 22%
Software & Component Technologies 9,540 12,209 (22%) 18,487 21,785 (15%)
Aerospace 14,718 11,693 26% 32,785 24,547 34%
------------ ------------ ------------- -------------- -------------- ------------
Total $ 75,850 $ 68,944 10% $ 152,458 $ 129,495 18%
------------ ------------ ------------- -------------- -------------- ------------
Commercial Systems
Commercial Systems revenues increased for the three and six month periods
ended July 3, 1998 as compared to the corresponding periods for 1997. The
increase was primarily in the Land Survey, Mapping and GIS Systems, and Precise
Positioning vertical markets.
Land Survey revenues increased in the three and six month periods ended
July 3, 1998 as compared to the corresponding periods for 1997. This increase is
due in part to the continued strong customer acceptance of the Company's new GPS
Total Station 4800 product.
Mapping and GIS sales increased in the three and six month periods ended
July 3, 1998 as compared to the corresponding periods for 1997 principally due
to strong demand from U.S. and South American customers.
11
Precise Positioning sales increased in the three and six month periods
ended July 3, 1998 as compared to the corresponding periods for 1997 due to
strong demand for the Company's agricultural and mining products.
Software and Component Technologies
Software and Component Technologies revenues decreased for the three and
six month periods ended July 3, 1998, as compared with the corresponding periods
for 1997 due primarily to a non-recurring one-time $2.2 million technology
license fee which was reported in the second quarter of 1997 from Pioneer
Electronic Corporation in connection with expansion of the original 1992 license
for in-car navigation. In addition, the Company is experiencing softness in the
U.S. embedded market due to the financial difficulties of a major customer.
Lastly, the demand in the U.S. in-car navigation market is down for same period
last year. However, the Company believes that it has been able to maintain its
market share worldwide.
Software and Component Technologies revenues increased in the second
quarter of 1998 from the first quarter of 1998 due to strong demand for timing
GPS products.
Aerospace
* Aerospace revenues increased for the three and six month periods ending
July 3, 1998, as compared with the corresponding periods 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 stronger 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.
Revenue outside the U.S.
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 47% and 45% of revenue in the first six months of 1998 and 1997,
respectively. During the first six 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.
12
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, 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 48% and 49% for the three and six-month
periods ended July 3, 1998, as compared with 53% in the corresponding 1997
periods. 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. Also, the 1997 gross margins were
enhanced by the positive impact of non-product revenues recognized from Pioneer
of a non-recurring one-time license for $2.2 million occurring in the second
quarter of 1997. 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.
* 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 Six Months Ended
------------------------------------------- ------------------------------------------
July 3, June 30, July 3, June 30,
1998 1997 Increase 1998 1997 Increase
- ----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Research and development $ 11,842 $ 10,113 17% $ 23,669 $ 19,114 24%
Sales and marketing 16,457 14,916 10% 32,915 29,264 12%
General and administrative 7,937 7,306 9% 15,421 13,712 12%
------------- -------------- ----------- ------------- -------------- -----------
Total $ 36,236 $ 32,335 12% $ 72,005 $ 62,090 16%
------------- -------------- ----------- ------------- -------------- -----------
Research and Development
Research and development expenses increased in the three and six month
periods ended July 3, 1998, as compared with the corresponding 1997 periods. The
13
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. Also, the Company received fewer funds from cost reimbursement
projects in the second quarter of 1998 as compared with the second quarter of
1997. 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 and six month
periods ended July 3, 1998, as compared with the corresponding periods 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 commissions to dealers and in-house sales personnel
from higher revenue generated in the second quarter of 1998 as compared with
second 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 penetrate 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 and six
month periods ended July 3, 1998, as compared with the corresponding periods for
1997, is primarily due to an increase in personnel and the related expenses
which accompany an increase in the number of employees.
14
Income Taxes
The effective tax rate was 44% for the three months ended July 3, 1998 and
24% for the six months ended July 3, 1998 as compared with effective tax rates
of 18% and 20% respectively, for the corresponding periods in 1997. The 1998
rate is higher than the 1997 rate primarily due to higher foreign taxes.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
* At July 3 1998, the Company had cash and cash equivalents of $23,180,000
and short-term investments of $43,492,000. 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 the next twelve months.
For the six month period ended July 3, 1998, net cash provided from
operating activities was $1,962,000 as compared to cash provided of $12,104,00
in the corresponding period in 1997. Inventory as of July 3, 1998 increased by
$7,790,000 from the 1997 year end levels primarily due to purchases of strategic
parts, an increase in finished goods, and inventory accumulated due to delays in
expected customer shipments. 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 $3,203,000 for the six month period ended July 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
15
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.
The Company announced in February 1996 that it had approved a discretionary
program whereby up to 600,000 shares of its common stock could be repurchased on
the open market by the Company to offset the potential dilutive effects to
earnings per share from the issuance of stock options. In May of 1998 the
Company approved the repurchase of an additional 600,000 shares under the
discretionary program. 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 half of 1998, the Company purchased 485,000 shares at a
cost of $8,754,000.
The Company is continually evaluating potential external investments in
technologies related to its business and, to date, has made relatively small
strategic investments in a number of GPS related technology companies. There can
be no assurance that any such outside investments made to date nor any potential
future investments will be successful.
Year 2000 / GPS Week Number Rollover Issues
The Company is working toward resolving issues involved with computer
programs and the Year 2000. Some of these issues involve computer programs using
two digit year dates rather than four digit year dates in computer code, which
could cause potential failures in date sensitive software that does not properly
recognize dates in the year 2000 and after.
Trimble has been assessing the impact that the Year 2000 issue will have on
the Company's internal 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. The Company, as part of a plan to improve operating performance,
is implementing a new enterprise information system Company-wide, which will be
Year 2000 compliant.
* The Company is also continuing to evaluate the potential impact of the
Year 2000 issues on its internal operating equipment and other information
systems. The Company will expense the current estimated incremental costs of
less than $1 million related to the Year 2000 remediation efforts.
The Company plans to survey critical suppliers to determine the status of
their Year 2000 compliance programs. There can be no assurance that there will
not be a material adverse effect on the Company if third parties do not convert
16
their systems in a timely manner and in a way that is compatible with the
Company's systems. The Company believes that its actions with suppliers will
minimize these risks.
The GPS week number roll-over (WNRO) issue is peculiar to GPS technology.
All GPS satellites, which are operated by the U.S. government, broadcast time in
the form of a "GPS week number" and a time offset from each such "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 broadcast by all
U.S. GPS satellites will roll-over back to 0. This roll-over may cause GPS
receivers to erroneously interpret high-week-number, pre-WNRO data as post-dated
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 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 Roll-over 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 and testing for year 2000
compliance. To perform these tests Trimble must rely upon commercially available
simulators to simulate the satellites during WNRO. The Company has received
compliance statements from each of these 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
licensing 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
17
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.
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 currently 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 6 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 strategic 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. The array of satellites
consists of 24 of which the oldest satellite has been in orbit for 20 years and
the youngest satellite has been in orbit for 4 years. 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
18
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 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.
19
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held in Sunnyvale,
California on May 5, 1998.
At the annual shareholder meeting, an election of directors was held with
the following individuals being elected to the Company's Board of Directors.
Vote
-------------------------------------
For Withheld
Robert S. Cooper 21,067,925 285,101
John B. Goodrich 21,060,466 292,560
William Hart 21,063,979 289,047
Bradford W. Parkinson 21,055,527 297,499
Charles R. Trimble 21,052,800 300,226
Other matters voted upon at the meeting and the results of the voting with
respect to each such matter were as follows:
(1) To approve an increase of 600,000 shares in the number of shares of
Common Stock reserved for issuance under the Company's 1993 Stock Option
Plan from 3,200,000 to 3,800,000 shares. (18,788,624 in favor; 2,445,103
opposed; 117,899 abstentions; 1,400 broker non-votes)
(2) To approve an amendment of the Company's 1993 Stock Option Plan
increasing the limitation on the number of shares of Common Stock which
may be granted to a current employee, in any fiscal year, pursuant to
options under the 1993 Stock Option Plan from 100,000 shares to a new
maximum of 150,000 shares. (18,930,612 in favor; 2,067,794 opposed;
353,220 abstentions; 1,400 broker non-votes)
(3) To approve an increase of 650,000 shares in the number of shares of
Common Stock available for purchase by eligible employees under the
Company's 1988 Employee Stock Purchase Plan from 1,700,000 to
2,350,000 shares.(20,166,616 in favor; 1,077,453 opposed; 108,957
abstentions; 0 broker non-votes)
(4) To approve an amendment of the Company's bylaws to provide that the
Company may, upon the approval of the Board of Directors alone and
without further shareholder approval, make loans to the Company's
officers for the purpose of assisting in the acquisition of their
primary residence in exceptional housing markets where such location
20
is for the Company's benefit, provided that such loans are secured by
such real property. (16,932,127 in favor; 4,065,806 opposed;
354,093 abstentions; 1,000 broker non-votes)
(5) To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the current fiscal year ending
January 1, 1999.(20,841,633 in favor; 418,739 opposed; 92,654 abstentions;
0 broker non-votes)
ITEM 5. OTHER INFORMATION
Deadline for Receipt of Shareholder Proposals for 1999 Annual Meeting
Shareholders are entitled to present proposals for action at forthcoming
shareholder meetings of the Company if they comply with the requirements of the
appropriate proxy rules promulgated by the Securities and Exchange Commission.
As stated in the proxy statement for the Company's 1998 Annual Meeting of
Shareholders held on May 5, 1998, proposals of shareholders of the Company
intended to be presented for consideration at the Company's 1999 Annual Meeting
of Shareholders must be received by the Company no later than December 5, 1998,
in order that they may be included in the proxy statement and form of proxy
related to that meeting.
The proxy card used in connection with the Company's 1998 Annual Meeting of
Shareholders granted the proxy holders discretionary authority to vote on any
matter properly raised at the 1998 Annual Meeting of Shareholders and the
Company presently intends to use a similar form of proxy card for its 1999
Annual Meeting of Shareholders. If a shareholder intends to submit a proposal at
the Company's 1999 Annual Meeting which is not eligible for inclusion in the
proxy statement and form of proxy relating to that shareholder meeting, a new
rule recently established by the Securities and Exchange Commission requires
that such proposals must be received by the Company no later than February 20,
1999. If such a shareholder fails to comply with the foregoing notice provision
for proposals not included in the proxy statement and related form of proxy, the
proxy holders will be allowed to use their discretionary voting authority if
such a proposal is properly raised at the Company's 1999 Annual Meeting of
Shareholders.
21
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
A. Exhibits Number
27.1 Financial Data Schedule for the quarters ended 24
July 3, 1998 and June 30, 1997
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
July 3, 1998
22
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: August 14, 1998
23