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 2, 1999
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 August 6, 1999, there were 22,518,600 shares of Common Stock (no par
value) outstanding.
1
TRIMBLE NAVIGATION LIMITED
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 2, 1999 and January 1, 1999 3
Condensed Consolidated Statements of Operations -
Three and Six Months ended July 2, 1999 and, July 3, 1998 4
Condensed Consolidated Statements of Cash Flows -
Six Months ended July 2, 1999 and, July 3, 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURES 28
2
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
July 2, January 1,
1999 1999
-------------------------------------------------------------------------------
(In thousands) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $41,180 $ 40,865
Short term investments 23,643 16,269
Accounts and other receivable, net 38,953 33,431
Inventories 32,788 37,166
Other current assets 3,143 4,173
-------------- -------------
Total current assets 139,707 131,904
Net property and equipment 13,762 15,104
Intangible assets 1,231 1,320
Deferred income taxes 407 405
Other assets 7,469 7,546
--------------- ------------
Total assets $162,576 $156,279
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,388 $ 1,388
Accounts payable 13,255 13,000
Accrued compensation and benefits 7,201 4,696
Customer advances - 808
Accrued liabilities 10,968 15,474
Accrued liabilities related to disposal of
General Aviation 6,406 6,743
Accrued warranty expense 5,961 5,681
Income taxes payable 3,330 2,158
---------------- -----------
Total current liabilities 48,509 49,948
---------------- -----------
Noncurrent portion of long-term debt
and other liabilities 30,013 31,640
---------------- -----------
Total liabilities 78,522 81,588
--------------- ------------
Shareholders' equity:
Common stock 123,449 121,501
Common stock warrants 700 700
Accumulated deficit (39,048) (46,718)
Unrealized gain (loss) on short term
investments (33) 19
Foreign currency translation adjustment (1,014) (811)
--------------- ------------
Total shareholders' equity 84,054 74,691
--------------- ------------
Total liabilities and shareholders' equity $162,576 $156,279
=============== ============
See accompanying notes to condensed consolidated financial statements.
3
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
1999 1998 * 1999 1998 *
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Total revenue $ 70,839 $ 73,536 $ 139,609 $147,697
----------------- -------------- -------------- --------------
Operating expenses:
Cost of sales 33,228 37,277 66,431 73,112
Research and development 9,444 11,199 17,951 22,353
Sales and marketing 13,972 15,762 27,276 31,588
General and administrative 8,630 7,603 18,653 14,667
----------------- -------------- -------------- --------------
Total operating expenses 65,274 71,841 130,311 141,720
----------------- -------------- -------------- --------------
Operating income 5,565 1,695 9,298 5,977
----------------- -------------- -------------- --------------
Nonoperating income (expense):
Interest income 694 971 1,385 2,014
Interest and other expenses (835) (819) (1,652) (1,677)
Foreign exchange gain (loss) , net 54 245 (7) 280
----------------- -------------- -------------- --------------
(87) 397 (274) 617
----------------- -------------- -------------- --------------
Income before income taxes from
continuing operations 5,478 2,092 9,024 6,594
Income tax provision 822 200 1,354 700
----------------- -------------- -------------- --------------
Net income from continuing operations $ 4,656 $ 1,892 $ 7,670 $ 5,894
----------------- -------------- -------------- --------------
Discontinued operations:
Loss from operations - (1,637) - (3,724)
----------------- -------------- -------------- --------------
Net income $ 4,656 $ 255 $ 7,670 $ 2,170
================= ============== ============== ==============
Basic income per share from continuing operations $ 0.21 $ 0.08 0.34 0.26
Basic income (loss) per share from discontinued operations - (0.07) - (0.16)
----------------- -------------- -------------- --------------
Basic net income per share $ 0.21 $ 0.01 $ 0.34 $ 0.10
================= ============== ============== ==============
Shares used in calculating basic
income (loss) per share 22,319 22,693 22,290 22,737
================= ============== ============== ==============
Diluted income per share from continuing operations $ 0.20 $ 0.08 0.34 0.25
Diluted income (loss) per share from discontinued operations - (0.07) - (0.16)
----------------- -------------- -------------- --------------
Diluted net income per share $ 0.20 $ 0.01 $ 0.34 $ 0.09
================= ============== ============== ==============
Shares used in calculating diluted
income (loss) per share 22,769 23,300 22,437 23,458
================= ============== ============== ==============
<FN>
* Certain amounts in these periods have been restated for the discontinued operation (General Aviation) and subsequent to the
restatement, certain amounts in this period related to certain product lines have been reclassified to include amounts in
continuing operations that were previously included in discontinued operations. See Note 3 for further explanation.
</FN>
See accompanying notes to condensed consolidated financial statements.
4
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
July 2, July 3,
1999 1998 *
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
Net cash provided by operating activities of continuing operations $ 9,465 $ 5,686
Net cash used by operating activities of discontinued operations - $ (3,724)
------------- ----------------
Net cash provided by operating activities $ 9,465 $ 1,962
------------- ----------------
Cash flow from investing activities:
Purchase of short term investments (7,374) (62,268)
Maturities of short term investments 752 71,947
Sales of short term investments - -
Acquisition of property and equipment (3,105) (4,500)
Capitalized patent expenditures (523) (574)
------------- ----------------
Net cash provided (used) in investing activities of continuing operations (10,250) 4,605
Net cash used in investing activities of discontinued operations - (20)
------------- ----------------
Net cash provided (used) in investing activities (10,250) 4,585
------------- ----------------
Cash flow from financing activities:
Issuance of common stock 1,948 3,203
Repurchase of common stock - (8,754)
(Payment)/collections of notes receivable 484 (294)
(Payment)/proceeds from long-term debt and revolving
credit facilities (1,332) 2,527
------------- ----------------
Net cash provided (used) by financing activities of continuing operations 1,100 (3,318)
------------- ----------------
Net cash provided (used) by financing activities 1,100 (3,318)
------------- ----------------
Net increase in cash and cash equivalents 315 3,229
Cash and cash equivalents -- beginning of period 40,865 19,951
------------- ----------------
Cash and cash equivalents -- end of period $ 41,180 $ 23,180
============= ================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 751 $ 811
Income taxes, net of refunds $ 41 $ 983
<FN>
* Certain amounts in this period have been restated for the discontinued operation (General Aviation) and subsequent to the
restatement, certain amounts in this period related to certain product lines have been reclassified to include amounts in
continuing operations that were previously included in discontinued operations. See Note 3 for further explanation.
</FN>
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 and six month
periods ended July 2, 1999, and July 3, 1998, which are presented in this
Quarterly Report on Form 10-Q are unaudited. The balance sheet at January 1,
1999, 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 on Form 10-K for the
year ended January 1, 1999. The three and six month periods ending July 3, 1998
have been restated to reflect a subsequently retained portion of discontinued
operations. See Note 3.
The Company has a 52-53 week fiscal year which ends on the Friday nearest
to December 31, which for fiscal 1999 will be December 31, 1999.
The results of operations for the three and six month periods ended July 2,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
NOTE 2 - Inventories:
Inventories from continuing operations consist of the following:
July 2, January 1,
1999 1999
- ---------------------------------------------------------------------
(In thousands)
Raw materials $ 16,972 $ 22,480
Work-in-process 6,018 4,033
Finished goods 9,798 10,653
-------------- -------------------
$ 32,788 $ 37,166
-------------- -------------------
NOTE 3 - Discontinued Operations:
On October 2, 1998, the Company adopted a plan to discontinue its General
Aviation division. The Company currently anticipates that the division will be
disposed of by September 1999. Accordingly, the General Aviation division is
being reported as a discontinued operation for all periods presented in these
financial statements. Net assets of the discontinued operation at October 2,
1998 were written off and consisted primarily of inventory, property, plant and
equipment and intangible assets.
As of July 2, 1999, in connection with the discontinued operations, the
Company had incurred cumulative net expenses of $4.8 million consisting of
spending of $5.3 million for operating loss for the discontinued operation
through the estimated date of disposal including severance costs and receipt of
$543,000 related to the sale of particular inventory items and fixed assets. The
Company has a remaining provision of $6.4 million which includes $4.1 million
for the estimated operating losses through the estimated date of disposal
6
including remaining severance costs and $2.3 million for facility and certain
other contractual costs.
On March 31, 1999 the Company made the decision to retain certain product
lines included within the General Aviation division which were part of the
previously planned discontinued operations. The basis of the decision was that
these products use common raw materials and labor which are necessary for the
Company's Air Transport products and, therefore, these particular product lines
could be retained without adding additional overhead from the overhead currently
required for the Air Transport products. The revenues and costs related to the
products retained have been included in the results of operations of continuing
operations in the periods presented.
The net revenues of the discontinued operation, which have been restated to
exclude the retained product lines, are not included in net revenues of
continuing operations in the accompanying statements of operations. The
operating results for the three and six months ended July 3, 1998 of the
discontinued operation are summarized as follows:
Three Months Ended Six Months Ended
July 3, July 3,
1998 1998
- --------------------------------------------------------------------------------
(In thousands)
Net revenues $ 2,314 $ 4,761
Loss before tax provision (1,637) (3,724)
Income tax provision - -
================ =================
Net loss $ (1,637) $ (3,724)
================ =================
Basic and diluted net loss per share $ (0.07) $ (0.16)
NOTE 4 - Restructuring Charge:
In fiscal 1998, the Company recorded restructuring charges totaling $10.3
million in operating expenses.
These charges were a result of the Company's reorganization activities,
through which the Company has downsized its operations, including reducing
headcount and facilities space usage and canceling its enterprise wide
information system project and certain research and development projects. The
impact of these decisions was that significant amounts of the Company's fixed
assets, prepaid expenses, and purchased technology have been impaired and
certain liabilities incurred. The Company wrote down the related assets to their
net realizable values and made provisions for the estimated liabilities.
7
The activity in fiscal 1999 and 1998 related to the restructuring and the
amounts remaining at July 2, 1999 on the balance sheet are as follows (in
thousands):
Total
charged to Remaining in
expense in Amounts paid/ accrued liabilites
fiscal 1998 written off as of July 2, 1999
------------ -------------- -------------------
Employee termination benefits $ 2,864 $ (1,962) $ 902
Facility space reductions 1,061 (823) 238
ERP system abandonment 6,360 (5,589) 771
----------- ----------- ------------------
Subtotal $10,285 $ (8,374) $ 1,911
=========== =========== ===================
NOTE 5 - Segment Information:
The Company currently manages its industry segment within two Business
Units: the Precision Positioning Group (PPG) and the Mobile and Timing
Technologies (MTT) Group.
The accounting policies applied by each of the markets are the same as
those used by the Company in general.
The following table presents revenues, operating income (loss), and
identifiable assets by the Company's Business Units. The Company has no
inter-Business Unit sales or transfers. As presented, operating income (loss)
consists of net sales less operating expenses, excluding general corporate
expenses, interest income (expense), and income taxes. The identifiable assets
that the Chief Operating Decision Maker (CODM) views by industry market are
accounts receivable and inventory. The Company does not report depreciation and
amortization or capital expenditures by industry markets to the CODM.
8
-------------------------------------- -----------------------------------------
Three Months Ended Six Months Ended
July 2, 1999 July 2, 1999
-------------------------------------- -----------------------------------------
(in thousands) (in thousands)
-------------------------------------- -----------------------------------------
PPG MTT Total PPG MTT Total
-------------------------------------- -----------------------------------------
External net revenue $ 41,581 $ 29,258 $ 70,839 $ 84,147 $ 55,462 $ 139,609
Operating profit before corporate allocations 13,510 4,347 17,857 27,895 7,672 35,567
Corporate allocations (1) (6,165) (2,872) (9,037) (12,351) (5,363) (17,714)
-------------------------------------- -----------------------------------------
Operating profit from continuing operations $ 7,345 $ 1,475 $ 8,820 $ 15,544 $ 2,309 $ 17,853
Assets:
Accounts recievable (2) $ 26,848 $ 25,209 $ 52,057
Inventory 12,340 20,385 32,725
-------------------------------------- -----------------------------------------
Three Months Ended Six Months Ended
July 3, 1998 July 3, 1998
-------------------------------------- -----------------------------------------
(in thousands) (in thousands)
-------------------------------------- -----------------------------------------
PPG MTT Total PPG MTT Total
-------------------------------------- -----------------------------------------
External net revenue $ 43,659 $ 29,877 $ 73,536 $ 84,805 $ 62,892 $ 147,697
Operating profit before corporate allocations 7,969 1,551 9,520 14,116 5,865 19,981
Corporate allocations (1) (4,276) (2,033) (6,309) (8,123) (3,991) (12,114)
-------------------------------------- -----------------------------------------
Operating profit/(loss) from continuing operations $ 3,693 $ (482) $ 3,211 $ 5,993 $ 1,874 $ 7,867
-----------------------------------------
Tweleve Months Ended
January 1, 1999
-----------------------------------------
(in thousands)
-----------------------------------------
Assets: PPG MTT Total
-----------------------------------------
Accounts recievable (2) $ 32,197 $ 14,837 $ 47,034
Inventory 10,042 16,251 26,293
<FN>
(1) For the three and six months ended July 2, 1999, the Company determined the amount of corporate allocations charged to its
Business Units based on a percentage of the Business Units' monthly revenue, gross profit, and controllable spending
(research and development, marketing, and general and administrative). For the three and six months ended July 3, 1998,
the Company determined the amount of the corporate allocations charged to its Business Units based on a percentage of the
Business Units' monthly inventory balance and gross profit. Allocation percentages were determined at the beginning of
each of the respective fiscal years.
(2) As presented, the accounts receivable number excludes cash in advance and reserves, which are not, allocated between
Business Unit segments.
</FN>
9
Following are reconciliations corresponding to totals in the accompanying
consolidated financial statements (in thousands):
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
Revenues: 1999 1998 1999 1998
- --------------------------------------------------------------------------- --------------- ------------- -----------------
Total for reportable markets $ 70,839 $ 73,536 $ 139,609 $ 147,697
============== =============== ============= =================
Operating profit/(loss) from continuing operations:
- -------------------------------------------------------------
Total for reportable markets $ 8,820 $ 3,211 $17,853 $ 7,867
Unallocated corporate expenses (3,255) (1,516) (8,555) (1,890)
-------------- --------------- ------------- -----------------
Income before income taxes from continuing operations $ 5,565 $ 1,695 $ 9,298 $ 5,977
============== =============== ============= =================
Six Months Twelve Months
Ended Ended
July 2, January 1,
Assets: 1999 1999
- ------------------------------------------------------------- ------------- -----------------
Accounts receivable total for reportable markets $52,057 $ 47,034
Unallocated (1) (13,104) (13,603)
------------- -----------------
Total $38,953 $ 33,431
============= =================
Inventory total for reportable markets $32,725 $ 26,293
Common inventory (2) 63 10,873
============= =================
Net inventory $32,788 $ 37,166
============= =================
<FN>
(1) Includes cash in advance and reserves that are not allocated by segment.
(2) Consists of inventory that is common between the Business Unit segments. Parts can be used by either segment.
</FN>
NOTE 6 - Comprehensive Income (Loss):
The components of comprehensive income, net of related tax for the three
and six months ended July 2, 1999 and July 3, 1998 are as follows:
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------
(In thousands)
Net income $ 4,656 $ 255 $ 7,670 $ 2,170
Unrealized losses on securities (45) (17) (52) (12)
Foreign currency translation adjustments (90) (258) (203) (462)
----------- ------------ ------------ ---------------
Comprehensive income $ 4,521 $ (20) $ 7,415 $ 1,696
=========== ============ ============ ===============
10
The components of accumulated other comprehensive loss, net of related
taxes at July 2, 1999 and January 1, 1999 is as follows:
July 2, January 1,
1999 1999
- -------------------------------------------------------------------------
(In thousands)
Unrealized gains (loss) on securities $ (33) $ 19
Foreign currency translation adjustments (1,014) (811)
------------- --------------
Accumulated comprehensive loss $(1,047) $ (792)
============= ==============
NOTE 7 - New Accounting Standards:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 will require the Company to record
all derivatives held on the balance sheet at fair value. Derivatives that are
not hedges must be adjusted to fair value through income. With respect to
derivatives which are hedges, then depending on the nature of the hedge, changes
in the fair value of derivatives either will be offset against the change in
fair value of the hedged assets, liabilities, or firm commitments through
earnings, or will be recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's change
in fair value will be immediately recognized in earnings. In June of 1999 the
Financial Accounting Standards Board delayed the effective date of
implementation for one year; therefore, SFAS 133 is effective for fiscal years
beginning after June 15, 2000. The Company expects to adopt SFAS 133 as of the
beginning of its fiscal year 2001. The effect of adopting the Standard is
currently being evaluated, but is not expected to have a material adverse effect
on the Company's financial position or results of operations.
11
NOTE 8 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Six Months Ended
July 2, July 3, July 2, July 3,
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------ ------------------------------
(In thousands, except per share amounts)
Numerator:
Income from continuing operations available to common
shareholders used in basic and diluted income per share $ 4,656 $ 1,892 $ 7,670 $ 5,894
Loss from discontinued operations available to common
shareholders used in basic and diluted income per share $ - $ (1,637) $ - $ (3,724)
-------------- -------------- ------------- --------------
Income from operations available to common
shareholders used in basic and diluted income per share $ 4,656 $ 255 $ 7,670 $ 2,170
============== ============== ============= ==============
Denominator:
Weighted-average number of common
shares used in calculating basic income per share 22,319 22,693 22,290 22,737
Effect of dilutive securities:
Common stock options 413 448 147 551
Common stock warrants 37 159 - 170
-------------- -------------- ------------- --------------
Weighted-average number of common
shares and dilutive potential common shares
used in calculating diluted income per share 22,769 23,300 22,437 23,458
============== ============== ============= ==============
Basic income per share from continuing operations $ 0.21 $ 0.08 $ 0.34 $ 0.26
Basic loss per share from discontinued operations $ - $ (0.07) $ - $ (0.16)
-------------- -------------- ------------- --------------
Basic income per share $ 0.21 $ 0.01 $ 0.34 $ 0.10
============== ============== ============= ==============
Diluted income per share from continuing operations $ 0.20 $ 0.08 $ 0.34 $ 0.25
Diluted loss per share from discontinued operations $ - $ (0.07) $ - $ (0.16)
-------------- -------------- ------------- --------------
Diluted income per share $ 0.20 $ 0.01 $ 0.34 $ 0.09
============== ============== ============= ==============
NOTE 9 - 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
12
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. On March 19, 1999, the parties executed a Memorandum of
Understanding with respect to settlement of the litigation. The parties have
negotiated a definitive stipulation of settlement and on September 20, 1999, a
court hearing will be held in order for the Court to decide whether or not to
approve the terms of the settlement. There can be no assurance that such
approval will be granted. If the litigation is settled as provided by the
current terms of the settlement, the outcome will not have a material adverse
effect on the Company's financial position or results of operations.
Other Litigation
On November 12, 1998, the Company brought suit in district court in San
Jose, California against Silicon RF Technology, Inc. (SiRF) for alleged patent
infringement of three Trimble patents. No action by the Court has taken place
yet.
On January 31, 1997, counsel for one Philip M. Clegg wrote to the Company
asserting that a license under Mr. Clegg's U.S. Patent No. 4,807,131, which was
issued February 21, 1989, would be required by the Company because of a joint
venture that the Company had previously 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.
Other Matters
Western Atlas, a Houston based supplier to the oil exploration business,
has accused the Company and other GPS manufacturers, suppliers and users of
infringing two U.S. Patents owned by it, namely U.S. Patent Nos. 5,014,066 and
5,619,212. Western Atlas contends that the foregoing patents cover certain
aspects of GPS receiver design. Lawsuits for infringement of these two patents
were filed in federal district court in Houston, Texas against Rockwell
International Corp., currently pending and Garmin International Inc. which has
been settled. Although Trimble has not been sued by Western Atlas on the
foregoing patents, the Company has instructed its counsel thoroughly to
investigate the infringement threat. At the present time, the Company does not
expect this threat to have adverse consequences on the Company's business.
NOTE 10 - Subsequent Event:
On August 10, 1999, the Company signed a Supply Agreement with Solectron
Corporation and Solectron Federal Systems, Inc. (collectively "Solectron"). The
Agreement is an exclusive arrangement between both parties for all manufacturing
being outsourced by Trimble for three years effective August 13, 1999. In
addition, the Company has signed an agreement to sell substantially all the
manufacturing assets, associated commitments, and manufacturing technology in
its Sunnyvale location to Solectron as of August 13, 1999 for cash of
approximately $28 million. The final purchase price for these assets will be
based on the value of the inventory, assets, and commitments on hand at close of
business on August 13, 1999. The valuation is expected to be finalized by the
end of the third quarter and the anticipated gain on the transaction will be
recognized over the exclusive life of the Supply Agreement.
13
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
Revenues
Revenues of continuing operations for the three and six months ended July
2, 1999 were $70,839,000 and $139,609,000 respectively, compared with
$73,536,000 and $147,697,000 in the corresponding 1998 periods. The table below
breaks out the Company's revenues by segment:
Three Months Ended Six Months Ended
------------------------------------------- --------------------------------------------
July 2, July 3, July 2, July 3,
1999 1998 Decrease 1999 1998 Decrease
- --------------------------------------------------------------------------- --------------------------------------------
(In thousands)
Precision Positioning Group $ 41,581 $43,659 (5%) $ 84,147 $ 84,805 (1%)
Mobile and Timing Technologies 29,258 29,877 (2%) 55,462 62,892 (12%)
------------- ------------- ------------- ------------- -------------- -------------
Total $ 70,839 $73,536 (4%) $ 139,609 $ 147,697 (5%)
------------- ------------- ------------- ------------- -------------- -------------
Precision Positioning Group
Precision Positioning Group revenues decreased for both the three and six
month periods ended July 2, 1999 as compared to the corresponding periods for
1998. The decrease for the three month period was partially due to a change in
distribution model from a dealer commission to a buy sell. The new model
discounts revenue, which is offset by lower sales commissions. In addition,
there was a reduction in the agriculture product lines due to reduced sales to a
U.S. OEM who has been impacted by a reduction in new equipment sales in the
agriculture sector, as well as a large shipment to the U.S. government for
precision land survey equipment in the second quarter of 1998 that was not
repeated in the second quarter of 1999. These decreases were only partially
offset by increases in the Mapping and GIS Systems product line.
The decrease for the six month period was primarily due to a change in
distribution model from a dealer commission to a buy sell. The new model
discounts revenue, which is offset by lower sales commissions. In addition,
there was a large shipment to the U.S. government for precision land survey
equipment in the second quarter of 1998 which was not repeated in the second
quarter of 1999. These decreases were only partially offset by increases in the
Mapping and GIS Systems and Mining, Construction and Agricultural product lines.
14
Mobile and Timing Technologies
Mobile and Timing Technologies revenues decreased for both the three and
six month periods ended July 2, 1999, as compared with the corresponding periods
in 1998 due primarily to lower shipments to the U.S. government under the CUGR
program during 1999 as compared to the same periods for 1998. In addition, the
Commercial Avionics product line had strong shipments of the Honeywell-Trimble
(HT9100) product to American Airlines during 1998 that have not been repeated in
1999. These decreases were not completely offset by increases in the remaining
Automotive, Timing, and Mobile Positioning product lines.
Revenues outside the U.S.
* Sales to unaffiliated customers from continuing operations in locations
outside the U.S. comprised approximately 49% and 47% of the Company's revenues
in the first six months of fiscal 1999 and 1998, respectively. During the first
six months of 1999, the Company has continued to experience strength in the
demand from U.S. and European markets, and had stronger than expected demand in
South and Central America. The Company anticipates that export revenues and
sales made by its subsidiaries in locations outside the U.S. will continue to
account for a significant portion of its revenues and, therefore, the Company is
subject to the risks inherent in these international sales, including unexpected
changes in regulatory requirements, exchange rates, governmental approvals,
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 would be adversely affected if
the Company were unable to continue to generate significant sales in locations
outside the U.S.
Gross Margin
* Gross margin from continuing operations 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 revenues was 53% and 52% for the
three and six month periods ending July 2, 1999 as compared with 49% and 51% in
the corresponding 1998 periods. The increases in gross margin percentages
primarily reflect improved manufacturing cost control achieved through the
consolidation of the manufacturing organization resulting in improved
efficiencies and reduced inventory. 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. As a
result of volume pricing and the assumption of certain operating costs in
connection with such partners, margins related to these revenues from strategic
alliances are likely to be lower than revenues from sales directly to end-users.
15
Operating Expenses
The following table shows operating expenses from continuing operations 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 2, July 3, Increase/ July 2, July 3, Increase/
1999 1998 (Decrease) 1999 1998 (Decrease)
- --------------------------------------------------------------------------------------------------------------------------
(In Thousands)
Research and development $ 9,444 $11,199 (16)% $ 17,951 $22,353 (20)%
Sales and marketing 13,972 15,762 (11)% 27,276 31,588 (14)%
General and administrative 8,630 7,603 14 % 18,653 14,667 27 %
------------ -------------- ------------ -------------- -------------- -------------
Total $32,046 $34,564 (7)% $ 63,880 $68,608 (7)%
------------ -------------- ------------ -------------- -------------- -------------
Research and Development
* Research and development expenses decreased in the three and six month
periods ended July 2, 1999, as compared with the corresponding period in fiscal
1998. The lower research and development expenses for the second quarter and
first half of fiscal 1999 as compared with the corresponding periods in fiscal
1998 are primarily due to the Company receiving increased funds from cost
reimbursement projects. Also there was a decrease in personnel, consultants,
electronic parts and other supplies expense as part of the Company's
restructuring plan that was implemented in the last half of 1998. The Company
plans to continue its 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.
Sales and Marketing
The decrease in sales and marketing expenses for the three and six month
periods ended July 2, 1999, as compared with the corresponding periods in fiscal
1998 is due primarily to decreases in personnel, travel, advertising, trade
shows, and commission expenses as part of the Company's restructuring plan which
was implemented in the last half of 1998.
* The Company's future growth will also depend upon the timely development
and continued viability of the Business Unit segments 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 significant
competition in some markets, and the Company expects such competition to
intensify as the market for GPS applications receives greater 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 if the Company is unable to make corresponding changes to compete
effectively.
16
General and Administrative
The increase in general and administrative expenses for the three and six
months ended July 2, 1999, as compared with the corresponding periods for fiscal
1998, is primarily due to an increase in the allowance for doubtful accounts
related to customers in South America based on a slow down in the South American
economy for the first half of 1999. In addition, the Company had an increase in
expenditures associated with certain litigation matters during the second
quarter and first half of 1999. Also, the Company had an increase in salary
related expenses in connection with the hiring of a new CEO in March 1999; an
increase in equipment rental expenses; and an increase in building rent in the
second quarter and first half of 1999, as compared to the corresponding periods
for 1998.
Income Taxes
The Company's effective income tax rate from continuing operations for the
three and six months ended July 2, 1999 is 15% as compared with the effective
income tax rates from continuing operations of 10% and 11%, respectively, for
the corresponding periods in 1998. These rates are less than the federal
statutory rate of 35% primarily due to the utilization of net operating loss
carryforwards and the realization of previously reserved deferred tax assets.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
* At July 2, 1999, the Company had cash and cash equivalents of $41,180,000
and short-term investments of $23,643,000. 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 months ended July 2, 1999, net cash provided from operating
activities was $9,465,000 as compared to cash provided of $1,962,000 in the
corresponding period in 1998. Cash provided by operating activities in 1999
resulted from decreases in inventories and increases in accrued compensation and
benefits. Inventory from continuing operations as of July 2, 1999 decreased by
$4,378,000 from the 1998 year end levels primarily due to a focused effort by
the Company to reduce inventory by supply chain synchronization, reducing lead
and cycle times, simplifying product lines, and implementing tighter control
over its material forecasting process. 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 the successful management of the
Solectron manufacturing relationship.
* During the third quarter of fiscal 1999 as described in Note 10, the
Company expects to receive cash as part of an agreement with Solectron for the
outsourcing of the manufacturing operations located in Sunnyvale, California.
The anticipated inflow of cash in the third quarter of fiscal 1999 will be
employed by the Company to fund capital expenditures and for other investing
activities.
17
Cash provided by sales of common stock in 1999 represents the proceeds from
purchases made pursuant to the Company's stock option plan and employee stock
purchase plan and totaled $1,948,000 for the six months ended July 2, 1999.
* 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.
As of February 16, 1999, the Company, the Agent and the Lenders agreed to new
covenants for the life of the loan, which expires in August of 2000. The new
covenants have certain limitations which could limit the Company's available
credit. The Company does not currently anticipate that these limitations will
impact the available credit of the Company. The $50,000,000 revolving credit
facility was modified to include the Company's prior separate $5,000,000 line of
credit and to simplify the entire arrangement, as less than $150,000 was being
utilized under the separate facility as of January 1, 1999. 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 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 $50,000,00 unsecured revolving
credit facility, but has issued certain letters of credit under the $5,000,000
line of credit which is now under the Credit Agreement. In addition, the Company
is restricted from paying dividends under the terms of the Credit Agreement.
In June 1994, the Company issued $30.0 million of subordinated promissory
notes bearing interest at an annual rate of 10%, with principal due on June 15,
2001. Interest payments are due monthly in arrears. The notes are subordinated
to the Company's senior debt, which is defined as all pre-existing indebtedness
for borrowed money and certain future indebtedness for borrowed money
(including, subject to certain restrictions, secured bank borrowings and
borrowed money for the acquisition of property and capital equipment) and trade
debt incurred in the ordinary course of business. If the Company prepays any
portion of the principal, it is required to pay additional amounts if U.S.
Treasury obligations of a similar maturity exceed a specified yield. Under the
agreement, the Company is also restricted from paying dividends.
The issuance of the subordinated promissory notes also included the
issuance of warrants entitling holders to purchase 400,000 shares of common
stock at a price of $10.95 per share at any time through June 15, 2001. The net
proceeds of the notes were $29,348,000. The notes are recorded as noncurrent
liabilities, net of appraised fair value attributed to the warrants. The value
of the warrants and the issuance costs are being amortized to interest expense,
using the interest rate method over the term of the subordinated promissory
notes. The effective annual interest rate on the notes is 11.5%. Under the terms
of the note, the Company is required to meet a minimum consolidated net worth
requirement. If the Company falls below the minimum consolidated net worth
requirement the Company could be in default of its loan covenants. Such events
could have a material adverse effect on the Company's operations and liquidity.
In 1998, the Company approved the repurchase of 1.6 million shares on the
open market under a discretionary program to offset the potential dilutive
effects to earnings (loss) per share from the issuance of additional stock
options. The Company intends to use existing cash, cash equivalents and
short-term investments to finance any such stock repurchases under this program.
During 1998, the Company purchased 1.08 million shares at a cost of $16.1
million. During the first six months of fiscal 1999, no shares have been
repurchased under the discretionary program.
18
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.
* The Company has evaluated the issues raised by the introduction of the
Single European Currency (Euro) for initial implementation as of January 1,
1999, and during the transition period through January 1, 2002. The Company does
not currently believe that the introduction of the Euro will have a material
effect on the Company's foreign exchange and hedging activities. The Company has
also assessed the potential impact the Euro conversion will have in regard to
its internal systems accommodating Euro-denominated transactions. The Company
will continue to evaluate the impact of the Euro introduction over time, based
on currently available information. The Company does not currently anticipate
any adverse impact of the Euro conversion on the Company.
Year 2000 and GPS Week Number Rollover Issues
Computers and software, as well as other equipment that relies on only two
digits to identify or represent a year may be unable to accurately process or
display certain information at or after the Year 2000. This is commonly referred
to as the "Year 2000 issue." The Year 2000 issue may materially affect Trimble's
vendors, suppliers, internal systems, products and customers. The Company
continues to address the Year 2000 issue to avoid what might otherwise be a
material and adverse effect on the Company's consolidated financial position,
results of operations, or cash flows.
During the third quarter of 1999 another date-related issue, known as the
"GPS Week Number Roll-Over" or "WNRO" issue, could also materially affect
various Trimble products. The WNRO issue is unrelated to the Year 2000 issue and
is unique 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
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 broadcast by all U.S. GPS satellites will roll over, back to 0.
Among other potential effects, this rollover may cause GPS receivers and
software that process data obtained by 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. The Company continues
to address the WNRO issue to avoid what might otherwise be a material and
adverse effect on the Company's future consolidated financial position, results
of operations, or cash flows.
The Company continues to assess the potential impact of both the Year 2000
and WNRO issues on its vendors, suppliers, internal systems, products, and
customers-and has begun, and in many cases completed, corrective efforts in
these areas.
Year 2000 Remediation Plan
The Company's Board of Directors has adopted a comprehensive Year 2000
Remediation Plan, the goal of which is to minimize business disruptions and risk
exposure that might otherwise arise as a consequence of moving into the
twenty-first century. The plan focuses on achieving Year 2000 readiness across
the Company's entire supply chain, and is designed to deal with the most
critical systems first. Additionally, the Company's Year 2000 remediation plan
calls for the development of contingency plans to address potential problem
areas with internal systems, and with suppliers and other third parties. To
these ends, a Y2K Program Management Office has been established to manage and
19
coordinate implementation of the plan on a companywide basis. It is expected
that assessment, remediation, and contingency planning activities will be
ongoing throughout 1999, with the objective of appropriately resolving all
material Year 2000 issues before the 21st century rollover.
Information Technology and Other Systems
The Company continues to assess the potential impact of the Year 2000 issue
on its internal systems, including information technology (IT) and non-IT
systems, and has begun corrective efforts in this area, as follows:
o The Company has upgraded its existing MRP/ERP information systems to a
Year 2000 compliant version as of the end of the second quarter. Final
testing of the upgraded systems for Year 2000 compliance will be completed
before the 21st century rollover. In addition ancillary critical systems
will be upgrade to be Year 2000 compliant during the second half of 1999.
o Assessment and remediation efforts in connection with the Company's other
IT and non-IT systems will be undertaken as part of the Company's general
Y2K Remediation Plan.
* The Company currently plans to complete renovation, testing and
implementation of critical systems, or successful execution of contingency
plans, during the second half of 1999. There can be no assurance, however, that
there will not be a delay in, or increased costs associated with, such
renovation, testing, implementation or execution, and the Company's inability to
successfully and timely complete these tasks could have a material adverse
effect on future results of operations or financial condition.
Products
To address and minimize the anticipated impact of both the Year 2000 issue
and the WNRO issue upon the Company's products, the Company continues to assess
the anticipated impact these issues may have on the performance of its products,
and resolve various of its current products' related performance problems. In
addition, the Company has adopted a formal Year 2000 and GPS Week Number
Rollover Policy to:
o Publish Year 2000 and WNRO related product performance information on the
Company's public web site;
o Respond to individual customer inquiries regarding the anticipated
performance of particular Company products;
o Furnish upgrades to customers whose Trimble products are upgradable; and
o Provide information regarding available product alternatives to customers
with noncompliant products.
Assessment of products, resolution of certain products' Year 2000 and WNRO
performance problems, and implementation of the Company's Year 2000 and GPS Week
Number Rollover Policy, are ongoing, and as to many Company products is
complete.
* The Company does not anticipate that the Year 2000 and WNRO issues will
have a material adverse effect on sales of its products. The Company has
incurred, and will continue to incur, through 1999 and thereafter, increased
expenses associated with Year 2000 and WNRO related product assessment,
resolution of certain products' Year 2000 and WNRO performance problems,
implementation of the Company's Year 2000 and GPS Week Number Rollover Policy,
and fulfillment of Year 2000 and WNRO related customer support and warranty
20
obligations, in amounts that management believes has not had and will not have a
material adverse effect on the Company's historical or future results of
operations or financial condition.
Vendors and Suppliers
* For its successful operation, the Company materially relies on goods and
services purchased from certain vendors. If these vendors fail to adequately
address the Year 2000 issue such that their delivery of goods and services to
the Company is materially impaired, it could have a material adverse impact on
the Company's operations and financial results. The Company has sent a survey to
its principal vendors to assess the effect the Year 2000 issue will have on
their ability to supply their goods and services without material interruption,
and at this time the Company cannot determine or predict the outcome of this
effort. The Company intends to develop and execute contingency plans with
respect to vendors who will not be Year 2000 ready in a timely manner where such
lack of readiness is expected to have a material adverse impact on the Company's
operations. However, because the Company cannot be certain that its vendors will
be able to supply goods and services without material interruption, and because
the Company cannot be certain that execution of its contingency plans will be
capable of implementation or will result in a continuous and adequate supply of
such goods and services, the Company can give no assurance that these matters
will not have a material adverse effect on the Company's future consolidated
financial position, results of operations, or cash flows.
Customers
* The Company has material relationships with certain customers. If the
Company's customers fail to achieve an adequate state of Year 2000 readiness in
their own operations, or if their Year 2000 readiness efforts consume
significant resources, their ability to purchase the Company's products may be
impaired. This could adversely affect demand for the Company's products and,
therefore, the Company's future revenues. The Company plans to assess the effect
the Year 2000 issue will have on its principal customers, and at this time
cannot determine the impact it will have.
Related Costs to the Company
* The Company currently expects that the total cost of Year 2000
remediation efforts will not exceed approximately $1,000,000. The Company has
been and will be expensing these costs as incurred. The total cost estimate does
not include potential costs related to any customer or other claims or the cost
of internal software and hardware replaced in the normal course of business. The
total cost estimate is based on the current assessment of the projects, and is
subject to change as the projects progress.
21
Overall Impact on the Company
* At the present time and subject to the cost estimates above, management
does not believe that the Year 2000 and WNRO matters discussed above will have a
material adverse impact on the Company's financial condition or overall trends
in results of operation. However, it is uncertain to what extent the Company may
be affected by such matters and, therefore, there can be no assurance that these
matters will not have a material adverse effect on the Company's future
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 two segments it addresses. Increases or decreases in revenues
have more than a proportional impact on net income or losses.
* During the third quarter of fiscal 1999 the Company will be transitioning
to outsourced manufacturing for its Sunnyvale location. The plans for this
transition are intended to be smooth with no disruption of customer service, but
no assurances can be given that the Company will not incur problems. If the
transition causes delays in the Company's ability to meet customers needs this
could have a material adverse effect on the Company's operating results.(See
Note 10 to the Condensed Consolidated Financial Statements - Subsequent Event.)
With the selection of an exclusive manufacturing partner the Company is
substantially dependent upon a sole supplier for the manufacture of its
precision positioning, timing, mobile communication, and automotive products. In
addition, the Company relies on sole suppliers for a number of its critical
Asics. The dependence upon these sole suppliers subjects the Company to risks
associated with an interruption of supply if the Company is not able to find
alternative sources on a timely basis. There can be no assurance that any delay,
disruptions, or quality problems resulting from the use of a sole supplier will
not have a material adverse effect on the Company's business and results of
operations.
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
22
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 9 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 and strategic investments 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; (iii) loss of key
employees of acquired operations; and (iv) inability to recover strategic
investments in development stage entities. 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 ability of the Company to maintain its competitive technological
position will depend, in a large part, on its ability to attract, motivate and
retain highly qualified development and managerial personnel. Competition for
qualified employees in the Company's industry and location is intense, and there
can be no assurance that the Company will be able to attract, motivate and
retain enough qualified employees necessary for the future continued development
of the Company's business and products.
The Company has certain products that are subject to governmental and
similar certifications before they can be sold. For example, FAA certification
is required for all aviation products. Also, the Company's products that use
integrated radio communication technology require an end-user to obtain
licensing from the Federal Communications Commission (FCC) for frequency-band
usage. During the fourth quarter of 1998, the FCC temporarily suspended the
issuance of licenses for certain of the Company's Real-time Kinematic products
because of interference with certain other users of similar radio frequencies.
An inability or delay in obtaining such certifications or FCC's delays could
have an adverse effect on the Company's operating results.
The Company's GPS technology is dependent on the use of radio frequency
spectrum. The assignment of spectrum is controlled by an international
organization known as, the International Telecommunications Union (ITU). Any ITU
reallocation of radio frequency spectrum, including frequency band segmentation
or sharing of spectrum, may materially and adversely affect the utility and
reliability of the Company's products, which would, intern, cause a material
adverse effect on the Company's operating results. In addition, emissions from
mobile satellite service and other equipment operating in adjacent frequency
bands may materially and adversely affect the utility and reliability of the
Company's products, which could result in a material adverse effect on the
Company's operating results.
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 27 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 currently not economically feasible. If a
significant number of satellites were to become inoperable, there could be a
substantial delay before they are replaced with new satellites. A reduction in
the number of operating satellites would impair the current utility of the GPS
system and the growth of current and additional market opportunities. In
addition, there can be no assurance that the U.S. government will remain
23
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, in 1996 the U.S. Administration announced
the first comprehensive national policy statement on GPS, known as the
Presidential Decision Directive, which confirms civilian, commercial, and
consumer access to the use of GPS free of direct user fees. The U.S. Congress
provided a statutory foundation for this access in the National Defense
Authorization Act for fiscal year 1998. 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The following is a discussion of the Company's exposure to market risk
related to changes in interest rates and foreign currency exchange rates. The
Company uses certain derivative financial instruments to manage these risks. The
Company does not use derivative financial instruments for speculative or trading
purposes. All financial instruments are used in accordance with board-approved
polices.
Market Interest Rate Risk
Short-term Investments Owned by the Company. As of July 2, 1999, the
Company had short-term investments of $23.6 million. These short-term
investments consist of highly liquid investments with original maturities at the
date of purchase between three and twelve months. These investments are subject
to interest rate risk and will decrease in value if market interest rates
increase. A hypothetical 10 percent increase in market interest rates from
levels at July 2, 1999 would cause the fair value of these short-term
investments to decline by an immaterial amount. Because the Company has the
ability to hold these investments until maturity the Company would not expect
the value of these investments to be affected to any significant degree by the
effect of a sudden change in market interest rates. Declines in interest rates
over time will, however, reduce the Company's interest income.
Outstanding Debt of the Company. As of July 2, 1999, the Company had
outstanding long-term debt of approximately $30.0 million of subordinated
promissory notes at a fixed interest rate of 10 percent. The interest rate of
this instrument is fixed. However, a hypothetical 10 percent decrease in the
interest rates would not have a material impact on the Company. Increases in
interest rates could, however, increase interest expense associated with future
borrowings of the Company, if any. The Company does not currently hedge against
interest rate increases.
Foreign Currency Exchange Rate Risk
The Company hedges risks associated with foreign currency transactions in
order to minimize the impact of changes in foreign currency exchange rates on
earnings. The Company utilizes forward contracts to hedge trade and intercompany
receivables and payables. These contracts reduce the exposure to fluctuations in
exchange rate movements, as the gains and losses associated with foreign
currency balances are generally offset with the gains and losses on the hedge
contracts. All hedge instruments are marked to market through earnings every
period.
24
* The Company does not anticipate any material adverse effect on its
consolidated financial position utilizing the current hedging strategy.
All contracts have a maturity of less than one year, and the Company does
not defer any gains and losses, as they are all accounted for through earnings
every period.
The following table provides information about the Company's foreign
exchange forward contracts outstanding:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
- --------------- -------- --------------------- ------------------ ------------
YEN Sell 293,900 $ 2,554 $ 2,447
NZD Buy 4,600 $ 2,522 $ 2,456
Euro Sell 1,050 $ 1,097 $ 1,077
STERLING Buy 1,000 $ 1,605 $ 1,580
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 the Company's management, should the
hypothetical market changes actually occur over time. As a result, actual
earnings effects in the future will differ from those quantified above.
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PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 1999 annual meeting of shareholders was held at the Westin
Hotel in Santa Clara, located at 5101 Great America Parkway, Santa Clara,
California 95054 in the Magnolia Room, on Wednesday, June 2, 1999, at 1:00 p.m.
local time.
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
Steven W. Berglund 19,150,980 610,037
Robert S. Cooper 16,698,377 3,062,640
John B. Goodrich 16,683,621 3,077,396
William Hart 18,025,068 1,735,949
Norman Y. Mineta 19,101,810 659,207
Bradford W. Parkinson 17,440,460 2,320,557
Other matters voted upon at the annual shareholder meeting and the results
of the voting with respect to each such matter were as follows:
1. To approve an increase of 1,200,000 shares in the number of shares of
Common Stock reserved for issuance under the Company's 1993 Stock Option Plan
from 3,800,000 shares to an aggregate of 5,000,000 shares (10,152,549 in favor;
2,520,461 opposed; 66,448 abstentions; 7,021,559 broker non-votes).
2. To approve an increase of 600,000 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 2,350,000 shares to an aggregate of
2,950,000 shares (11,329,140 in favor; 1,354,579 opposed; 55,739 abstentions;
7,021,559 broker non-votes).
3. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the current fiscal year ending December 31, 1999
(19,513,165 in favor; 197,052 opposed; 197,052 abstentions; 0 broker non-votes).
Item 5. OTHER INFORMATION
On August 10, 1999, the Company signed an Asset Purchase Agreement with
Solectron Corporation and Solectron Federal Systems, Inc. (collectively,
"Solectron"). The closing of the transaction occurred on August 13, 1999. At the
closing of the Asset Purchase Agreement, the Company transferred to Solectron
substantially all of the Company's tangible manufacturing assets located at the
Company's Sunnyvale, California campus, including but not limited to equipment,
fixtures and work in progress, and certain contract and other intangible assets
and rights, together with certain related obligations, including but not limited
to real property subleases covering the Company's manufacturing floor space, and
outstanding purchase order commitments. In addition, the Asset Purchase
26
Agreement also provides for Solectron's subsequent purchase, on August 30, 1999,
of all of Trimble's component inventory which was on hand as of August 13, 1999.
Trimble received cash at the closing of the Asset Purchase Agreement,
representing an interim estimate of the value of the assets purchased by
Solectron, excluding inventory, and expects to receive an additional cash
payment on August 30, 1999, representing an interim estimate of the component
inventory to be sold to Solectron.
The final purchase price for all of the Company's assets to be sold to
Solectron, including the component inventory, will be determined, and the cash
payment between the parties will be adjusted, based upon a subsequent
determination of all such purchased assets actually on hand at Trimble as of the
date of closing of the Asset Purchase Agreement. The Company estimates that the
final purchase price as so determined will be approximately $28 million. Such
final determination, and the final purchase price, is expected to be finalized
by the end of the Company's third fiscal quarter. Upon such final determination,
the Company will calculate its gain on the transaction, if any, and will
recognize any such gain over the exclusive life of the Supply Agreement
described below.
Concurrently with the closing of the Asset Purchase Agreement, the Company
and Solectron also entered into a Supply Agreement. The Supply Agreement
provides for the exclusive manufacture by Solectron of almost all Trimble
products for a period of three years.
Solectron will initially manufacture such Trimble products under the Supply
Agreement in the same Trimble buildings in which such products were previously
manufactured by Trimble, and Trimble has sublet such space to Solectron as part
of this transaction. Solectron has offered employment to approximately 230
Trimble manufacturing, engineering and related support personnel, and Trimble
understands that substantially all such employees have accepted employment with
Solectron.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.59 1993 Stock Option Plan, as amended
10.60 1988 Employee Stock Purchase Plan, as amended
27.1 Financial Data Schedule for the quarters ended
July 2, 1999 and July 3, 1998
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the fiscal
quarter ended July 2, 1999.
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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/ Mary Ellen Genovese
Mary Ellen Genovese
(Chief Financial Officer, Vice President Finance, and
Corporate Controller)
DATE: August 13, 1999
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