===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------
FORM 10-Q
-----------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
---------- ---------
Commission file number: 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact name of registrant as specified in its charter)
California 94-2802192
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
645 North Mary Avenue, Sunnyvale, CA 94088
--------------------------------------------
(Address of principal executive offices) (Zip Code)
Telephone Number (408) 481-8000
-------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of May 9, 2001, there were 24,263,647 shares of Common Stock (no par value)
outstanding.
===============================================================================
TRIMBLE NAVIGATION LIMITED
FORM 10-Q
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 30, 2001 and December 29, 2000........................ 3
Condensed Consolidated Statements Of Operations -
Three Months ended March 30, 2001 and March 31, 2000........ 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended March 30, 2001 and March 31, 2000........ 5
Notes to Condensed Consolidated Financial Statements.......... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................... 15
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...... 28
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 30
ITEM 6. Exhibits and Reports on Form 8-K................................ 30
Signatures.............................................................. 31
2
PART I - FINANCIAL INFORMATION
ITEM I. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 30, December 29,
2001 2000 (1)
---- -------
(In thousands)
ASSETS
Current assets
Cash and cash equivalents $ 43,998 $ 40,876
Accounts receivable, net 81,607 83,600
Inventories 71,742 60,846
Other current assets 7,355 8,017
-------- --------
Total current assets 204,702 193,339
Net property and equipment 32,786 34,059
Intangibles assets 239,458 249,832
Deferred tax assets 493 531
Other assets 13,493 12,743
-------- --------
Total assets $490,932 $490,504
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank and other short-term borrowings $ 72,000 $ 62,000
Current portion of long-term debt 58,386 51,721
Accounts payable 31,576 26,448
Accrued compensation and benefits 16,917 16,771
Accrued liabilities 39,638 32,493
Accrued warranty expense 7,954 7,749
Income taxes payable 4,222 5,005
Deferred gain on sale of assets 1,591 1,591
-------- --------
Total current liabilities 232,284 203,778
-------- --------
Noncurrent portion of long-term debt and other
Liabilities 129,178 137,341
Deferred tax liabilities 7,906 8,230
Other noncurrent liabilities 5,243 6,212
-------- --------
Total liabilities 374,611 355,561
-------- --------
Shareholders' equity:
Common stock 155,124 153,853
Common stock warrants 993 993
Accumulated deficit (22,527) (10,940)
Accumulated other comprehensive loss (17,269) (8,963)
-------- --------
Total shareholders' equity 116,321 134,943
-------- --------
Total liabilities and shareholders' equity $490,932 $490,504
======== ========
<FN>
(1) Derived from the December 29, 2000 audited consolidated financial
statements included in the Annual Report on Form 10-K of Trimble Navigation
Limited for fiscal year 2000.
</FN>
See accompanying notes to condensed consolidated financial statements.
3
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
--------------------------
March 30, March 31,
2001 2000
---- ----
(In thousands, except per share data)
Total revenue $117,863 $ 65,140
-------- --------
Operating expenses:
Cost of sales 60,363 28,095
Research and development 15,819 8,877
Sales and marketing 28,141 12,646
General and administrative 9,392 6,300
Amortization of goodwill and other purchased
intangibles 7,316 --
-------- --------
Total operating expenses 121,031 55,918
-------- --------
Operating income (loss) (3,168) 9,222
-------- --------
Nonoperating income (expense):
Interest income 370 1,481
Interest and other expenses (8,144) (1,053)
Foreign exchange gain (loss), net (145) 30
-------- --------
(7,919) 458
-------- --------
Income (loss) before income taxes (11,087) 9,680
Income tax provision 500 968
-------- --------
Net income (loss) $(11,587) $ 8,712
======== ========
Basic net income (loss) per share $ (0.48) $ 0.38
======== ========
Diluted net income (loss) per share $ (0.48) $ 0.35
======== ========
See accompanying notes to condensed consolidated financial statements.
4
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
March 30, March 31,
2001 2000
---- -------
(In thousands)
Net cash provided (used) by operating activities $ (2,780) $ 7,734
Cash flows from investing activities:
Purchase of short-term investments -- (6,220)
Maturities of short-term investments -- 4,098
(Purchase)/sale of equity investments/loans -- (525)
Payments for purchase of Spectra Precision (998) --
Acquisition of property and equipment (2,134) (1,216)
Capitalized patents, software and intangibles (318) (143)
-------- --------
Net cash used in investing activities (3,450) (4,006)
Cash flow from financing activities:
Issuance of common stock 1,271 3,086
Collections of notes receivable 352 48
Proceeds from long-term debt and revolving credit lines 10,000 31
Payments on long-term debt and revolving credit lines (1,498) --
-------- --------
Net cash provided by financing activities 10,125 3,165
Effect of exchange rate changes on cash (773) --
-------- --------
Net increase in cash and cash equivalents 3,122 6,893
Cash and cash equivalents - beginning of period 40,876 49,264
-------- --------
Cash and cash equivalents - end of period $ 43,998 $ 56,157
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,946 $ 788
======== ========
Income taxes, net of refunds $ 178 $ 640
======== ========
See accompanying notes to condensed consolidated financial statements.
5
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - Basis of Presentation:
- ------ ---------------------
The condensed consolidated financial statements of Trimble Navigation
Limited and subsidiaries, ("Trimble" or the "Company") for the three months
ended March 30, 2001, and March 31, 2000, which are presented in this Quarterly
Report on Form 10-Q are unaudited. The balance sheet at December 29, 2000, 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 Trimble's Annual Report on Form 10-K
for the year ended December 29, 2000.
The condensed consolidated financial statements of the Company include the
operating results of the Spectra Precision Group since the effective date of
the acquisition of July 14, 2000. The condensed consolidated financial
statements of the Company also include the operating results of Tripod Data
Systems, Inc. since the effective date of the acquisition of November 14, 2000.
See Note 3 of the Condensed Consolidated Financial Statements for Pro Forma
Financial Information for the three months ended March 31, 2000.
Trimble has a 52-53 week fiscal year, which ends on the Friday nearest to
December 31, which for fiscal 2001 will be December 28, 2001. The Company's
fiscal year normally consists of 52 weeks split into four equal quarters of 13
weeks each; however, due to the fact that there are not exactly 52 weeks in a
calendar year and that there is at least slightly more than one additional day
per calendar year, as compared to a 52-week fiscal year, the Company will have
a fiscal year composed of 53 weeks in certain fiscal years.
In those resulting fiscal years that have 53 weeks, one quarter of the
fiscal year will have 14 weeks and the Company will record an extra week of
revenues, costs and related financial activity. Therefore, the financial
results of those fiscal years, and the associated quarter, having the extra
week, will not be exactly comparable to the prior and subsequent 52-week fiscal
years, and the associated quarters having only 13 weeks. Thus, due to the
inherent nature of a 52-53 week fiscal year, the Company, analysts,
shareholders, investors and others will have to make appropriate adjustments to
any analysis performed when comparing the Company's activities and results in
fiscal years that contain 53 weeks, to those that contain only the standard 52
weeks. The next 53-week year will be fiscal year 2002.
The results of operations for the three months ended March 30, 2001 are
not necessarily indicative of the results that may be expected for the year
ending December 28, 2001.
NOTE 2 - Acquisition:
- ------ -----------
Effective as of July 14, 2000, Trimble completed the acquisition of
Spectra Precision, a wholly-owned business, formerly owned by Thermo Electron
Corporation, collectively known as the "Spectra Precision Group". The
acquisition was completed for an aggregate purchase price, excluding
acquisition costs, of approximately $294 million, which is subject to a final
adjustment as provided for in the acquisition agreements. The acquisition
included 100% of the stock of Spectra Precision Inc., a Delaware corporation,
Spectra Precision SRL, an Italian corporation, Spectra Physics Holdings GmbH, a
German corporation, and Spectra Precision BV, a Netherlands corporation. The
acquisition also included certain assets and liabilities of Spectra Precision
AB, a Swedish corporation, including 100% of the shares of Spectra Precision
SA, a French corporation, Spectra Precision Scandinavia AB, a Swedish
corporation, Spectra Precision of Canada Ltd., a Canadian corporation, and
Spectra Precision Handelsges mbH, an Austrian corporation.
The acquisition has been accounted for as a purchase for accounting
purposes; accordingly, Trimble's consolidated results of operations include the
operating results of the Spectra Precision Group since the effective date of
the acquisition. The acquisition was financed with $80 million in seller
subordinated debt, $140 million of cash provided through a syndicate of banks,
and $74 million of the Company's available cash on hand. The
6
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Company acquired approximately $133 million of identifiable intangible assets
as part of the acquisition, which the Company is amortizing over various time
periods ranging from 5 to 10 years. The allocation of purchase price has also
resulted in the recording of approximately $133 million of goodwill due to the
acquisition, which is being amortized over 20 years. Acquisition costs
relating to the purchase of the Spectra Precision Group approximated $7.0
million.
Acquisition Reserve
-------------------
In connection with the acquisition of the Spectra Precision Group, the
Company accrued approximately $9.0 million for costs to close certain
duplicative office facilities and combine operations and relocate certain
employees. These costs were accrued for as part of the preliminary allocation
of the purchase price. The facility consolidation and employee relocations will
result from primarily combining certain office facilities and duplicative
functions, including management functions, of the Spectra Precision Group. The
Company has not yet finalized its plans to consolidate facilities and to
relocate employees, nor has it finalized a determination of the total costs to
be incurred upon the termination of certain office facility leases or its
ability to sublease vacated office space. Accordingly, unresolved issues could
result in an increase or decrease in the liabilities for facility
consolidation, the discontinuance of overlapping product lines, employee
relocation, and related tax and legal expenses. These adjustments, if any, will
be reported as an increase or decrease in goodwill.
The elements of the reserve at March 30, 2001 on the balance sheet
(included in accrued liabilities) are as follows (in thousands):
Remaining in
Accrued
Total Amounts Paid/ Amounts Paid/ Liabilities
Accrued in Written-off Written-off as of
Fiscal 2000 in Fiscal 2000 in Fiscal 2001 March 30, 2001
----------- -------------- -------------- --------------
Inventory
obsolescence $2,685 $(809) $ (6) $ 1,870
Legal and tax
Expense 1,175 -- (235) 940
Facility closures
and severance 4,750 -- (1,211) 3,539
Other 390 -- -- 390
Total $9,000 $(809) $(1,452) $6,739
NOTE 3 - Pro Forma Information:
- ------ ---------------------
On July 14, 2000 and November 14, 2000 Trimble acquired the Spectra
Precision Group and Tripod Data Systems, respectively. The acquisitions have
been accounted for under the purchase method of accounting and accordingly, the
operating results have been included in the Company's consolidated results of
operations from the dates of acquisition. The following pro forma information
for the three months ended March 31, 2000 presents net sales, income (loss)
before extraordinary items, and net loss for the period as if the transaction
with the Spectra Precision Group was consummated on January 1, 2000. The pro
forma information does not include the results of Tripod Data Systems, as the
operating results are not material. This unaudited pro forma data does not
purport to represent the Company's actual results of operations had the Spectra
Precision Group acquisition occurred on January 1, 2000 and should not serve as
a forecast of the Company's operating results for any future periods.
The pro forma results of operations are for comparative purposes only and
reflect increased amortization and interest expense resulting from the
acquisitions described above, but do not include any potential cost savings
from combining the acquired businesses with the Company's operations.
Consequently, the pro forma results do not reflect the actual results of
operations had the acquisitions occurred on the dates indicated, and are not
intended to be a projection of future results or trends.
7
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Pro Forma
Three Months Ended
March 31, 2000
--------------
(in thousands, except per share amounts)
Net revenue $118,754
========
Net loss $ (847)
========
Basic and diluted net loss per share $ (0.04)
========
NOTE 4 - Derivative Financial Instruments:
- ------ --------------------------------
On December 30, 2000, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting For Derivative Instruments
And Hedging Activities ("SFAS 133") (as amended by SFAS No. 137 and 138). As a
result of the adoption of SFAS 133, the Company now recognizes all derivative
financial instruments, such as foreign exchange contracts, in the consolidated
financial statements at fair value regardless of the purpose or the intent for
holding the instrument. Changes in the fair value of derivative financial
instruments are either recognized periodically in income or in shareholder's
equity as a component of comprehensive income depending on whether the
derivative financial instrument qualifies for hedging accounting, and if so,
whether it qualifies as a fair value hedge or cash flow hedge. Generally,
changes in fair values of derivatives accounted for as fair value hedges are
recorded in income along with the portions of the changes in the fair values of
the hedged items that relate to the hedged risks. Changes in fair values of
derivatives accounted for as cash flow hedges, to the extent they are effective
as hedges, are recorded in other comprehensive income net of deferred taxes.
Changes in fair value of derivatives used as hedges of the net investment in
foreign operations are reported in other comprehensive income as part of the
cumulative translation adjustment. Changes in fair value of derivatives not
qualifying as hedges are reported in income. In the quarter ended March 30,
2001, which was 100% effective based on the short-cut method, the Company began
using interest rate swaps to convert variable rate debt to fixed rate debt to
reduce interest rate volatility risk. In accordance with SFAS No. 133, the
Company has designated its swap agreement as a cash flow hedge and recorded the
change in fair value of this hedge agreement as part of other comprehensive
income (see Note 11 to the Condensed Consolidated Financial Statements.) The
swap is based on a notional amount of $25 million at the fixed interest rate of
5.195% during the term of the swap agreement. For the three months ended March
30, 2001, the change in fair value of this derivative amounted to $129,000 and
is recorded as an addition to other liabilities and a reduction to other
comprehensive income in the amount of $129,000. The fair value of this
derivative as a liability amounted to $129,000 at March 30, 2001.
NOTE 5 - Inventories:
- ------ -----------
Inventories consist of the following:
March 30, December 29,
2001 2000
---- ----
(In thousands)
Raw materials $ 30,675 $ 27,878
Work-in-process 10,820 6,940
Finished goods 30,247 26,028
-------- --------
$ 71,742 $ 60,846
======== ========
NOTE 6 - Discontinued Operations:
- ------ -----------------------
On October 2, 1998, Trimble adopted a plan to discontinue its General
Aviation division. Accordingly, the General Aviation division is being reported
as a discontinued operation for all periods presented in these financial
8
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
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 March 30, 2001, Trimble has a remaining provision of $600,000
associated with the disposal of the General Aviation division, which includes
$180,000 for the estimated remaining operating losses for service and warranty
support and remaining severance costs, and $420,000 for facility and certain
other contractual costs. The $600,000 liability is included in accrued
liabilities in the Condensed Consolidated Balance Sheet at March 30, 2001. The
provision at December 29, 2000 approximated $867,000.
NOTE 7 - Disposition of Line of Business:
- ------ -------------------------------
On March 6, 2001, the Company sold its Air Transport Systems ("ATS")
business, which is primarily located in Austin, Texas, to Honeywell for
approximately $4.5 million in cash. As part of this sale the Company also
intends to discontinue its manufacturing operations in Austin, Texas. The
Austin facility, which employs fewer than 65 people, is scheduled to close in
August of 2001. These actions resulted in a loss of approximately $2.0 million.
Under the agreement, Honeywell has purchased our Air Transport Systems'
product lines which include the HT 1000, HT 9000, HT 9100 and Trimble's TNL
8100. As part of a strategic alliance that began in 1995, Trimble and Honeywell
jointly developed, manufactured, marketed, and sold the HT product line. These
products are installed in many commercial aircraft and major airlines around
the world for Global Positioning System (GPS)-based navigation.
NOTE 8 - Contingent Liabilities:
- ------ ----------------------
At March 30, 2001, the Company was contingently liable to a Japanese bank
for $556,000 arising from customers' notes receivable which the Company sold
with recourse to the bank. In the event of a customer's default, the Company
must repurchase the receivable from the bank. Losses resulting from defaults
have not been significant.
NOTE 9 - Long-Term Debt:
- ------ --------------
Long-term debt consists of the following:
March 30, December 29,
2001 2000
---- ----
(In thousands)
New credit facilities $172,000 $162,000
Subordinated note 80,000 80,000
Promissory note and long-term commitment 7,539 9,037
Other 25 25
-------- --------
259,564 251,062
Less current portion 130,386 113,721
-------- --------
Noncurrent portion $129,178 $137,341
======== ========
Trimble's long-term debt primarily consists of $172 million outstanding
under the available credit facilities and an $80 million subordinated
promissory note. The Company's current portion of long-term debt consists of
amounts payable within one year on the term loan portion of the credit
facilities, the revolver portion of the credit facilities and $40 million of
the subordinated note.
9
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
NOTE 10 - Segment Information:
- ------- -------------------
Trimble is a designer and distributor of positioning products and
applications enabled by GPS, optical, laser, and wireless communications
technology. The Company designs and markets products, which deliver integrated
information solutions, such as collecting, analyzing, and displaying position
data to its end-users. The Company offers an integrated product line for
diverse applications in its targeted markets.
To achieve distribution, marketing, production, and technology advantages
in Trimble's targeted markets, the Company manages itself within five segments:
o Engineering and Construction - Consists of products currently used by
construction professionals in the field for positioning data collection,
field computing, data management, and automated machine guidance and
control. These products provide solutions for numerous construction
applications, including: surveying; general construction; site
preparation and excavation; road and runway construction; and
underground construction.
o Agriculture - Consists of products that provide key advantages in a
variety of agriculture applications, primarily in the areas of precise
land leveling, machine guidance, yield monitoring and variable-rate
applications of fertilizers and chemicals.
o Fleet and Asset Management - Consists of products that enable end-users
to efficiently monitor and manage their mobile and fixed assets by
transmitting location-relevant and time-sensitive information from the
field to the office. The Company currently offers a range of products
that address the following: long-haul trucking; municipal fleet
management; shipping; and fixed asset data collection for a wide variety
of governmental and private entities. This segment is an aggregation of
its Mapping and GIS operation and our Mobile Positioning and
Communications operation. These operations have been aggregated based
on the fact that the products mentioned above are complimentary in its
asset management solutions and there is a strong similarity in the
production process, the types of customers, and distribution methods.
o Component Technologies - Currently, the Company markets its component
products through an extensive network of OEM relationships. These
products include proprietary chipsets, modules and a variety of
intellectual property. The applications into which end-users currently
incorporate our component products include: timing applications for
synchronizing wireless and computer systems; in-vehicle navigation and
telematics (tracking) systems; fleet management; security systems; data
collection systems; and wireless handheld consumer products.
o Portfolio Technologies - Consists of various markets that use accurate
position, velocity, and timing information. The products in this segment
are used in airborne navigation, flight management, commercial marine
navigation, and military applications. Also, included in this segment
are the operations of the Company's Tripod Data Systems subsidiary. The
various operations that comprise this segment were aggregated on the
basis that no single operation accounted for more than 10% of the total
revenue of the Company.
Trimble evaluates each of these segment's performance and allocates
resources based on profit and loss from operations before income taxes.
The accounting policies applied by each of the segments are the same as
those used by Trimble in general.
The following table presents revenues, operating income (loss), and
identifiable assets for Trimble's five segments. The information includes the
operations of the Spectra Precision Group after July 14, 2000, Tripod Data
Systems after November 14, 2000 and the information for the first quarter of
fiscal 2000 has been reclassified in order to conform to the new basis of
presentation. There is no recognition of inter-segment sales or transfers.
Operating income (loss) is net sales less operating expenses, excluding general
corporate expenses, interest income
10
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
(expense), and income taxes. The identifiable assets that Trimble's Chief
Operating Decision Maker (CODM) views by segment are accounts receivable and
inventory, except for the accounts receivable for Spectra Precision Group and
Tripod Data Systems which are not currently allocated to business segments.
Trimble does not report depreciation and amortization or capital expenditures
by segment to the CODM.
Three Months Ended
March 30, 2001
------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
------------ ----------- ---------- ------------ ------------ -----
External net revenues $73,713 $8,123 $11,809 $16,162 $8,056 $117,863
Operating profit (loss)
before corporate
allocations 10,305 537 (224) 2,233 (637) 12,214
Corporate allocation (1) -- -- -- -- -- --
------- ------ ------- ------- ------ --------
Operating profit (loss) $10,305 537 $ (224) $ 2,233 $ (637) $ 12,214
======= ====== ======= ======= ====== ========
March 30, 2001
------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
------------ ----------- ---------- ------------ ------------ -----
Assets:
Accounts receivable (2) $26,136 $5,868 $ 9,903 $ 9,823 $5,127 $ 56,857
Inventory $45,749 $2,819 $ 6,302 $ 4,189 $9,136 $ 68,195
Three Months Ended
March 31, 2000
------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
------------ ----------- ---------- ------------ ------------ -----
External net revenues $26,057 $4,797 $14,977 $14,268 $5,041 $ 65,140
Operating profit (loss)
before corporate allocations 9,090 1,544 3,234 4,232 (280) 17,820
Corporate allocation (1) (3,780) (681) (2,058) (1,197) (671) (8,387)
------- ------ ------- ------- ------ --------
Operating profit (loss) $ 5,310 $ 863 $ 1,176 $ 3,035 $ (951) $ 9,433
======= ====== ======= ======= ====== ========
December 29, 2000
------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
------------ ----------- ---------- ------------ ------------ -----
Assets:
Accounts receivable (2) $23,685 $4,649 $12,164 $11,892 $6,469 $58,859
Inventory $39,146 $1,774 $ 5,775 $ 2,360 $8,074 $57,129
- ---------------------------
<FN>
(1) For the fiscal quarter ended March 30, 2001, the Company did not allocate
corporate expenses and for the fiscal quarter ended March 31, 2000, the
Company determined the amount of corporate allocations charged to each of
its segments based on a percentage of the segments' monthly revenue, gross
profit, and controllable spending (research and development, marketing, and
general and administrative).
(2) As presented, the accounts receivable number excludes cash in advance,
reserves, and the Spectra Precision Group's and Tripod Data Systems
accounts receivable as of March 30, 2001 and December 29, 2000, which are
not allocated between divisions.
</FN>
11
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The following are reconciliations corresponding to totals in the
accompanying consolidated financial statements:
Three Months Ended
-------------------------
March 30, March 31,
2001 2000
---- ----
(in thousands)
Operating profit (loss):
Total for reportable divisions $ 12,214 $ 9,433
Unallocated corporate expenses (15,382) (211)
-------- --------
Operating profit (loss) $ (3,168) $ 9,222
======== ========
March 30, December 29,
2001 2000
---- ----
(in thousands)
Assets:
Accounts receivable total for reportable divisions $ 56,857 $ 58,859
Unallocated (1) 24,750 24,741
-------- --------
Total $ 81,607 $ 83,600
======== ========
Inventory total for reportable divisions $ 68,195 $ 57,129
Common inventory (2) 3,547 3,717
-------- --------
Net inventory $ 71,742 $ 60,846
======== ========
- -------------------------
<FN>
(1) Includes cash in advance and reserves that are not allocated by segment.
Also for March 30, 2001 and December 29, 2000 accounts receivable includes
the Spectra Precision Group and Tripod Data System as their accounts
receivable are not allocated by segment.
(2) Consists of inventory that is common between the segments. Parts can be
used by more than one segment.
</FN>
NOTE 11 - Comprehensive Income (Loss):
- ------- ---------------------------
The components of other comprehensive income (loss), net of related tax,
include:
Three Months Ended
-------------------------
March 30, March 31,
2001 2000
---- ----
(In thousands)
Cumulative foreign currency translation adjustments $ (8,177) $ (306)
Net loss on interest rate swap (129) --
Net unrealized gain on short-term investments -- 64
-------- --------
Other comprehensive loss $ (8,306) $ (242)
======== ========
12
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The components of accumulated other comprehensive income (loss), net of
related tax include:
March 30, December 29,
2001 2000
---- ----
(In thousands)
Cumulative foreign currency translation adjustments $(17,140) $ (8,963)
Net loss on interest rate swap (129) --
Net unrealized gain (loss) on short-term investments -- --
-------- --------
Accumulated other comprehensive loss $(17,269) $ (8,963)
======== ========
NOTE 12 - Earnings Per Share:
- ------- ------------------
The following table sets forth the computation of Trimble's basic and
diluted earnings (loss) per share:
Three Months Ended
-------------------------
March 30, March 31,
2001 2000
---- ----
(In thousands, except per share amounts)
Numerator:
Income (loss) available to common shareholders
used in basic and diluted income (loss)
per share $(11,587) $ 8,712
======== ========
Denominator:
Weighted-average number of common shares used
in calculating basic income (loss) per share 24,219 22,849
Effect of dilutive securities:
Common stock options -- 1,882
Common stock warrants -- 241
-------- --------
Weighted-average number of common shares and
dilutive potential common shares used in
calculating diluted income (loss) per share 24,219 24,972
======== ========
Basic income (loss) per share $ (0.48) $ 0.38
======== ========
Diluted income (loss) per share $ (0.48) $ 0.35
======== ========
NOTE 13 - Related-Party Transactions:
- ------- --------------------------
Related-Party Lease
-------------------
The Company currently leases office space in Ohio from an association of
three individuals, two of whom are employees of one of the Company's U.S.
operating units, under a noncancelable operating lease arrangement expiring in
2011 entered into in connection with the acquisition of the Spectra Precision
Group. The annual rent is $345,000, and is subject to adjustment based on the
terms of the lease. The Condensed Consolidated Statements of Operations include
expenses from this operating lease of $86,351 for the period ended March 30,
2001.
NOTE 14 - Contingencies:
- ------- -------------
In January 2001, Philip M. Clegg filed suit in the United States District
Court for the District of Utah, Central Division, against Spectra-Physics
Laserplane, Inc., Spectra Precision AB and Trimble Navigation Limited.
13
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The complaint alleges claims of infringement of U.S. Patent No. 4,807,131,
breach of contract and unjust enrichment. The suit seeks damages and an
accounting for moneys alleged to be owed under a license agreement, plus
interest and attorney fees. The suit is in its very early stages. Management
believes the case to be without merit and intends to defend the lawsuit
vigorously. In the opinion of management, resolution of this litigation is not
expected to have a material adverse effect on the financial position of the
Company. However, depending on the amount and timing, an unfavorable resolution
of this matter could materially affect the Company's future operations or cash
flows in a particular period.
The Company is also a party to other disputes incidental to its business.
The Company believes that the ultimate liability of the Company as a result of
such disputes, if any, would not be material to its overall financial position,
results of operations, or liquidity.
NOTE 15 - Subsequent Event:
- ------- ----------------
Effective as of April 2, 2001, Trimble completed the acquisition of
certain assets of Grid Data Inc., an Arizona corporation, for approximately
$3.5 million in cash and the assumption of certain liabilities. In addition,
Trimble may make certain earn-out payments based upon the completion of certain
business milestones, which must be completed no later than October 2, 2003.
These payments aggregate up to an additional $7.3 million worth of Trimble
common stock or under certain circumstances, at Trimble's option, a portion of
the earn-out may be paid in cash.
The acquisition has been accounted for as a purchase for accounting
purposes; accordingly, Trimble's consolidated results of operations will
include the operating results of Grid Data, Inc. subsequent to the effective
date of the acquisition. The allocation of the purchase price will result in
the recording of approximately $2.8 million of goodwill due to the acquisition,
which will be amortized over five years. Acquisition costs relating to the
purchase of Grid Data approximated $200,000.
14
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those indicated in the forward-looking statements
due to a number of factors including, but not limited to, as a result of the
risk factors set forth below in this report as well as the Company's Annual
Report on Form 10-K and other reports and documents that the Company files from
time to time with the Securities and Exchange Commission. The Company has
attempted to identify forward-looking statements in this report by placing an
asterisk (*) before paragraphs containing such material.
RECENT BUSINESS DEVELOPMENTS
- ----------------------------
Effective as of April 2, 2001, Trimble completed the acquisition of
certain assets of Grid Data Inc., an Arizona corporation, for approximately
$3.5 million in cash and the assumption of certain liabilities. In addition,
Trimble may make certain earn-out payments based upon the completion of certain
business milestones, which must be completed no later than October 2, 2003.
These payments aggregate up to an additional $7.3 million worth of Trimble
common stock or under certain circumstances, at Trimble's option, a portion of
the earn-out may be paid in cash.
On March 6, 2001, the Company sold its Air Transport Systems ("ATS")
business to Honeywell. The ATS business was a part of our Portfolio
Technologies segment. The sale to Honeywell consisted of the Trimble 8100, the
HT 9100 and two other product lines, which were included in the ATS business.
(See Note 8 to Condensed Consolidated Financial Statements.)
Effective as of November 14, 2000, Trimble completed the acquisition of
Tripod Data Systems, Inc., an Oregon corporation for an aggregate purchase
price of approximately $15 million, which is subject to a final adjustment in
the purchase price as provided for in the acquisition agreements. The purchase
price was in the form of shares of the common stock of Trimble. The acquisition
was accounted for as a purchase transaction. Tripod Data Systems operates as a
wholly owned subsidiary of Trimble.
Effective as of July 14, 2000, Trimble completed the acquisition of
Spectra Precision, a wholly-owned business, formerly owned by Thermo Electron
Corporation, collectively known as the "Spectra Precision Group". The
acquisition was completed for an aggregate purchase price, excluding
acquisition costs, of approximately $294 million, which is subject to a final
adjustment in the purchase price as provided for in the acquisition agreements.
The acquisition included 100% of the stock of Spectra Precision Inc., a
Delaware corporation, Spectra Precision SRL, an Italian corporation, Spectra
Physics Holdings GmbH, a German corporation, and Spectra Precision BV, a
Netherlands corporation. The acquisition also included of certain assets and
liabilities of Spectra Precision AB, a Swedish corporation, including 100% of
the shares of Spectra Precision SA, a French corporation, Spectra Precision
Scandinavia AB, a Swedish corporation, Spectra Precision of Canada Ltd., a
Canadian corporation, and Spectra Precision Handelsges mbH, an Austrian
corporation. The acquisition was accounted for as a purchase transaction.
(See "Liquidity and Capital Resources" for a description of how this
acquisition was financed.)
RESULTS OF OPERATIONS
- ---------------------
The income from operations excludes certain one-time and acquisition
related charges and discontinued operations adjustment that management believes
are not reflective of on-going operations. The following table reflects results
of operations normalized to exclude the effects of such items as follows (in
thousands):
15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Three Months Ended
------------------------
March 30, March 31,
2001 2000
---- ----
Income (loss) before income taxes $(11,087) $ 9,680
One-time and acquisition-related charges:
Loss on sale of business (Other income and expense) 1,964 --
Amortization of goodwill and other purchased intangible 7,316 --
-------- --------
Total one-time and acquisition-related charges 9,280 --
-------- --------
Adjusted net income (loss) before taxes (1,807) 9,680
Income tax provision (1) 500 968
-------- --------
Adjusted net income (loss) $ (2,307) $ 8,712
======== ========
- ----------------------------
(1) Tax rate not adjusted for potential benefit of goodwill amortization in
foreign locations.
Total Revenues
- --------------
Total revenue from Trimble's operations for the three months ended March
30, 2001 were $117,863,000, as compared with $65,140,000 in the corresponding
period in fiscal 2000. The table below presents Trimble's revenues by segment:
Three Months Ended
-----------------------------------
March 30, March 31, Increase/
2001 2000 (Decrease)
---- ---- --------
(In thousands)
Engineering and Construction $ 73,713 $ 26,057 183%
Agriculture 8,123 4,797 69
Fleet and Asset Management 11,809 14,977 (21)
GPS Component Technologies 16,162 14,268 13
Portfolio Technologies 8,056 5,041 60
-------- --------
Total $117,863 $ 65,140 81%
======== ========
Engineering and Construction
- ----------------------------
Engineering and Construction revenues increased for the three months ended
March 30, 2001, as compared with the corresponding period in fiscal 2000. The
increase is due primarily to the following:
o Revenues generated during the three months ended March 30, 2001
resulting from the purchase of the Spectra Precision Group in July 2000
accounted for approximately $43.3 million.
o Strong demand for our SiteVision machine control solution for the
construction industry.
o These increases were partially offset by conservative buying behavior in
engineering and construction due to the economic uncertainties.
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Agriculture
- -----------
Agriculture revenues increased for the three months ended March 30, 2001,
as compared with the corresponding period in fiscal 2000. The increase is due
to the following:
o Revenues generated from the agricultural border management product line
that was acquired with the purchase of the Spectra Precision Group in
July 2000 accounted for approximately $1.9 million.
o Introduction of new products, including the AgGPS 170 Field Computer,
the AgGPS 114, and the PSO Plus Parallel Swathing Option with Data
Logging.
o Conservative buying behavior was experienced in agriculture in the
United States due to the general economic uncertainties and an
exceptionally wet spring that depressed agricultural sales.
Fleet and Asset Management
- --------------------------
Fleet and Asset Management revenues decreased for the three months ended
March 30, 2001, as compared with the corresponding period in fiscal 2000. The
decrease is due to the following:
o Fleet and asset management segments were most severely impacted due to
softness in the Company's Galaxy satellite communication product
("Galaxy"), primarily in Mexico and Brazil.
o Satellite communications sales in Mexico during the first quarter were
impacted by short-term infrastructure capacity constraints.
GPS Component Technologies
- --------------------------
GPS Component Technologies revenues increased for the three months ended
March 30, 2001, as compared with corresponding period in fiscal 2000. The
increase is due to the following:
o Automotive and embedded product lines were up approximately 22 percent
year over year.
Portfolio Technologies
- ----------------------
Portfolio Technologies revenues increased for the three months ended March
30, 2001, as compared with corresponding period in fiscal 2000. The increase is
due to the following:
o Military-related revenues increased by 33 percent over prior levels.
o Revenue from the recent acquisition of Tripod Data Systems, which closed
in mid-November of fiscal 2000, contributed $3.2 million to revenue.
o These increases were partially offset by a reduction in the commercial
aviation line. The sale of the air transport product line to Honeywell
was completed in March 2001.
Revenues outside the U.S.
- -------------------------
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 52% and 56% in the first three months of the Company's revenues
in fiscal 2001 and 2000, respectively. During the first three months of 2001,
Trimble experienced strong demand in Europe and Asia. From a regional
perspective, on a consolidated basis, The Americas represented 57 percent of
our quarterly revenue, Europe 32 percent, and Asia 10 percent. Trimble
17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
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. For this reason, Trimble is subject to the risks inherent in these
foreign sales, including unexpected changes in regulatory requirements,
exchange rates, governmental approval, and tariffs or other barriers. For
products based on GPS technology, there may be reluctance in certain foreign
markets to purchase such products given the control of GPS by the U.S.
Government. Even though the U.S. Government announced on March 29, 1996, that
it would support and maintain the GPS system, and on May 1, 2000 eliminated the
use of Selective Availability (SA) - a method of degrading GPS accuracy -
Trimble's results of operations could be adversely affected if we were unable
to continue to generate significant sales in locations outside the U.S.
Gross Margin
- ------------
* Gross margin varies on a quarterly basis due to a number of factors,
including product mix, 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 49% for the three months ending March 30, 2001 as compared
with 57% in the corresponding 2000 period. The decrease in gross margin
percentage for the three months ended March 30, 2001, as compared with the
corresponding 2000 period is due, in part, to a three million dollar charge
associated with the write-down of inventory related to the consolidation and
simplification of product lines, which impacted gross margin by approximately
2.5%. Product mix and unabsorbed fixed overhead impacted gross margin by
approximately 5.0% primarily due to the acquisition of Spectra Precision.
Because of product mix changes within and among the industry markets, market
pressures on unit selling prices, fluctuations in unit manufacturing costs,
including increases in component prices and other factors, current level gross
margins cannot be assured.
* Trimble expects that in the future a higher percentage of its business
will be conducted through alliances with strategic partners. As a result of
volume pricing and the assumption of certain operating costs by potential
partners, margins on this type of business 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
--------------------------------------
March 30, March 31,
2001 2000 Increase
---- ---- --------
Research and development $ 15,819 $ 8,877 78%
Sales and marketing 28,141 12,646 123%
General and administrative 9,392 6,300 49%
Amortization of goodwill and other
purchased intangibles 7,316 -- 100%
-------- --------
Total $ 60,668 $ 27,823 118%
======== ========
Research and Development
- ------------------------
Research and development expenses increased in the three months ended
March 30, 2001, as compared with the corresponding periods in fiscal 2000. The
primary reasons for the increases are as follows:
o The purchase of the Spectra Precision Group in July 2000 accounted for
approximately $5.5 million of the increase over the prior year expense
levels.
18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
o Trimble's receipt of approximately $700,000 less from cost reimbursement
funds for military research and development programs in fiscal year 2001
as compared to fiscal year 2000.
o Expenses related to Tripod Data Systems, which was acquired in mid-
November of fiscal 2000, represented $800,000 of the increase over the
similar period in the prior year.
* The Company believes that the development and introduction of new
products is critical to its future success and expects to continue its active
development of future products.
Sales and Marketing
- -------------------
Sales and marketing expenses increased for the three months ended March
30, 2001, as compared with the corresponding period in fiscal 2000. The primary
reasons for the dollar increase in expenses from fiscal 2000 to fiscal 2001 are
as follows:
o The purchase of the Spectra Precision Group in July 2000 accounted for
approximately $14.2 million of the increase over prior year expense
levels.
o Expenses related to Tripod Data Systems, which was acquired in mid-
November of fiscal 2000, represented $500,000 of the increase over the
similar period in the prior year.
* Trimble's future growth will depend in part on the timely development and
continued viability of the markets in which we currently compete, and on our
ability to continue to identify and exploit new markets for our products. In
addition, we have encountered significant competition in selected markets, and
we expect such competition to intensify as the market for our GPS applications
receives acceptance. Several of Trimble's competitors are major corporations
with substantially greater financial, technical, and marketing resources.
Increased competition may result in reduced market share for the Company and is
likely to result in price reductions of our products, which could adversely
affect Trimble's revenues and profitability.
General and Administrative
- --------------------------
General and administrative expenses increased for the three months ended
March 30, 2001, as compared with the corresponding period in fiscal 2000. The
primary reasons for the increase are as follows:
o The purchase of Spectra Precision Group in July 2000 accounted for
approximately $2.3 million of the increase.
o Increases in depreciation expenses related to equipment purchases
represented approximately $500,000 of the increase over the similar
period in the prior year.
o Expenses related to Tripod Data Systems, which was acquired in mid-
November of fiscal 2000, represented $300,000 of the increase over the
similar period in the prior year.
Amortization of Goodwill and Other Intangibles
- ----------------------------------------------
Amortization expense of goodwill and other intangibles increased for the
three months ended March 30, 2001 by approximately $7.3 million, all of which
is related primarily to the purchase of Spectra Precision Group.
19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Nonoperating income (expense), net
- ----------------------------------
Nonoperating income (expense), net, increased for the three months ended
March 30, 2001 as compared with the corresponding period in fiscal 2000. The
primary reasons for the increase are as follows:
o Increased interest expenses related to new loans and credit facility
accounted for approximately $5.1 million of the increase over the
similar period in the prior year.
o Decreased interest income resulting from the sale and maturities of
short-term investments accounted for approximately $1.2 million of the
change over the similar period in the prior year.
o Loss on the sale of ATS and expected closure of the Austin, Texas
facility totaled approximately $2.0 million.
Income Taxes
- ------------
The Company's effective combined income tax rate from continuing
operations for the three months ended March 30, 2001 was five percent as
compared with the effective income tax rate of ten percent for the
corresponding period in 2000. The rate in 2001 is less than the federal
statutory rate of 35% primarily due to the fact that the Company believes it is
more likely than not that the benefit of current losses will be realized in the
future. These rates in 2000 are less than the federal statutory rate of 35%
primarily due to the realization of the benefits from prior net operating
losses and previously deferred tax assets, for which valuation allowances had
been provided.
Inflation
- ---------
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
- -------------------------------
At March 30, 2001, Trimble had cash and cash equivalents of $44 million.
Trimble's cash and cash equivalents decreased from the prior year due to the
purchase of the Spectra Precision Group in July 2000. Trimble's long-term debt
consisted of $172 million outstanding under senior secured credit facilities,
and a $80 million subordinated promissory note. Trimble has relied primarily on
cash provided by financing activities to fund capital expenditures, and other
investing activities. Management believes that its cash and cash equivalents,
together with its credit facility, will be sufficient to meet its anticipated
operating cash needs for at least the next twelve months.
* For the three months ended March 30, 2001, cash used in operating
activities was $2.8 million, as compared to cash provided of $7.7 million in
the corresponding period in fiscal 2000. Cash used in operating activities in
fiscal 2001 arose from the Company's net loss, partially offset by depreciation
and amortization and increase in inventories and offset partially by increases
in bank and other short-term borrowings, the current portion of long-term debt,
accounts payable and accrued liabilities related to the sale of ATS. We
increased inventory in anticipation of seasonal growth in Trimble's Engineering
and Construction business segment, which typically experiences growth in mid to
late March. Inventory also increased higher than we expected due to the softer
than anticipated sales in the first fiscal quarter. Trimble'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 Company's manufacturing relationship with Solectron
Corporation.
Proceeds from long-term debt and revolving credit lines provided $10
million in funding during the three months ended March 30, 2001. Cash provided
by sales of common stock in fiscal year 2001 represents the proceeds from
purchases made by employees pursuant to Trimble's stock option plan and
employee stock purchase plan and totaled $1.3 million for the three months
ended March 30, 2001.
In July 2000, ABN AMRO Bank, N.V. led a syndicate of banks which
underwrote $200 million of new senior, secured credit facilities for the
Company (the "New Credit Facilities") to support the acquisition of the
20
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Spectra Precision Group and the Company's ongoing working capital requirements
and to refinance certain existing debt. The New Credit Facilities are comprised
of a $50 million 3-year U.S. dollar only revolver; a $50 million 3-year multi-
currency revolver; and a $100 million 5-year term loan. Pricing for any
borrowings under the New Credit Facilities is fixed for the first 6 months at
LIBOR plus 275 basis points and is thereafter tied to a formula, based on the
Company's leverage ratio (which is defined as all outstanding debt (excluding
the seller subordinated note) over EBITDA). Trimble has used approximately $172
million available under the New Credit Facilities, comprising of the $100
million 5-year term loan, $50 million 3-year U.S. dollar only revolver, and $22
million 3-year multi-currency revolver. The New Credit Facilities are secured
by all material tangible and intangible assets of the Company, subject to
foreign tax considerations. If Trimble is able to achieve and maintain a
leverage ratio (Debt/EBITDA) of 2.0x or less for four consecutive quarters, the
security for the New Credit Facilities will be released. Financial covenants of
the New Credit Facilities include leverage, fixed charge, and minimum net worth
tests. The Company was in compliance with these covenants at March 30, 2001.
The two $50 million revolvers are paid as the loans mature and the loan
commitment fees are paid on a quarterly basis. The 5-year term loan is payable
commencing March 31, 2001 in quarterly installments (excluding interest) of $4
million over the first year, $5 million over the second year, $6 million over
the next year and a half and $7 million for the remaining quarters until the
debt is paid off. In addition, Trimble is restricted from paying dividends and
is limited as to the amount of its common stock it can repurchase under the
terms of the New Credit Facilities. The Company is allowed to repurchase shares
of its common stock only up to 25% of net income in the previous fiscal year.
In July 2000 as part of the acquisition of the Spectra Precision Group,
Trimble issued $80 million subordinated note bearing interest at an annual rate
of a 10%, payable in cash or additional seller paper at the Company's option.
The subordinated seller note has a stated two year maturity ($40 million due in
fiscal 2001 and $40 million due in fiscal 2002), but carries an automatic
maturity deferral provision which effectively extends the maturity date to that
date on which Trimble is allowed to repay the note without triggering a default
under the New Credit Facilities. The New Credit Facilities allow Trimble to
repay the seller note at any time (in part or in whole), provided that (a)
Trimble's leverage ratio (Debt (excluding the seller note)/EBITDA) prior to
such repayment is less than 1.0x and (b) after giving effect to such repayment
Trimble would have (i) a leverage ratio (Debt (excluding any remaining portion
of the seller note)/EBITDA) of less than 2.0x and (ii) cash and unused
availability under the revolvers of the New Credit Facilities of at least $35
million. Although the subordinated seller note will carry certain limited
covenants and defaults, the seller will be barred in the event of default from
pursuing such rights and remedies for the stated maturity of the New Credit
Facilities (i.e., a five-year standstill). The New Credit Facilities also
prohibit cash payments of interest or principal on the subordinated seller note
during a period of default.
In 1996 and 1998, Trimble approved a discretionary program whereby up to a
total of 2.2 million shares of its common stock could be repurchased on the
open market by the Company to offset the potential dilutive effects to earnings
(loss) per share from the issuance of additional stock options. During 1997
and 1998, Trimble purchased a total of 1.22 million shares at a cost of $17.9
million. During fiscal 1999 and the first nine months of fiscal 2000, no shares
were repurchased under the discretionary program. Trimble's current credit
facility restricts the Company from repurchasing any of its shares and no
additional shares have been repurchased since that time.
* Trimble 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. Trimble does not
currently believe that the introduction of the Euro will have a material effect
on its foreign exchange and hedging activities. Trimble has also assessed the
potential impact the Euro conversion will have in regard to its internal
systems accommodating Euro-denominated transactions. Trimble will continue to
evaluate the impact of the Euro introduction over time, based on currently
available information. Trimble does not currently anticipate any adverse impact
of the Euro conversion on the Company.
CERTAIN OTHER RISK FACTORS
- --------------------------
Difficulties in Integrating New Acquisitions Could Adversely Affect Our
- -----------------------------------------------------------------------
Business.
- --------
Critical to the success of our growth is the effective and timely
integration of acquired businesses into our organization. If our integration
efforts are unsuccessful, our businesses will suffer. We have recently acquired
the
21
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Spectra Precision Group. The acquisition presents unique product, marketing,
research and development, facilities, information systems, accounting,
personnel and other integration challenges. This transition is continuing and
involves certain risks, including: the potential inability to successfully
integrate acquired operations and businesses; the inability to realize
anticipated synergies or cost reductions or other value; diversion of
management's attention; difficulties in scaling up production at new sites and
coordinating management of operations at new sites; and loss of key employees
of acquired operations. Also, our information systems and those of the
companies we acquire are often incompatible, requiring substantial upgrades to
one or the other. Further, our current senior combined management is a
combination of the prior senior management teams of Trimble and the Spectra
Precision Group several of whom have not previously worked with other members
of management. The benefits to us of the acquisition and our success, as a
whole, depends upon our succeeding in each of these and other integration
challenges. The integration of our business with another may result in
unanticipated operations problems, expenses and liabilities and the diversion
of management attention
Our sales force is and will be in the future a combination of our sales
force and the sales forces of the businesses we acquire, which must be
effectively integrated for us to remain successful. Our acquisition of the
Spectra Precision Group has resulted in sales forces differing in products
sold, marketing channels used and sales cycles and models applied. Accordingly,
we may experience disruption in sales and marketing in connection with our
efforts to integrate our various sales and marketing forces, and we may be
unable to efficiently or effectively correct any such disruptions or achieve
our sales and marketing objectives if we fail in these efforts. Furthermore, it
may be difficult to retain key sales personnel. As a result, we may fail to
take full advantage of the combined sales forces' efforts, and one company's
sales approaches and distribution channels may be ineffective in promoting
another entity's products, all of which may materially harm our business,
financial condition or operating results.
Risks Associated with Sole Suppliers and Limited Sources.
- --------------------------------------------------------
With the selection of Solectron Corporation in August 1999 as an exclusive
manufacturing partner for many of our GPS products previously manufactured out
of our Sunnyvale facilities, Trimble is substantially dependent upon a sole
supplier for the manufacture of its products. Under the agreement with
Solectron, Trimble provides to Solectron a twelve-month product forecast and
places purchase orders with Solectron sixty calendar days in advance of the
scheduled delivery of products to Trimble customers. Although Trimble purchase
orders placed with Solectron are cancelable, the terms of the agreement would
require Trimble to purchase from Solectron all material inventory not
returnable or usable by other Solectron customers. Accordingly, if Trimble
inaccurately forecasts demand for its products, Trimble may be unable to obtain
adequate manufacturing capacity from Solectron to meet customers' delivery
requirements or Trimble may accumulate excess inventories. In addition, we
rely on sole suppliers for a number of our critical ASICS. We have experienced
shortages of such supplies in the past. Our reliance on sole or a limited group
of suppliers involves several risks, including a potential inability to obtain
an adequate supply of required components and reduced control over pricing. The
disruption or termination of any of these sources could have a material adverse
effect on our business, operating results and financial condition. Any
inability to obtain adequate deliveries or any other circumstance that would
require us to seek alternative sources of supply or to manufacture such
components internally could significantly delay our ability to ship our
products, which could damage relationships with current and prospective
customers and could have a material adverse effect on our business, operating
results and financial condition.
Fluctuations in Annual and Quarterly Performance.
- ------------------------------------------------
Our operating results have fluctuated and can be expected to continue to
fluctuate in the future on a quarterly and annual basis as a result of a number
of factors, many of which are beyond our control. Results in any period could
be affected by changes in market demand, competitive market conditions, market
acceptance of new or existing products, fluctuations in foreign currency
exchange rates, the cost and availability of components, our ability to
manufacture and ship products, the mix of our customer base and sales channels,
the mix of products sold, our ability to expand our sales and marketing
organization effectively, our ability to attract and retain key technical and
managerial employees and general economic conditions. Due to the foregoing
factors, our operating results in one or more future periods are expected to be
subject to significant fluctuations. In the event such fluctuations result in
our financial performance being below the expectations of public market
analysts and investors, the price of our common stock could decline
substantially.
22
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Our 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 Trimble's quarterly revenues occurs
from orders received and immediately shipped to customers in the last few weeks
and days of each quarter. If orders are not received, or if shipments were to
be delayed a few days at the end of a quarter, our operating results and
reported earnings per share for that quarter could be significantly impacted.
Future revenues are difficult to predict, and projections are based primarily
on historical models, which are not necessarily accurate representations of the
future.
Despite the fluctuations in its quarterly sales patterns, the Company's
operating expenses are incurred on an approximately ratable basis. As a result,
if expected sales are deferred for any reason, the Company's business,
operating results and financial condition could be materially adversely
affected.
Trimble's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components, foreign currency exchange
rates and manufacturing costs. For example, since our Engineering &
Construction and Agriculture products generally have higher gross margins than
Component Technologies products, absent other factors, a shift in sales toward
Engineering & Construction and Agriculture products would lead to a gross
margin improvement for Trimble. On the other hand, if market conditions in the
highly competitive Engineering & Construction and Agriculture market segments
forced us to lower unit prices, we would suffer a decline in gross margin
unless we were able to timely offset the price reduction by a reduction in
production costs or by sales of other products with higher gross margins. These
types of events could have a material effect on our business, operating results
and financial condition.
Risks of Managing Future Growth.
- -------------------------------
Any significant growth in our sales or any significant expansion in the
scope of our operations could strain our management, financial, manufacturing
and other resources and may require us to implement and improve a variety of
operating, financial and other systems, procedures and controls. While Trimble
plans significant expansion of its sales, accounting, manufacturing, and other
information systems to meet these challenges, there can be no assurance that
these efforts will succeed, or that any existing or new systems, procedures or
controls will be adequate to support our operations or that our systems,
procedures and controls will be designed, implemented or improved in a cost
effective and timely manner. Any failure to implement, improve and expand such
systems, procedures and controls in a timely and efficient manner could have a
material adverse effect on our business, operating results and financial
condition.
Competition.
- -----------
Trimble's markets are highly competitive. Our overall competitive position
depends on a number of factors including the price, quality and performance of
our products, the level of customer service, the development of new technology
and our ability to participate in emerging markets. Within each of our markets,
we encounter direct competition from other GPS, optical and laser suppliers and
competition may intensify from various larger domestic and international
competitors and new market entrants, some of which may be current Trimble
customers. The competition in the future, may, in some cases, result in price
reductions, reduced margins or loss of market share, any of which could
materially and adversely affect our business, operating results and financial
condition. We believe that our ability to compete successfully in the future
against existing and additional competitors will depend largely on our ability
to execute our strategy to provide systems and products with significantly
differentiated features compared to currently available products. There can be
no assurance that we will be able to implement this strategy successfully, or
that any such products will be competitive with other technologies or products
that may be developed by our competitors, many of whom have significantly
greater financial, technical, manufacturing, marketing, sales and other
resources than we do. There can be no assurance that we will be able to
compete successfully against current or future competitors or that competitive
pressures faced by us will not have a material adverse effect on our business,
operating results and financial condition. We expect that both direct and
indirect competition will increase in the future. Additional competition could
adversely affect our business, operating results and financial condition
through price reductions or loss of market share.
23
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Risks Associated With International Operations and Sales.
- --------------------------------------------------------
Our customers are located throughout the world. In addition, we have
significant offshore operations, including manufacturing facilities, sales
personnel and customer support operations. Our offshore operations include
facilities in Australia, Canada, China, France, Germany, Great Britain, Japan,
Mexico, New Zealand, Sweden, Russia, Singapore and others. Our international
presence exposes us to risks not faced by wholly-domestic companies.
Specifically, we face the following risks, among others, unexpected changes in
regulatory requirements; tariffs and other trade barriers; political, legal and
economic instability in foreign markets, particularly in those markets in which
we maintain manufacturing and research facilities; difficulties in staffing and
management; language and cultural barriers; seasonal reductions in business
activities in the summer months in Europe and some other countries; integration
of foreign operations; longer payment cycles; greater difficulty in accounts
receivable collection; currency fluctuations; and potentially adverse tax
consequences. Although we implemented a program to attempt to manage foreign
exchange risks through hedging and other strategies, there can be no assurance
that this program will be successful and that currency exchange rate
fluctuations will not have a material adverse effect on our results of
operations. In addition, in certain foreign markets, there may be reluctance to
purchase products based on GPS technology, given the control of GPS by the U.S.
government.
Volatility of Stock Price.
- -------------------------
Our common stock has experienced and can be expected to experience
substantial price volatility in response to actual or anticipated quarterly
variations in results of operations, announcements of technological innovations
or new products by us or our competitors, developments related to patents or
other intellectual property rights, developments in our relationship with
customers, suppliers, or strategic partners and other events or factors. In
addition, any short fall or changes in revenue, gross margins, earnings, or
other financial results from analysts' expectations could cause the price of
our common stock to fluctuate significantly. Additionally, certain macro-
economic factors such as changes in interest rates as well as market climate
for the high-technology sector could also have an impact on the trading price
of our stock.
Dependence on Proprietary Technology; Risk of Patent Infringement Claims.
- ------------------------------------------------------------------------
Trimble's future success and competitive position is dependent upon its
proprietary technology, and we rely on patent, trade secret, trademark and
copyright law to protect our intellectual property. There can be no assurance
that the patents owned or licensed by us will not be invalidated, circumvented,
challenged, or that the rights granted thereunder will provide competitive
advantages to us or that any of our pending or future patent applications will
be issued within the scope of the claims sought by Trimble, if at all.
Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to our technology, duplicate our
technology or design around the patents owned by Trimble. In addition,
effective copyright, patent and trade secret protection may be unavailable,
limited or not applied for in certain foreign countries. There can be no
assurance that the steps taken by Trimble to protect its technology will
prevent the misappropriation of such technology. The value of our products
relies substantially on our technical innovation in fields in which there are
many current patent filings. Trimble recognizes that as new patents are issued
or are brought to our attention by the holders of such patents, it may be
necessary for us to withdraw products from the market, take a license from such
patent holders, or redesign our products. We do not believe any of our products
currently infringe patents or other proprietary rights of third parties, but we
cannot be certain they do not do so. In addition, the legal costs and
engineering time required to safeguard intellectual property or to defend
against litigation could become a significant expense of operations. Such
events could have a material adverse effect on our revenues or profitability.
Dependence on New Products.
- --------------------------
Trimble's future revenue stream depends to a large degree on our ability
to bring new products to market on a timely basis. We must continue to make
significant investments in research and development in order to continue to
develop new products, enhance existing products and achieve market acceptance
of such products. However, there can be no assurance that development stage
products will be successfully completed or, if developed, will achieve
significant customer acceptance. If we were unable to successfully define,
develop and introduce competitive new products, and enhance existing products,
our future results of operations would be adversely affected. Development and
manufacturing schedules for technology products are difficult to predict, and
24
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
there can be no assurance that we 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
Trimble. In some of our markets - for example, Engineering & Construction where
we currently have a market leadership position - a delay in new product
introductions could have a significant impact on our results of operations. No
assurance can be given that we will not incur problems in the future in
innovating and introducing new products. In addition, some of our products are
subject to governmental and similar certifications before they can be sold. For
example, CE certification for radiated emissions is required for most GPS
receiver and data communications products sold in the European Union. An
inability to obtain such certifications in a timely manner could have an
adverse effect on our operating results.
Strategic Alliances and External Investments.
- --------------------------------------------
We are continuously evaluating alliances and external investments in
technologies related to our business, and have entered into many strategic
alliances including making relatively small strategic equity 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 our business, financial condition, and
results of operations.
We also believe that in certain emerging markets our success will depend
on our ability to form and maintain strategic alliances with established system
providers and industry leaders. Our failure to form and maintain such
alliances, or the preemption of such alliances by actions of other competitors
or us will adversely affect our ability to penetrate emerging markets. No
assurances can be given that we will not incur problems from current or future
alliances, acquisitions, or investments. Furthermore, there can be no assurance
that we will realize value from any such strategic alliances, acquisitions, or
investments.
Dependence on Key Customers.
- ---------------------------
We currently enjoy strong relationships with key customers. An increasing
amount of our revenue is generated from large OEMs such as Philips VDO, Nortel,
Caterpillar, CNH Global (formerly Case Corporation), Bosch, and others. A
reduction or loss of business with these customers could have a material
adverse effect on our financial condition and results of operations. There can
be no assurance that we will be able to continue to realize value from these
relationships in the future.
Dependence on Key Markets and Successful Identification of New Markets.
- ----------------------------------------------------------------------
Trimble's current products serve many applications in Engineering &
Construction, Agriculture, Fleet & Asset Management, Component Technologies,
and Portfolio Technologies market segments. No assurances can be given that
these market segments will continue to generate significant or consistent
demand for our products. Existing market segments could be significantly
diminished by new technologies or products that replace or render obsolete our
technologies and products. Trimble is dependent on successfully identifying new
markets for its products. There can be no assurance that the Company will be
able to successfully identify new high-growth markets in the future. Moreover,
there can be no assurance that new markets will develop for Trimble or its
customers' products, or that our technology or pricing will enable such markets
to develop.
Dependence on Retaining and Attracting Highly Skilled Development and
- ---------------------------------------------------------------------
Managerial Personnel.
- --------------------
The ability of Trimble 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 our industry and location is intense, and there can be
no assurance that we will be able to attract, motivate and retain enough
qualified employees necessary for the future continued development of our
business and products.
25
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Potential Adverse Impact of Governmental and Other Similar Certifications.
- -------------------------------------------------------------------------
Trimble 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, our products that use integrated
radio communication technology require an end-user to obtain licensing from the
Federal Communications Commission (FCC) for frequency-band usage. During the
fourth quarter of 1998, the FCC temporarily suspended the issuance of licenses
for certain of our real-time kinematic products because of interference with
certain other users of similar radio frequencies. An inability or delay in
obtaining such certifications or delays of the FCC could have an adverse effect
on our operating results.
Dependence on Radio Frequency Spectrum.
- --------------------------------------
Trimble's GPS technology is dependent on the use of the Standard
Positioning Service (SPS) provided by the U.S. Government's Global Positioning
System (GPS). The GPS SPS operates in radio frequency bands that are globally
allocated for radio navigation satellite services. International allocations
of radio frequency are made by the International Telecommunications Union
(ITU), a specialized technical agency of the United Nations. These allocations
are further governed by Radio Regulations which have treaty status and which
may be subject to modification every two-three years by the World Radio
communication Conference. Any ITU reallocation of radio frequency bands,
including frequency band segmentation or sharing of spectrum, may materially
and adversely affect the utility and reliability of our products, which would,
in turn, cause a material adverse effect on our operating results. In addition,
unwanted emissions from mobile satellite services and other equipment operating
in adjacent frequency bands or inband from licensed and unlicensed devices may
materially and adversely affect the utility and reliability of our products,
which could result in a material adverse effect on our operating results. The
Federal Communications Commission (FCC) continually receives proposals for
novel technologies and services which may seek to operate in, or across, the
radio frequency bands currently used by the GPS SPS and other public safety
services. Adverse decisions by the FCC that result in harmful interference to
the delivery of the GPS SPS may materially and adversely affect the utility and
reliability of our products, which could result in a material adverse effect on
our operating results.
Reliance on GPS Satellite Network.
NAVSTAR satellites and their ground support systems are complex electronic
systems subject to electronic and mechanical failures and possible sabotage.
The satellites were originally designed to have lives of 7.5 years and are
subject to damage by the hostile space environment in which they operate.
However, of the current deployment of 27 satellites in place, some have already
been in place for 12 years and have an average age of 6 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
committed to the operation and maintenance of GPS satellites over a long
period, or that the policies of the U.S. Government for the use of GPS without
charge will remain unchanged. However, a 1996 Presidential Decision Directive
marks the first time in the evolution of GPS that access for civilian use free
of direct user fees is specifically recognized and supported by Presidential
policy. In addition, Presidential policy has been complemented by
corresponding legislation, signed into law. Because of ever-increasing
commercial applications of GPS, other U.S. Government agencies may become
involved in the administration or the regulation of the use of GPS signals. Any
of the foregoing factors could affect the willingness of buyers of 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
could have a material adverse effect on Trimble's financial results. For
example, European governments have expressed interest in building an
independent satellite navigation system, known as Galileo. Depending on the as
yet undetermined design and operation of this system, there may be interference
to the delivery of the GPS SPS and may materially and adversely affect the
utility and reliability of our products, which could result in a material
adverse effect on our operating results.
26
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - (CONTINUED)
Reliance on Continuous Power Supply.
* California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses of our California facilities. In the
event of an acute power shortage, that is, when power reserves for the State of
California fall below certain critical levels, California has on some occasions
implemented, and may in the future continue to implement, rolling blackouts
throughout California. We currently do not have adequate backup generators or
alternate sources of power in the event of a blackout, and our current
insurance does not provide coverage for any damages we or our customers may
suffer as a result of any interruption in our power supply. If blackouts
interrupt our power supply or in Solectron's power supply, we would be
temporarily unable to continue operations at our California facilities. Any
such interruption in our ability to continue operations at our facilities or
Solectron's ability to manufacture product at its facilities could damage our
reputation, harm our ability to retain existing customers and to obtain new
customers, and could result in lost revenue, any of which could substantially
harm our business and results of operations.
27
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The following is a discussion of Trimble's exposure to market risk as of
March 30, 2001 related to changes in interest rates and foreign currency
exchange rates. Trimble uses certain derivative financial instruments to manage
these risks. Trimble does not use derivative financial instruments for
speculative or trading purposes. All financial instruments are used in
accordance with policies approved by Trimble's board of directors.
Market Interest Rate Risk
- -------------------------
Short-term Investments Owned by the Company. As of March 30, 2001,
-------------------------------------------
Trimble had no short-term investments.
Outstanding Debt of the Company. The Company is exposed to market risk
-------------------------------
due to the possibility of changing interest rates under its new senior secured
credit facilities. The Company's new credit facilities are comprised of a 3-
year US dollar-only revolver, a 3-year Multi-Currency revolver, and a 5-year
term loan. The entire credit facility has interest payments based on a floating
rate of LIBOR plus 275 basis points for the first 6 months and thereafter tied
to a formula based on the Company's leverage ratio. The US dollar and the
Multi-Currency revolvers run through July 2003 and have outstanding principle
balances at March 30, 2001 of $50 million and $22 million, respectively. As of
March 30, 2001 the Company has borrowed from the Multi-Currency revolver in US
currency only. The term loan runs through July 2005 and has an outstanding
principle balance of $100 million at March 30, 2001. The 3-month LIBOR
effective rate at March 30, 2001 was 4.9025%. A 10% increase in 3-month LIBOR
rates could result in approximately $843,230 annual increase in interest
expense on the existing principal balances.
In order to reduce variable interest rate exposure on borrowings under its
existing credit facility, Trimble has an interest rate swap agreement on a
portion of the variable rate debt which fix the rate on the notional amount of
$25.0 million at 5.195%.
The Company also has $5.6 million of Euro-denominated debt. At March 30,
2001 $2.3 million was current. The interest rate on the current portion of this
instrument is fixed at 6%. A hypothetical 10% decrease in interest rates would
not have a material impact on the Company as related to this debt.
In addition, the Company has a $1.9 million promissory note, of which
$48,000 was current at March 30, 2001. The note is payable in monthly
installments, bearing a 7.14% variable interest rate. A hypothetical 10%
increase in interest rates would not have a material impact on the Company.
* 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 Trimble'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.
Foreign Currency Exchange Rate Risk
- -----------------------------------
The following described hedging activities are representative of only the
Trimble operations and do not include any hedging activities of the Spectra
Precision Group as there currently are no hedging of intercompany transactions
within the Spectra Precision Group. Trimble hedges risks associated with
foreign currency transactions in order to minimize the impact of changes in
foreign currency exchange rates on earnings. Trimble 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.
* Trimble does not anticipate any material adverse effect on its
consolidated financial position utilizing our current hedging strategy.
All contracts have a maturity of less than one year, and we do not defer
any gains and losses, as they are all accounted for through earnings every
period.
28
The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of March 30, 2001:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
--------- ---- ------------ ------------ ------------
YEN Sell 235,600 $2,021 $1,891
NZD Buy 2,778 $1,174 $1,118
EURO Sell 3,712 $3,412 $3,287
Sterling Buy 1,720 $2,494 $2,434
Sterling Sell 108 $ 157 $ 153
29
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- ------ -----------------
In January 2001, Philip M. Clegg filed suit in the United States District
Court for the District of Utah, Central Division, against Spectra-Physics
Laserplane, Inc., Spectra Precision AB and Trimble Navigation Limited. The
complaint alleges claims of infringement of U.S. Patent No. 4,807,131, breach
of contract and unjust enrichment. The suit seeks damages and an accounting for
moneys alleged to be owed under a license agreement, plus interest and attorney
fees. The suit is in its very early stages. Management believes the case to be
without merit and intends to defend the lawsuit vigorously. In the opinion of
management, resolution of this litigation is not expected to have a material
adverse effect on the financial position of the Company. However, depending on
the amount and timing, an unfavorable resolution of this matter could
materially affect the Company's future operations or cash flows in a particular
period.
The Company is also a party to other disputes incidental to its business.
The Company believes that the ultimate liability of the Company as a result of
such disputes, if any, would not be material to its overall financial position,
results of operations, or liquidity.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
(a) Exhibits.
--------
None.
(b) Reports on Form 8-K
-------------------
The registrant did not file any Current Reports on Form 8-K
during the fiscal quarter ended March 30, 2001.
30
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
--------------------------
(Registrant)
By: /s/ MARY ELLEN GENOVESE
--------------------------------
Mary Ellen Genovese
Chief Financial Officer
(Authorized Officer and Principal
Financial and Accounting Officer)
DATE: May 14, 2001
31