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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 June 29, 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 August 6, 2001, there were 24,863,483 shares of Common Stock (no
par value) outstanding.
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TRIMBLE NAVIGATION LIMITED
FORM 10-Q
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets--
June 29, 2001 and December 29, 2000.................................................. 3
Condensed Consolidated Statements Of Operations--
Three and Six Months Ended June 29, 2001 and June 30, 2000........................... 4
Condensed Consolidated Statements of Cash Flows--
Six Months Ended June 29, 2001 and June 30, 2000..................................... 5
Notes to Condensed Consolidated Financial Statements................................... 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 16
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk............................. 30
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings...................................................................... 32
ITEM 4. Submission of Matters to a Vote of Security Holders.................................... 32
ITEM 6. Exhibits and Reports on Form 8-K....................................................... 33
Signatures......................................................................................... 34
2
PART I - FINANCIAL INFORMATION
ITEM I. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 29, December 29,
2001 2000 (1)
--------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
ASSETS
Current assets
Cash and cash equivalents $ 27,822 $ 40,876
Accounts receivable, net 87,279 83,600
Inventories 68,158 60,846
Other current assets 7,603 8,017
--------- ---------
Total current assets 190,862 193,339
Net property and equipment 32,177 34,059
Intangibles assets 235,210 249,832
Deferred tax assets 489 531
Other assets 11,224 12,743
-------- --------
Total assets $469,962 $490,504
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank and other short-term borrowings $67,028 $ 62,000
Current portion of long-term debt 56,276 51,721
Accounts payable 22,355 26,448
Accrued compensation and benefits 18,224 16,771
Accrued liabilities 39,769 32,493
Accrued warranty expense 8,412 7,749
Income taxes payable 5,245 5,005
Deferred gain on sale of assets 1,591 1,591
-------- --------
Total current liabilities 218,900 203,778
-------- --------
Noncurrent portion of long-term debt and other liabilities 120,916 137,341
Deferred tax liabilities 7,581 8,230
Other noncurrent liabilities 4,610 6,212
-------- --------
Total liabilities 352,007 355,561
-------- --------
Shareholders' equity:
Common stock 163,180 153,853
Common stock warrants 293 993
Accumulated deficit (24,501) (10,940)
Accumulated other comprehensive loss (21,017) (8,963)
-------- --------
Total shareholders' equity 117,955 134,943
-------- --------
Total liabilities and shareholders' equity $469,962 $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 Six Months Ended
--------------------------------- ---------------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(In thousands, except per share data)
Total revenue $133,587 $ 71,264 $251,450 $136,404
-------- -------- -------- --------
Operating expenses:
Cost of sales 68,056 29,379 128,419 57,474
Research and development 15,736 9,182 31,555 18,059
Sales and marketing 27,530 14,033 55,671 26,679
General and administrative 9,979 6,647 19,371 12,947
Restructuring charges 910 -- 910 --
Amortization of goodwill and other purchased
intangibles 7,394 -- 14,710 --
-------- -------- -------- --------
Total operating expenses 129,605 59,241 250,636 115,159
-------- -------- -------- --------
Operating income 3,982 12,023 814 21,245
-------- -------- -------- --------
Nonoperating income (expense):
Interest income 366 1,725 736 3,206
Interest and other expenses (5,203) (54) (13,347) (1,107)
Foreign exchange gain (loss), net (119) 36 (264) 66
-------- -------- -------- --------
(4,956) 1,707 (12,875) 2,165
-------- -------- -------- --------
Income (loss) before income taxes (974) 13,730 (12,061) 23,410
Income tax provision 1,000 1,373 1,500 2,341
-------- -------- -------- --------
Net income (loss) $ (1,974) $ 12,357 $(13,561) $ 21,069
======== ======== ======== ========
Basic net income (loss) per share $ (0.08) $ 0.53 $ (0.56) $ 0.92
======== ======== ======== ========
Diluted net income (loss) per share $ (0.08) $ 0.48 $ (0.56) $ 0.83
======== ======== ======== ========
See accompanying notes to Condensed Consolidated Financial Statements.
4
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-------------------------------------------
June 29, June 30,
2001 2000
------------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Net cash provided by (used in) operating activities $ (3,840) $ 11,665
-------- ---------
Cash flows from investing activities:
Purchase of short-term investments -- (6,320)
Maturities of short-term investments -- 24,898
Sales of short-term investments -- 9,250
Sale of equity investments/loans -- 475
Payments for purchase of businesses (4,718) --
Acquisition of property and equipment (4,498) (2,497)
Capitalized patents, software and intangibles (954) (401)
-------- ---------
Net cash provided by (used in) investing activities (10,170) 25,405
-------- ---------
Cash flow from financing activities:
Issuance of common stock 8,627 8,457
Collections of notes receivable 424 973
Proceeds from long-term debt and revolving credit lines 20,000 --
Payments on long-term debt and revolving credit lines (27,045) (1,326)
-------- ---------
Net cash provided by financing activities 2,006 8,104
-------- ---------
Effect of exchange rate changes on cash (1,050) --
-------- ---------
Net increase (decrease) in cash and cash equivalents (13,054) 45,174
Cash and cash equivalents -- beginning of period 40,876 49,264
-------- ---------
Cash and cash equivalents -- end of period $ 27,822 $ 94,438
======== =========
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ 7,174 $ 795
======== =========
Income taxes, net of refunds $ 820 $ 2,835
======== =========
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 and six
month periods ended June 29, 2001, and June 30, 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
fiscal 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. See Note 3 of the Condensed Consolidated
Financial Statements for Pro Forma Financial Information for the three and six
month periods ended June 30, 2000.
Trimble has a 52-53 week fiscal year, which ends on the Friday nearest
to December 31, which for fiscal year 2001 will be December 28, 2001. The
Company's fiscal year normally consists of 52 weeks divided 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 June 29, 2001 are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 28, 2001.
NOTE 2 -- Acquisitions:
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 Company acquired
approximately $133 million of identifiable intangible assets as part of the
acquisition, which the
6
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
Company is amortizing over various time periods ranging from five to ten 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 million.
Effective as of April 2, 2001, Trimble completed the acquisition of
certain assets of Grid Data Inc. ("Grid Data"), 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 additional consideration, if earned, will
result in additional goodwill.
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. These costs were accrued
for as part of the preliminary allocation of the purchase price. The facility
consolidation 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 the consolidation of facilities, 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, and related tax and legal expenses. These
adjustments, if any, will be reported as an increase or decrease in goodwill.
The Company expects to finalize closure of these facilities before the end of
fiscal 2001.
The elements of the reserve at June 29, 2001 on the balance sheet
(included in accrued liabilities) are as follows:
Total Amounts Paid/ Amounts Paid/ Remaining in
Accrued in Written-off Written-off Accrued Liabilities
Fiscal 2000 in Fiscal 2000 in Fiscal 2001 as of June 29, 2001
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
Inventory obsolescence $2,685 $(809) $(1,204) $ 672
Legal and tax expense 1,175 -- (530) 645
Facility closures and severance 4,750 -- (1,893) 2,857
Other 390 -- -- 390
------ ----- ------- ------
Total $9,000 $(809) $(3,175) $4,564
====== ===== ======= ======
NOTE 3 -- Pro Forma Information:
On July 14, 2000 and November 14, 2000 Trimble acquired the Spectra
Precision Group and Tripod Data Systems ("Tripod"), respectively. Also, on April
2, 2001, the Company acquired certain assets of Grid Data System ("Grid Data").
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 and six month periods ended June 30, 2000
presents total revenue and net income 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, nor the business acquired
from Grid Data, as the operating results of Tripod and Grid Data are not
material to the Company. 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.
7
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
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.
Pro Forma
------------------------------------------
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000
- --------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Net revenue $134,249 $253,003
======== ========
Net income 9,205 8,358
======== ========
Basic net income per share $ 0.40 $ 0.36
======== ========
Diluted net income per share $ 0.36 $ 0.33
======== ========
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. At June 29, 2001, the Company is
using interest rate swaps to convert variable rate debt to fixed rate debt in
order to reduce interest rate volatility risk. In accordance with SFAS No. 133,
the Company has designated its swap agreements as a cash flow hedge and recorded
the change in fair value of these hedge agreements as part of other
comprehensive income (See Note 11 to the Condensed Consolidated Financial
Statements.) The hedge is 100% effective based on the short-cut method. 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 June
29, 2001, the change in fair value of this derivative amounted to $102,000 and
is recorded as an addition to other liabilities and a reduction to other
comprehensive income in the amount of $102,000 and $231,000 for the three and
six month periods ended June 29, 2001. The fair value of this derivative as a
liability amounted to $231,000 at June 29, 2001.
NOTE 5 -- Cash Equivalents, Short-Term Investments, and Marketable Equity
Securities:
Trimble considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
other liquid investments are classified as short-term investments. Trimble
classifies all its short-term and marketable investments as "available-for-sale"
securities. Available-for-sale securities are carried at fair value, with the
unrealized holding gains and losses, net of tax effects, reported as a
8
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
separate component of shareholders' equity. Fair value is based on quoted
market prices. The cost of debt securities in this classification is adjusted
for amortization of premiums and accretion of discounts to maturity. Such
amortization, as well as interest, dividends, and realized gains and losses,
is included in interest and investment income. The cost of securities sold is
based on the specific identification method.
Investments in marketable securities follows at June 29, 2001 and
December 29, 2000 were not material.
NOTE 6 -- Inventories:
Inventories consist of the following:
June 29, December 29,
2001 2000
- ----------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Raw materials $32,333 $27,878
Work-in-process 9,153 6,940
Finished goods 26,672 26,028
------- -------
$68,158 $60,846
======= =======
NOTE 7 -- 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
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 June 29, 2001, Trimble has a remaining provision of $477,000
associated with the disposal of the General Aviation division, which includes
$193,000 for the estimated remaining operating losses for service and warranty
support and remaining severance costs, and $284,000 for facility and certain
other contractual costs. The $477,000 liability is included in accrued
liabilities in the Condensed Consolidated Balance Sheet at June 29, 2001. The
provision at December 29, 2000 approximated $867,000.
NOTE 8 -- 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 Inc. for
approximately $4.5 million in cash. As part of this sale the Company also
intends to discontinue its manufacturing operations in Austin, Texas. These
actions resulted in a loss of approximately $2.0 million, which is included in
interest and other expenses on the Condensed Consolidated Statements of
Operations for the six months ended June 29, 2001.
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.
9
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
NOTE 9 -- Long-Term Debt:
Long-term debt consists of the following:
June 29, December 29,
2001 2000
- ----------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
New credit facilities $159,137 $162,000
Subordinated note 80,000 80,000
Promissory note and long-term commitment 5,058 9,037
Other 25 25
-------- --------
244,220 251,062
Less current portion 123,304 113,721
-------- --------
Noncurrent portion $120,916 $137,341
======== ========
Trimble's long-term debt primarily consists of $159 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. There were no contingent liabilities outstanding at June 29, 2001.
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
10
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
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 second quarter of
fiscal 2000 has been reclassified in order to conform to the new basis of
presentation. Operating income (loss) is net sales less operating expenses,
excluding general corporate expenses, interest income (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
June 29, 2001
-------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
- ---------------------------------------- ------------ ------------- ------------ ------------- ------------ ------------
(In thousands)
External net revenues $86,740 $6,677 $15,249 $16,615 $8,306 $133,587
======= ====== ======= ======= ====== ========
Inter-segment net revenue 194 -- -- -- (194) --
======= ====== ======= ======= ======= ========
Operating profit (loss) before
corporate allocations 17,487 67 1,298 3,011 (596) 21,267
Corporate allocation (1) -- -- -- -- -- --
------- ------ ------- ------- ------ --------
Operating profit (loss) $17,487 $ 67 $ 1,298 $ 3,011 $ (596) $ 21,267
======= ====== ======= ======= ====== ========
Six Months Ended
June 29, 2001
-------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
- ---------------------------------------- ------------ ------------- ------------ ------------- ------------ ------------
(In thousands)
External net revenues $160,453 $14,800 $27,058 $32,777 $16,362 $251,450
======== ======= ======= ======= ======= ========
Inter-segment net revenue 194 -- -- -- (194) --
======== ======= ======= ======= ======= ========
Operating profit (loss) before corporate
allocations 27,792 604 1,074 5,244 (1,233) 33,481
Corporate allocation (1) -- -- -- -- -- --
-------- ------- ------- ------- ------- --------
Operating profit (loss) $ 27,792 $ 604 $ 1,074 $ 5,244 $(1,233) $ 33,481
======== ======= ======= ======= ======= ========
11
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
June 29, 2001
-------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
- ---------------------------------------- ------------ ------------ ------------- ------------- ------------ ------------
(In thousands)
Assets:
Accounts receivable (2) $30,862 $2,785 $12,567 $10,577 $4,575 $61,366
Inventory $43,424 $3,050 $ 6,664 $ 3,375 $9,252 $65,765
Three Months Ended
June 30, 2000
--------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
- --------------------------------------- ------------- ------------ ------------ -------------- ------------ ------------
(In thousands)
External net revenues $28,670 $4,043 $17,218 $14,722 $6,611 $71,264
======= ====== ======= ======= ====== =======
Operating profit before corporate
allocations 9,790 762 4,219 4,071 156 18,998
Corporate allocation (1) (3,780) (681) (2,058) (1,197) (672) (8,388)
------- ------ ------- ------- ------ -------
Operating profit (loss) $ 6,010 $ 81 $ 2,161 $ 2,874 $ (516) $10,610
======= ====== ======= ======= ====== =======
Six Months Ended
June 30, 2000
-------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
- ---------------------------------------- ------------ ------------- ------------ ------------- ------------ ------------
(In thousands)
External net revenues $54,727 $ 8,840 $32,195 $28,990 $11,652 $136,404
======= ======= ======= ======= ======= ========
Operating profit (loss) before
corporate allocations 18,880 2,306 7,453 8,303 (124) 36,818
Corporate allocation (1) (7,560) (1,362) (4,116) (2,394) (1,343) (16,775)
------- ------- ------- ------- ------- --------
Operating profit (loss) $11,320 $ 944 $ 3,337 $ 5,909 $(1,467) $ 20,043
======== ========= ========= ======= ======= ========
December 29, 2000
--------------------------------------------------------------------------------
Engineering Fleet and
& Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
- --------------------------------------- ------------- ------------ ------------- ------------- ------------ ------------
(In thousands)
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 June 29, 2001, the Company did not allocate
corporate expenses and for the fiscal quarter ended June 30, 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 June 29, 2001 and December 29, 2000, which are
not allocated between divisions.
</FN>
12
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 Six Months Ended
-------------------------------- --------------------------------
June 29, June 30, June 29, June 30,
2001 2001 2000 2000
- ------------------------------------------------- --------------- ---------------- --------------- ----------------
(In thousands)
Operating profit (loss):
Total for reportable divisions $21,267 $10,610 $ 33,481 $20,043
Unallocated corporate expenses (17,285) 1,413 (32,667) 1,202
------- ------- -------- -------
Operating profit $ 3,982 $12,023 $ 814 $21,245
======= ======= ======== =======
June 29, December 29,
2001 2000
- ----------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Assets:
Accounts receivable total for reportable divisions $61,366 $58,859
Unallocated (1) 25,913 24,741
------- -------
Total $87,279 $83,600
======= =======
Inventory total for reportable divisions $65,765 $57,129
Common inventory (2) 2,393 3,717
------- -------
Net inventory $68,158 $60,846
======= =======
- ----------------------------
<FN>
(1) Includes cash in advance and reserves that are not allocated by segment.
Also for June 29, 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 -- Equity:
Comprehensive Income (Loss)
The components of other comprehensive income (loss), net of related
tax, include:
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
- --------------------------------------------- ---------------- ----------------- ---------------- -----------------
(In thousands)
Cumulative foreign currency translation $(3,751) $ (434) $(11,928) $ (740)
adjustments
Net loss on interest rate swap (102) -- (231) --
Net unrealized gain on investments 105 22 105 86
------- ------- -------- -------
Other comprehensive loss $(3,748) $ (412) $(12,054) $ (654)
======= ======= ======== =======
13
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
The components of accumulated other comprehensive income (loss), net of
related tax include:
June 29, December 29,
2001 2000
- ----------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Cumulative foreign currency translation adjustments $(20,891) $(8,963)
Net loss on interest rate swap (231) --
Net unrealized gain (loss) on investments 105 --
-------- -------
Accumulated other comprehensive loss $(21,017) $(8,963)
======== =======
Warrant Exercise
On May 31, 2001, a warrant holder exercised their rights to acquire
400,000 shares of common stock at an effective price of $10.95 per share for
aggregate net proceeds to the Company of $4.4 million.
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 Six Months Ended
----------------------------- -------------------------------
June 29, June 30, June 29, June 30,
2001 2000 2001 2000
- --------------------------------------------------------- -------------- ------------- -------------- ---------------
(In thousands, except per share amounts)
Numerator:
Income (loss) available to common shareholders used in
basic and diluted income (loss) per share $ (1,974) $ 12,357 $(13,561) $21,069
======== ======== ======== =======
Denominator:
Weighted-average number of common shares used in
calculating basic income (loss) per share 24,525 23,157 24,372 23,003
Effect of dilutive securities:
Common stock options -- 2,382 -- 2,213
Common stock warrants -- 300 -- 275
-------- -------- -------- -------
Weighted-average number of common shares and dilutive
potential common shares used in calculating diluted
income (loss) per share 24,525 25,839 24,372 25,491
======== ======== ======== =======
Basic income (loss) per share $ (0.08) $ 0.53 $ (0.56) $ 0.92
======== ======== ======== =======
Diluted income (loss) per share $ (0.08) $ 0.48 $ (0.56) $ 0.83
======== ======== ======== =======
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
14
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Unaudited)
Operations include expenses from this operating lease of $86,351 and $172,702
for the three and six month periods ended June 29, 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. 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. 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 -- Restructuring Charges:
Restructuring charges of $0.9 million were recorded for the three and
six month periods ended June 29, 2001, which were related to our previously
announced work force reduction. The entire $0.9 million represents actual
severance costs paid during the three months ended June 29, 2001, related to a
reduction in work force of approximately 130 employees. As of June 29, 2001 all
amounts have been paid and there is no accrual relating to the restructuring.
NOTE 16 -- New Accounting Standards:
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 141, "Business Combination" ("FAS 141") and
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). FAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for qualifying business
combinations that were initiated prior to July 1, 2001. FAS 141 further
clarifies the criteria to recognize intangible assets separately from goodwill.
The requirements of FAS 141 are effective for any business combination accounted
for by the purchase method that is completed after June 30, 2001 (i.e., the
acquisition date is July 1, 2001 or thereafter). Under FAS 142, goodwill and
indefinite-lived intangible assets are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. We will adopt both statements
on January 1, 2002 and are currently evaluating the impact of these statements.
We have not yet quantified the impact of these statements on our operations.
During 2002, we will perform the first of the required impairment tests of
goodwill as of January 1, 2002, and we have not yet determined what the effect
of these tests will be on our earnings and financial position. Any impairment
resulting from our initial application of the statements will be recorded as a
cumulative effect of accounting change as of January 1, 2002.
15
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. ("Grid Data"), 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 additional consideration, if earned, will
result in additional goodwill.
On March 6, 2001, the Company sold its Air Transport Systems ("ATS")
business to Honeywell Inc. 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. ("Tripod"), 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 to exclude the effects of such items as follows (in thousands):
16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Three Months Ended Six Months Ended
-------------------------------- -----------------------------------
June 29, June 30, Increase/ June 29, June 30, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
- ---------------------------------------------- ---------- -------- ---------- ---------- --------- -------------
Income (loss) before income taxes $ (974) $13,730 $(14,704) $(12,061) $23,410 $(35,471)
One-time and acquisition-related charges:
Loss on sale of business (Other income and
expense) -- -- -- 1,964 -- 1,964
Amortization of goodwill and other
purchased intangible 7,394 -- 7,394 14,710 -- 14,710
Restructure 910 -- 910 910 -- 910
Gain on sale of minority investment (Other
income and expense) (270) (1,024) 754 (270) (1,024) 754
------ ------- -------- -------- ------- --------
Total one-time and acquisition-related
charges 8,034 (1,024) 9,058 17,314 (1,024) 18,338
------ ------- -------- -------- ------- --------
Adjusted net income (loss) before taxes 7,060 12,706 (5,646) 5,253 22,386 (17,133)
Income tax provision 1,000 1,271 (271) 1,500 2,239 (739)
------ ------- -------- -------- ------- --------
Adjusted net income (loss) $6,060 $11,435 $ (5,375) $ 3,753 $20,147 $(16,394)
====== ======= ======== ======== ======= ========
Total Revenues
- --------------
Total revenue from Trimble's operations for the three month period
ended June 29, 2001 were $133.6 million, as compared with $71.3 million in the
corresponding period in fiscal 2000. Total revenue from Trimble's operations for
the six month period ended June 29, 2001 were $251.5 million, as compared with
$136.4 million in the corresponding period in fiscal 2000. The table below
presents Trimble's revenues by segment:
Three Months Ended Six Months Ended
-------------------------------------- ---------------------------------------
June 29, June 30, Increase/ June 29, June 30, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
- ----------------------------------- ------------ ----------- ----------- ----------- ------------ -----------
(In thousands)
Engineering and Construction $ 86,740 $28,670 203% $160,453 $ 54,727 193%
Agriculture 6,677 4,043 65 14,800 8,840 67
Fleet and Asset Management 15,249 17,218 (11) 27,058 32,195 (16)
Component Technologies 16,615 14,722 13 32,777 28,990 13
Portfolio Technologies 8,306 6,611 26 16,362 11,652 40
-------- ------- -------- --------
Total $133,587 $71,264 87% $251,450 $136,404 84%
======== ======= ======== ========
Engineering and Construction
- ----------------------------
Engineering and Construction revenues increased for the three and six
month period ended June 29, 2001, as compared with the corresponding periods in
fiscal 2000. The increases are due primarily to the following:
o Revenues generated during the three and six month period ended
June 29, 2001 resulting from the purchase of the Spectra Precision
Group in July 2000, accounted for approximately $51.1 million and
$95.1 million for the three and six month periods, respectively.
o Demand for the Company's newly introduced line of integrated Land
Survey products continued to accelerate throughout the second
fiscal quarter of 2001.
o Strong demand continued for our SiteVision machine control
solution for the construction industry.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Agriculture
- -----------
Agriculture revenues increased for the three and six month periods
ended June 29, 2001, as compared with the corresponding periods in fiscal 2000.
The increases are primarily due to the following:
o Revenues generated from the agricultural water management product
line that was acquired with the purchase of the Spectra Precision
Group in July 2000 accounted for approximately for $2.6 million
and $4.5 million for the three and six month periods,
respectively.
o Growth of our GPS machine control products was impacted by the
continued economic slowdown which resulted in conservative buying
behavior in agriculture in the United States.
o Introduction of new products, including the AgGPS(R) Autopilot
system, the AgGPS 170 Field Computer, the AgGPS160 Portable
Computer, the AgGPS 114, and the PSO Plus Parallel Swathing Option
with Data Logging also contributed to revenue.
Fleet and Asset Management
- --------------------------
Fleet and Asset Management revenues decreased for the three and six
month periods ended June 29, 2001, as compared with the corresponding period in
fiscal 2000. The decreases are due to the following:
o Fleet management products continue to be impacted by softness in
demand primarily in Latin America due to an economic slowdown.
Component Technologies
- ----------------------
Component Technologies revenues increased for the three and six
month periods ended June 29, 2001, as compared with corresponding periods in
fiscal 2000. The increases are due to the following:
o Timing products for wireless communication networks demonstrated
particular strength during the second quarter.
o Automotive and embedded product lines were up approximately
12.1% and 12.7% for the three and six month periods
year-over-year, respectively.
Portfolio Technologies
- ----------------------
Portfolio Technologies revenues increased for the three and six month
periods ended June 29, 2001, as compared with corresponding periods in fiscal
2000. The increases are due to the following:
o Military-related revenues decreased by 37% and 16% for the three
and six month periods over prior year levels.
o Revenue from the recent acquisition of Tripod Data Systems, which
closed in mid-November of fiscal 2000 contributed $3.9 million and
$7.1 million to revenue for the three and six month periods ended
June 29, 2001, respectively.
o These increases were partially offset by a 26% reduction in the
commercial aviation line for the three months ended June 29, 2001
as we wind down that operation due to the previously announced
sale of our Air Transport product line to Honeywell. The sale of
the air transport product line to Honeywell was completed in March
2001.
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Revenues outside the U.S.
- -------------------------
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 49% and 54% in the first six months of the Company's revenues in
fiscal 2001 and 2000, respectively. During the six month period ended June 29,
2001, Trimble experienced strong demand in Europe and the United States. From a
regional perspective, on a consolidated basis, North and South America
represented 61% of our revenue, Europe 30%, and Asia nine percent. Trimble
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 month period ending June 29, 2001 as
compared with 59% in the corresponding 2000 period. Gross margin as a percentage
of total product revenues was 49% for the six month period ending June 29, 2001
as compared with 58% in the corresponding 2000 period. The decrease in gross
margin percentage for the three and six month period ended June 29, 2001, as
compared with the corresponding 2000 periods is due, in part, to a three and six
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 two percent. 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.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Operating Expenses
- ------------------
The following table shows operating expenses for the periods indicated
and should be read in conjunction with the narrative descriptions of those
operating expenses below:
Three Months Ended Six Months Ended
--------------------------------------- --------------------------------------
June 29, June 30, Increase/ June 29, June 30, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
- ----------------------------------------- ------------ ------------ ------------- ------------ ------------ ------------
(dollars in thousands)
Research and development $15,736 $ 9,182 71% $ 31,555 $18,059 75%
Sales and marketing 27,530 14,033 96 55,671 26,679 109
General and administrative 9,979 6,647 50 19,371 12,947 50
Restructuring charges 910 -- N/A 910 -- N/A
Amortization of goodwill and other
purchased intangibles 7,394 -- N/A 14,710 -- N/A
------- ------- -------- -------
Total $61,549 $29,862 106% $122,217 $57,685 112%
======= ======= ======== =======
Research and Development
- ------------------------
Research and development expenses increased in the three and six month
periods ended June 29, 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 $5.2 million and $10.7 million of the increases
for the three and six month periods ended June 29, 2001 over the
prior year expense levels, respectively.
o Trimble's receipt of approximately $0.3 million and $1.0 million
less from cost reimbursement funds for military research and
development programs for the three and six month periods ended
June 29, 2001 as compared to the same periods in fiscal year 2000,
respectively.
o Expenses related to Tripod Data Systems, which was acquired in
mid-November of fiscal 2000, represented $0.8 million and $1.6
million, respectively, of the increases for the three and six
month periods ended June 29, 2001 over the similar periods 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 and six month
periods ended June 29, 2001, as compared with the corresponding periods 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 $13.1 million and $27.3 million of
the increase over prior year expense levels, respectively.
o Expenses related to Tripod Data Systems, which was acquired in
mid-November of fiscal 2000, represented $0.5 million and $1.0
million of the increase over the similar periods in the prior
year, respectively.
* 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
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
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 market 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 and six
month periods ended June 29, 2001, as compared with the corresponding periods in
fiscal 2000. The primary reasons for the increases are as follows:
o The purchase of Spectra Precision Group in July 2000 accounted
for approximately $2.5 million and $4.8 million of the
increases over the same periods in the prior year, respectively.
o Increases in depreciation expenses related to equipment purchases
represented approximately $0.5 million and $1.1 million of
the increases over the similar period in the prior year,
respectively.
o Expenses related to Tripod Data Systems, which was acquired in
mid-November of fiscal 2000, represented $0.2 million and $0.5
million of the increases over the similar period in the prior
year, respectively.
Restructuring charges
- ---------------------
Restructuring charges of $0.9 million were recorded for the three and
six month periods ended June 29, 2001, which were related to our previously
announced work force reduction. See Note 15 of Condensed Consolidated Financial
Statements for discussion regarding the restructuring.
Amortization of Goodwill and Other Intangibles
- ----------------------------------------------
Amortization expense of goodwill and other intangibles increased for
the three and six month periods ended June 29, 2001 by approximately $7.4
million and $14.7 million, respectively, all of which is related primarily to
the purchase of Spectra Precision Group.
Nonoperating income (expense), net
- ----------------------------------
Nonoperating income (expense), net, increased for the three and six
month periods ended June 29, 2001 as compared with the corresponding periods in
fiscal 2000. The primary reasons for the increases are as follows:
o Increased interest expenses related to new loans and credit
facilities accounted for approximately $4.5 million and $9.6
million, respectively, of the increase over the similar periods in
the prior year.
o Decreased interest income resulting from the sale and maturities
of short-term investments accounted for approximately $1.4 million
and $2.6 million, respectively of the change over the similar
periods in the prior year.
o Loss on the sale of ATS and the anticipated closure of the Austin,
Texas facility totaled approximately $2.0 million for the
six month period ended June 29, 2001.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
Income Taxes
- ------------
The Company recorded provisions for income taxes of $1.0 million for
the three months ended June 29, 2001 and $1.5 million for the six months ended
June 29, 2001. These amounts reflect foreign taxes on profits in foreign
jurisdictions, withholding taxes and the inability to realize the benefit of net
operating losses generated in the United States. The provisions for income taxes
for the comparable periods in 2000 were approximately $1.4 million and $2.3
million, respectively, and represented an effective tax rate of 10%. The 2000
income tax rate was less than the federal statutory rate of 35%, due primarily
to the realization of the benefits from prior net operating losses and
previously reserved deferred tax assets.
Inflation
- ---------
The effects of inflation on the Company's financial results have not
been significant to date.
Liquidity and Capital Resources
- -------------------------------
At June 29, 2001, Trimble had cash and cash equivalents of $27.8
million. Trimble's cash and cash equivalents decreased from the prior year
primarily due to the purchase of the Spectra Precision Group in July 2000.
Trimble's long-term debt consisted of $159.0 million outstanding under senior
secured credit facilities, and an $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 facilities, will be
sufficient to meet its anticipated operating cash needs at least through the end
of the current fiscal year.
* For the six month period ended June 29, 2001, cash used in operating
activities was $3.8 million, as compared to cash provided of $11.7 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 six month period ended June 29, 2001. 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.
Cash flows used in investing activities were $10.2 million in the six
month period ended June 29, 2001 as compared to cash provided by investing
activities that totaled $25.4 million in the same period in the prior year. Cash
used in investing activities increased due to payments for the purchase of
Spectra Precision which totaled $4.7 million, combined with payments for the
acquisition of property and equipment which totaled $4.5 million.
Proceeds from the issuance of common stock to employees pursuant to
Trimble's stock option plan and employee stock purchase plan provided $4.2
million for the six month period ended June 29, 2001 that were partially offset
by payments of long-term debt and revolving credit lines which used $7.0 million
on a net basis. 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, as well as the exercise of
warrants issued to John Hancock Life Insurance Company of $4.4 million.
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 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 three-year U.S. dollar only revolver; a $50 million three-year
multi-currency revolver; and a $100 million five-year term loan. Pricing for any
borrowings under the New Credit Facilities is fixed for the first six 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
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
subordinated note) over EBITDA). Trimble has used approximately $159
million available under the New Credit Facilities, comprising of the $92 million
five-year term loan, $50 million three-year U.S. dollar only revolver, and $17
million three-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. During the quarter, the Company negotiated changes to relax certain of
these financial covenants to maintain compliance through the end of the term of
the New Credit Facilities. The two $50 million revolvers are paid as the loans
mature and the loan commitment fees are paid on a quarterly basis. The five-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 an $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
is due in fiscal 2001 and $40 million is 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 automatic deferral
provision was exercised for the $40 million payment due in fiscal 2001. 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.
Recent Accounting Pronouncements
- --------------------------------
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 141, "Business Combination" ("FAS 141") and
Statement of Financial Accounting Standard No. 142, "Goodwill and Other
Intangible Assets" ("FAS 142"). FAS 141 eliminates the pooling-of-interests
method of accounting for business combinations except for qualifying business
combinations that were initiated prior to July 1, 2001. FAS 141 further
clarifies the criteria to recognize intangible assets separately from goodwill.
The requirements of FAS 141 are effective for any business combination accounted
for by the purchase method that is completed after June 30, 2001 (i.e., the
acquisition date is July 1, 2001 or thereafter). Under FAS 142, goodwill and
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
indefinite-lived intangible assets are no longer amortized but are reviewed
annually (or more frequently if impairment indicators arise) for impairment.
Separable intangible assets that are not deemed to have an indefinite life will
continue to be amortized over their useful lives. We will adopt both statements
on January 1, 2002 and are currently evaluating the impact of these statements.
We have not yet quantified the impact of these statements on our operations.
During 2002, we will perform the first of the required impairment tests of
goodwill as of January 1, 2002, and we have not yet determined what the effect
of these tests will be on our earnings and financial position. Any impairment
resulting from our initial application of the statements will be recorded as a
cumulative effect of accounting change as of January 1, 2002.
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. The acquisition of the
Spectra Precision Group 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
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
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.
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 over time,
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
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
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.
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.
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
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
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
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
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.
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.
28
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
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.
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 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.
29
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The following is a discussion of Trimble's exposure to market risk as
of June 29, 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 June 29, 2001,
-------------------------------------------
Trimble had $105,000 in a marketable investment.
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
three-year US dollar-only revolver, a three-year Multi-Currency revolver, and a
five-year term loan. The entire credit facility has interest payments based on a
floating rate of LIBOR plus 275 basis points for the first six 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 June 29, 2001 of $50.0 million and $17.0
million, respectively. As of June 29, 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 $92.0 million at June 29, 2001.
The three-month LIBOR effective rate at June 29, 2001 was 3.71%. A ten percent
increase in three-month LIBOR rates could result in approximately $589,890
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 $3.2 million of Euro-denominated debt. At June 29,
2001 $3.2 million was current. The interest rate on the current portion of this
instrument is fixed at six percent. A hypothetical ten percent 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
$28,000 was current at June 29, 2001. The note is payable in monthly
installments, bearing a 7.14% variable interest rate. A hypothetical ten percent
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.
30
The following table provides information about Trimble's foreign
exchange forward contracts outstanding as of June 29, 2001:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
----------------------------------------------------------------------------------------------------
YEN Buy 21,200 $ 172 $ 171
YEN Sell 115,800 $ 962 $ 935
NZD Buy 3,218 $1,346 $1,313
EURO Sell 5,480 $4,697 $4,650
Sterling Buy 1,446 $2,030 $2,048
Sterling Sell 120 $ 169 $ 169
31
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. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders ("Annual Meeting") was
held at the Westin Hotel in Santa Clara, located at 5101 Great America Parkway,
Santa Clara, California 95054, on Thursday, May 10, 2001, at 1:00 p.m. local
time.
At the Annual Meeting, an election of directors was held with the
following individuals being elected to the Company's Board of Directors.
VOTE
--------------------------------------------------------
FOR WITHHELD
--------------------------- ----------------------------
Steven W. Berglund 19,979,799 2,166,167
Robert S. Cooper 21,068,112 1,077,854
John B. Goodrich 21,044,720 1,101,246
William Hart 21,377,525 768,441
Ulf J. Johansson 21,124,754 1,021,212
Bradford W. Parkinson 21,024,937 1,121,029
Other matters voted upon at the Annual Meeting and the results of the
voting with respect to each such matter were as follows:
1. To approve an increase of 450,000 shares in the number of shares
of common stock reserved for issuance under the Company's 1993
Stock Option Plan from 5,925,000 shares to an aggregate of
6,375,000 shares.
BROKER
FOR AGAINST ABSTAINED NON-VOTE
-------------------------- ----------------------- ----------------------- --------------------------
13,630,365 8,446,548 69,053 --
2. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the current fiscal year ending
December 28, 2001.
FOR AGAINST ABSTAINED
-------------------------- ----------------------- -----------------------
21,477,336 622,767 45,863
32
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 June 29, 2001.
33
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: August 10, 2001
34