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 september 28, 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 November 2, 2001, there were 24,955,000 shares of Common Stock
(no par value) outstanding.
TRIMBLE NAVIGATION LIMITED
FORM 10-Q
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--
September 28, 2001 and December 29, 2000.................... 3
Condensed Consolidated Statements of Operations--
Three and Nine Months Ended September 28, 2001
and September 29, 2000..................................... 4
Consolidated Statements of Cash Flows--
Nine Months Ended September 28, 2001 and September 29, 2000. 5
Notes to Condensed Consolidated Financial Statements............ 7
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 17
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk...... 33
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings............................................... 35
ITEM 6. Exhibits and Reports on Form 8-K................................ 35
Signatures............................................................. 36
2
PART I - FINANCIAL INFORMATION
ITEM I. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 28, December 29,
2001 2000 (1)
------------------------------------------------------------------------------- ---------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 42,403 $ 40,876
Accounts receivable, net 81,783 83,600
Inventories 58,847 60,846
Other current assets 7,404 8,017
----------- -----------
Total current assets 190,437 193,339
Net property and equipment 30,689 34,059
Intangibles assets 229,334 249,832
Deferred tax assets 493 531
Other assets 10,902 12,743
---------- ----------
Total assets $461,855 $490,504
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank and other short-term borrowings $77,062 $ 62,000
Current portion of long-term debt 101,533 51,721
Accounts payable 23,043 26,448
Accrued compensation and benefits 19,080 16,771
Accrued liabilities 28,610 32,493
Accrued warranty expense 8,781 7,749
Income taxes payable 5,435 5,005
Deferred gain on sale of assets 1,459 1,591
---------- -----------
Total current liabilities 265,003 203,778
---------- -----------
Noncurrent portion of long-term debt and other liabilities 65,900 137,341
Deferred tax liabilities 7,257 8,230
Other noncurrent liabilities 5,436 6,212
----------- -----------
Total liabilities 343,596 355,561
----------- -----------
Shareholders' equity:
Common stock 163,901 153,853
Common stock warrants 293 993
Accumulated deficit (27,187) (10,940)
Accumulated other comprehensive loss (18,748) (8,963)
---------- -----------
Total shareholders' equity 118,259 134,943
---------- -----------
Total liabilities and shareholders' equity $461,855 $490,504
========== ===========
(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.
See accompanying notes to Condensed Consolidated Financial Statements.
3
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
--------------------------------- ---------------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
------------------------------------------------- ---------------- ---------------- ---------------- ----------------
(In thousands, except per share data)
Total revenue $ 117,437 $ 109,227 $ 368,887 $ 245,631
---------- ------------ ----------- -----------
Operating expenses:
Cost of sales 57,122 53,295 185,541 110,769
Research and development 15,726 13,840 47,281 31,899
Sales and marketing 25,345 25,079 81,016 51,758
General and administrative 9,727 9,585 29,098 22,532
Restructuring charges 363 -- 1,273 --
Amortization of goodwill and other purchased
intangibles 7,378 5,922 22,088 5,922
------------- --------------- ------------- ---------------
Total operating expenses 115,661 107,721 366,297 222,880
------------- --------------- ------------- ---------------
Operating income 1,776 1,506 2,590 22,751
------------- --------------- -------------- ---------------
Nonoperating income (expense):
Interest income 210 863 946 4,069
Interest and other expenses (5,285) (6,883) (18,632) (7,990)
Foreign exchange gain (loss), net 813 (228) 549 (162)
-------------- --------------- -------------- ---------------
(4,262) (6,248) (17,137) (4,083)
------------- --------------- -------------- ---------------
Income (loss) before income taxes (2,486) (4,742) (14,547) 18,668
Income tax provision (benefit) 200 (474) 1,700 1,867
-------------- --------------- ------------- --------------
Net income (loss) $ (2,686) $ (4,268) $ (16,247) $ 16,801
============= ============== ============= ==============
Basic net income (loss) per share $ (0.11) $ (0.18) $ (0.66) $ 0.72
============= ============== ============= ==============
Diluted net income (loss) per share $ (0.11) $ (0.18) $ (0.66) $ 0.65
============= ============== ============= ==============
See accompanying notes to Condensed Consolidated Financial Statements.
4
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-------------------------------------------
September 28, September 29,
2001 2000
------------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Cash flow from operating activities:
Net income (loss) $ (16,247) $ 16,801
------------- -----------
Adjustment to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization 8,945 9,648
Amortization of goodwill & other purchased intangibles 22,088 5,922
Provision for bad debt 2,949 701
Amortization of deferred gain (1,193) (1,465)
Other 21 (687)
Add decrease (increase) in assets:
Accounts receivables,net (1,133) (7,000)
Inventories 2,281 (8,423)
Deferred income taxes 38 75
Other current and noncurrent assets 2,228 (3,378)
Effect of foreign currency translation adjustment (2,945) (1,417)
Add increase (decrease) in liabilities:
Accounts payable (3,405) 4,079
Accrued compensation 1,550 (621)
Deferred tax liability (860) --
Other accrued liabilities (3,185) 4,669
Income taxes payable 430 (3,209)
--------------- ---------------
Net cash provided by operating activities 11,562 15,695
--------------- ---------------
Cash flows from investing activities:
Purchase of short-term investments -- (6,386)
Maturities of short-term investments -- 31,648
Sales of short-term investments -- 18,350
Sale of equity investments/loans -- 475
Payments for purchase of businesses (4,886) (298,064)
Acquisition of property and equipment (6,366) (5,037)
Capitalized patents, software and intangibles (1,166) (574)
--------------- --------------
Net cash used in investing activities (12,418) (259,588)
--------------- --------------
Cash flow from financing activities:
Issuance of common stock 9,348 9,996
Collections of notes receivable 404 960
Proceeds from long-term debt and revolving credit lines 34,062 242,000
Payments on long-term debt and revolving credit lines (40,832) (34,475)
-------------- -------------
Net cash provided by financing activities 2,982 218,481
-------------- -------------
Effect of exchange rate changes on cash (599) --
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 1,527 (25,412)
Cash and cash equivalents-- beginning of period 40,876 54,892
-------------- -------------
Cash and cash equivalents-- end of period $ 42,403 $ 29,480
============== =============
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $ 14,916 $ 1,126
============ ===========
Income taxes, net of refunds $ 1,426 $ 1,176
============ ===========
See accompanying notes to Condensed Consolidated Financial Statements.
5
TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 nine
month periods ended September 28, 2001, and September 29, 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 nine month
periods ended September 29, 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 and nine months ended September 28,
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 then available cash on hand. The Company
acquired approximately $133 million of identifiable intangible assets as part of
the acquisition, which the
6
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 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 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. If the first milestone is achieved by April 2,
2002, 141,928 shares of Trimble common stock will be paid out. If the first
milestone is achieved and a second milestone is completed by October 2, 2003, an
additional 141,928 shares of Trimble common stock will be paid out. However, if
at the time the second milestone is achieved Trimble's common stock is at a
price less than an undisclosed price per share, then Trimble, at its option, may
pay $3.25 million in cash or $3.25 million worth of Trimble common stock, valued
on the date that the second milestone is achieved. 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 and relocate certain
employees. These costs were accrued for as part of the allocation of the
purchase price. The facility consolidation and employee relocations will result
from primarily combining certain office facilities and duplicative functions,
including management functions, of the Spectra Precision Group. The Company has
not yet finalized the process of consolidating facilities and to relocate
employees, nor has it finalized a determination of the total costs to be
incurred upon the termination of certain office facility leases or its ability
to sublease vacated office space. Accordingly, unresolved issues could result in
an increase or decrease in the liabilities for facility consolidation, the
discontinuance of overlapping product lines, employee relocation, and related
tax and legal expenses.
The elements of the reserve at September 28, 2001 on the balance sheet
(included in accrued liabilities) are as follows (in thousands):
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 September 28, 2001
----------- -------------- -------------- ------------------------
Inventory obsolescence $2,685 $(809) $(1,449) $427
Legal and tax expense 1,175 -- (639) 536
Facility closures and severance 4,750 -- (2,073) 2,677
Other 390 -- -- 390
---------- ------ --------- ------------
Total $9,000 $(809) $(4,161) $4,030
========== ====== ========= ============
NOTE 3 -- Pro Forma Information:
On July 14, 2000, November 14, 2000, and April 2, 2001 Trimble acquired the
Spectra Precision Group, Tripod Data Systems, and Grid Data, respectively. The
acquisitions have been accounted for under the purchase method of accounting and
accordingly, the operating results have been included in the Company's
consolidated results of operations from the dates of acquisition. The following
pro forma information for the three and nine months ended September 29, 2000
presents net sales, income (loss) before extraordinary items, and net loss for
the
7
period as if the transaction with the Spectra Precision Group was
consummated on January 1, 2000. The pro forma information does not include the
results of Tripod Data Systems or Grid Data, as their operating results are not
material. This unaudited pro forma data does not purport to represent the
Company's actual results of operations had the Spectra Precision Group
acquisition occurred on January 1, 2000 and should not serve as a forecast of
the Company's operating results for any future periods.
The pro forma results of operations are for comparative purposes only and
reflect increased amortization and interest expense resulting from the
acquisitions described above, but do not include any potential cost savings from
combining the acquired businesses with the Company's operations. Consequently,
the pro forma results do not reflect the actual results of operations had the
acquisitions occurred on the dates indicated, and are not intended to be a
projection of future results or trends.
(in thousands, except per share amounts)
Proforma
------------------------------------------------
Three Months Ended Nine Months Ended
September 29, September 29,
2000 2000
------------------------------------------------
Net revenue $114,266 $367,269
Net Income (loss)
(7,661) 151
Basic net income (loss) per share $ (0.33) $0.01
Diluted net income (loss) per share $ (0.33) $0.01
NOTE 4 -- Derivative Financial Instruments:
On December 30, 2000, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 133, Accounting For Derivative Instruments and Hedging
Activities ("FAS 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
September 28, 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 also 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 September 28, 2001, the change in fair value of this
derivative amounted to $42,000 and is recorded as an addition to other
liabilities and a reduction to other comprehensive income in the amount of
$42,000 and $273,000 for the three and nine month periods ended September 28,
2001. The fair value of this derivative as a liability amounted to $273,000 at
September 28, 2001.
8
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 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 at September 28, 2001 and December 29,
2000 were not material.
NOTE 6 -- Inventories:
Inventories consist of the following:
September 28, December 29,
2001 2000
- ------------------------------------------------------ ---------------------
(In thousands)
Raw materials $29,751 $ 27,878
Work-in-process 8,014 6,940
Finished goods 21,082 26,028
-------- ---------
$58,847 $ 60,846
========= =========
NOTE 7 -- Discontinued Operations:
As of September 28, 2001, Trimble has a remaining provision of $106,000
associated with the disposal of the General Aviation division, which includes
$27,000 for the estimated remaining operating losses for service and warranty
support and remaining severance costs, and $79,000 for certain other contractual
costs. The $106,000 liability is included in accrued liabilities in the
Condensed Consolidated Balance Sheet at September 28, 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
discontinued its manufacturing operations in Austin, Texas in August 2001. 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 nine months ended September 28, 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 based navigation.
9
NOTE 9 -- Long-Term Debt:
Long-term debt consists of the following:
September 28, December 29,
2001 2000
- -------------------------------------------------------------------------------
(In thousands)
New Credit Facilities $ 155,107 $ 162,000
Subordinated note 84,000 80,000
Promissory note and Long-term commitment 5,363 9,037
Other 25 25
---------------- ------------------
244,495 251,062
Less current portion 178,595 113,721
---------------- ------------------
Noncurrent portion $ 65,900 $ 137,341
================ ==================
Trimble's long-term debt primarily consists of $155 million outstanding
under the available credit facilities and an $84 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 the subordinated note. There were
no contingent liabilities outstanding at September 28, 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 currently 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 our
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.
10
o Component Technologies -- Currently, the Company markets its component
products through an extensive network of OEM relationships. These products
include proprietary chipsets, modules and a variety of intellectual
property. The applications into which end-users currently incorporate our
component products include: timing applications for synchronizing wireless
and computer systems; in-vehicle navigation and telematics (tracking)
systems; fleet management; security systems; data collection systems; and
wireless handheld consumer products.
o Portfolio Technologies -- Consists of various markets that use accurate
position, velocity, and timing information. The products in this segment
are used in airborne navigation, flight management, commercial marine
navigation, and military applications. Also, included in this segment are
the operations of the Company's Tripod Data Systems subsidiary. The various
operations that comprise this segment were aggregated on the basis that no
single operation accounted for more than 10% of the total revenue of the
Company.
Trimble evaluates each of these segment's performance and allocates
resources based on profit and loss from operations before income taxes.
The accounting policies applied by each of the segments are the same as
those used by Trimble in general.
The following table presents revenues, operating income (loss), and
identifiable assets for Trimble's five segments. The information includes the
operations of the Spectra Precision Group after July 14, 2000, Tripod Data
Systems after November 14, 2000 and Grid Data after April 2, 2001. 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
September 28, 2001
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Engineering & Agriculture Fleet and Component Portfolio Total
Construction Asset Technologies Technologies
Management
-------------------------------------------------------------------------------------------
External net revenue $ 73,011 $ 5,549 $ 16,880 $ 12,602 $ 9,395 $ 117,437
Inter-segment net revenue 1,210 - - - (1,210) -
Operating profit (loss)
before
corporate allocations 13,256 (305) 2,706 2,160 377 18,194
Corporate allocations (1) - - - - - -
Operating profit (loss) ----------- ---------- ------------ ---------- --------- ------------
$ 13,256 $ (305) $ 2,706 $ 2,160 377 $ 18,194
----------- ---------- ------------ ---------- --------- ------------
-------------------------------------------------------------------------------------------
Nine Months Ended
September 28, 2001
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Engineering & Agriculture Fleet and Component Portfolio Total
Construction Asset Technologies Technologies
Management
-------------------------------------------------------------------------------------------
External net revenue $ 233,464 $ 20,349 $ 43,938 $ 45,379 $25,757 $ 368,887
Inter-segment net revenue 1,404 - - - (1,404) -
Operating profit (loss)
before corporate
allocations 41,048 299 3,780 7,404 (856) 51,675
Corporate allocations (1) - - - - - -
----------- ---------- ----------- ------------ ---------- ------------
Operating profit (loss) $ 41,048 $ 299 $ 3,780 $ 7,404 $ (856) $ 51,675
----------- ---------- ------------ ------------ ---------- ------------
11
-------------------------------------------------------------------------------------------
September 28, 2001
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Fleet and
Engineering & Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
-------------- ------------ ------------- ---------------- ---------------- ---------------
Assets:
Accounts receivable(2) $ 63,086 $ 3,540 $ 12,801 $ 7,051 $ 6,948 $ 93,426
Inventory 40,430 2,761 4,221 6,061 5,342 58,815
-------------------------------------------------------------------------------------------
Three Months Ended
September 29, 2000
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Fleet and
Engineering & Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
--------------- ------------- -------------- -------------- ---------------- --------------
External net revenues $ 67,654 $ 9,306 $ 15,996 $ 12,824 $ 3,447 $ 109,227
Operating profit (loss)
before corporate
allocations 12,484 1,320 3,342 2,741 (1,481) 18,406
Corporate allocation (1) (3,780) (681) (2,058) (1,197) (672) (8,388)
----------- ---------- ----------- ---------- ------------- -------------
Operating profit (loss) $ 8,704 $ 639 $ 1,284 $ 1,544 $ (2,153) $ 10,018
----------- ---------- ----------- ---------- ------------- -------------
-------------------------------------------------------------------------------------------
Nine Months Ended
September 29, 2000
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Fleet and
Engineering & Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
--------------- ----------- --------------- -------------- ----------------- --------------
External net revenues $ 122,381 $18,146 $ 48,191 $ 41,814 $ 15,099 $ 245,631
Operating profit (loss)
before corporate
allocations 31,364 3,626 10,795 11,044 (1,605) 55,224
Corporate allocation (1) (11,340) (2,043) (6,174) (3,591) (2,015) (25,163)
-------------- ---------- ---------- ------------ ------------- ------------
Operating profit (loss) $ 20,024 $1,583 $ 4,621 $ 7,453 $ (3,620) $ 30,061
-------------- ---------- ---------- ------------ ------------ ------------
-------------------------------------------------------------------------------------------
December 29, 2000
-------------------------------------------------------------------------------------------
(in thousands)
-------------------------------------------------------------------------------------------
Fleet and
Engineering & Asset Component Portfolio
Construction Agriculture Management Technologies Technologies Total
--------------- ------------ --------------- -------------- ---------------- --------------
Assets:
Accounts receivable (2) $ 58,693 $ 4,649 $ 12,164 $ 11,892 $ 8,522 $ 95,920
Inventory 39,146 1,774 5,775 2,360 8,074 57,129
- ----------------------------
(1) For the fiscal quarter and nine months ended September 28, 2001, the
Company did not allocate corporate expenses and for the fiscal quarter and
nine months ended September 29, 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 and
reserves, which are not allocated between divisions.
The following are reconciliations corresponding to totals in the
accompanying consolidated financial statements:
12
Three Months Ended Nine Months Ended
-------------------------------- --------------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
- ------------------------------------------------- --------------- ---------------- --------------- ----------------
(in thousands)
Operating profit (loss):
Total for reportable divisions $18,194 $10,018 $51,675 $30,061
Unallocated corporate expenses (16,418) (8,512) (49,085) (7,310)
----------- ---------- ----------- ------------
Operating profit $1,776 $1,506 $2,590 $22,751
=========== ========== =========== ============
September 28, December 29,
2001 2000
- --------------------------------------------------------------------------------
(in thousands)
Assets:
Accounts receivable total for reportable divisions $93,426 $95,920
Unallocated (1) (11,643) (12,320)
--------- ----------
Total $81,783 $83,600
======== ==========
Inventory total for reportable divisions $58,815 $57,129
Common inventory (2) 32 3,717
-------- ---------
Net inventory $58,847 $60,846
======== =========
- ----------------------------
(1) Includes cash in advance and reserves that are not allocated by segment.
(2) Consists of inventory that is common between the segments. Parts can be
used by more than one segment.
NOTE 11 -- Equity:
Comprehensive Income (Loss)
The components of other comprehensive income (loss), net of related
tax, include:
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
- --------------------------------------------- ---------------- ----------------- ---------------- -----------------
(In thousands)
Cumulative foreign currency translation $2,388 $ (1,362) $(9,540) $ (2,102)
adjustments
Net loss on interest rate swap (42) -- (273) --
Net unrealized gain (loss) on investments (77) 36 28 122
------------ ------------- ---------- ----------
Other comprehensive income (loss) $2,269 $ (1,326) $(9,785) $ (1,980)
============ ============= ========== ==========
13
The components of accumulated other comprehensive income (loss), net of
related tax include:
September 28, December 29,
2001 2000
- --------------------------------------------------------------------------------
(In thousands)
Cumulative foreign currency translation adjustments $(18,503) $(8,963)
Net loss on interest rate swap (273) --
Net unrealized gain on investments 28 --
----------- ---------
Accumulated other comprehensive loss $(18,748) $(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 Nine Months Ended
-------------------------------------------------------------
September 28, September 29, September 28, September 29,
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 $(2,686) $(4,268) $(16,247) $ 16,801
======= ========= ======== =========
Denominator:
Weighted-average number of common shares used in
calculating basic income (loss) per share 24,889 23,411 24,707 23,284
Effect of dilutive securities:
Common stock options -- -- -- 2,249
Common stock warrants -- -- -- 289
---------- ------------ ------------ ----------
Weighted-average number of common shares and
dilutive potential common shares used in
calculating diluted income (loss) per share 24,889 23,411 24,707 25,822
============== ============ ============ ============
Basic income (loss) per share $ (0.11) $ (0.18) $ (0.66) $ 0.72
============== ============ ============ =============
Diluted income (loss) per share $ (0.11) $ (0.18) $ (0.66) $ 0.65
============= ============ ============ =============
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
Operations include expenses from this operating lease of $86,351 and
$259,054 for the three and nine month periods ended September 28, 2001.
NOTE 14 -- Contingencies:
In January 2001, Philip M. Clegg instituted a lawsuit 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 August 2001, Lockheed Martin Corporation served a Complaint alleging
patent infringement of U.S. Patent No. 4,949,089 on the Company, Spectra
Precision, Inc., Leica Geosystems, Inc., Sokkia Corporation and Carl Zeiss, Inc.
The lawsuit was filed in the United States District Court for the Eastern
District of Texas, Marshall Division. Lockheed seeks treble damages, an
injunction and attorney fees. Management believes the case to be without merit
and intends to defend the lawsuit vigorously.
On November 2, 2001 Qualcomm Incorporated filed a lawsuit against the
Company in Superior Court of the State of California. The complaint alleges
claims for an unspecified amount of money damages arising out of Qualcomm's
perceived lack of assurances in early 1999 that the Company's products purchased
by Qualcomm would work properly after a scheduled week number rollover event
that took place in August, 1999. The Company has not had an opportunity to
assess the merits of the lawsuit.
In the opinion of management, resolution of the foregoing litigation is not
expected to have a material adverse effect on the overall financial position of
the Company. However, depending on the amount and timing, an unfavorable
resolution of one of these matters 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 $0.4 million and $1.3 million were recorded for
the three and nine month periods ended September 28, 2001, which were related to
work force reduction of approximately 160 employees and represent actual
severance costs paid. As of September 28, 2001 all except for approximately
$125,000 have been paid.
NOTE 16 -- New Accounting Standards:
During August 2001, the Financial Accounting Standards Board issued FAS No.
144, "Accounting for the Impairment or Disposal of Long-lived Assets". FAS No.
144 supercedes FAS No. 121, "Accounting for the Impairment of Long-lived Assets
and Assets to be Disposed of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- -Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS
No. 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. The provisions of FAS No. 144 will be
effective for fiscal years beginning after December 15, 2001. The Company has
not yet determined the effect FAS No. 144 will have on the consolidated
financial position or results of operations.
15
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 fiscal 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.
16
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
* On September 10, 2001 Trimble and Caterpillar Inc. announced their
intention to form a new joint venture to develop and manufacture advanced
electronic guidance and control products for earthmoving machines in the
construction, mining and waste industries. The joint venture should begin
operations in early 2002. It is intended that the joint venture will develop
machine control products that use site design information combined with accurate
positioning technology to automatically control dozer blades and other machine
tools. This leading edge machine control technology will combine historical
Trimble positioning technology with capability gained through its acquisition of
Spectra Precision.
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. If the first milestone is achieved by April 2,
2002, 141,928 shares of Trimble common stock will be paid out. If the first
milestone is achieved and a second milestone is completed by October 2, 2003, an
additional 141,928 shares of Trimble common stock will be paid out. However, if
at the time the second milestone is achieved Trimble's common stock is at a
price less than an undisclosed price per share, then Trimble, at its option, may
pay $3.25 million in cash or $3.25 million worth of Trimble common stock, valued
on the date that the second milestone is achieved. 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 was 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.)
17
RESULTS OF OPERATIONS
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):
Three Months Ended Nine Months Ended
--------------------------------------------------------------------------------------
September 28, September 29, Increase/ September 28, September 29, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ (2,486) $(4,742) $2,256 $(14,547) $18,668 $(33,215)
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 7,378 5,922 1,456 22,088 5,922 16,166
Restructure 363 -- 363 1,273 -- 1,273
Gain on sale of minority
investment (Other income and
expense) -- -- -- (270) (1,024) 754
Inventory purchase accounting
adjustment (Cost of Sales) -- 2,908 (2,908) -- 2,908 (2,908)
Debt extinguishment costs
(Interest income & expense) -- 1,185 (1,185) -- 1,185 (1,185)
Boulder relocation costs
(General & administrative) -- 800 (800) -- 800 (800)
-------------- --------------- ----------- ------------- ------------ -----------
Total one-time and
acquisition-related charges 7,741 10,815 (3,074) 25,055 9,791 15,264
-------------- --------------- ----------- ------------- ------------ -----------
Adjusted net income (loss) before taxes 5,255 6,073 (818) 10,508 28,459 (17,951)
Income tax provision (benefit) 475 607 (132) 1,425 2,846 (1,421)
-------------- --------------- ----------- ------------- ------------ ------------
Adjusted net income (loss) $4,780 $5,466 $(686) $ 9,083 $25,613 $(16,530)
============== =============== =========== ============= ============ ============
18
Total Revenues
Total revenue from Trimble's operations for the three month period ended
September 28, 2001 were $117.4 million, as compared with $109.2 million in the
corresponding period in fiscal 2000. Total revenue from Trimble's operations for
the nine month period ended September 28, 2001 were $368.9 million, as compared
with $245.6 million in the corresponding period in fiscal 2000. The table below
presents Trimble's revenues by segment:
Three Months Ended Nine Months Ended
-------------------------------------------------------------------------------------
September 28, September 29, Increase/ September 28, September 29, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
- ----------------------------------------------------------------------------------------------------------------------
(In thousands)
Engineering and Construction $ 73,011 $67,654 8% $233,464 $ 122,831 90%
Agriculture 5,549 9,306 (40) 20,349 18,146 12
Fleet and Asset Management 16,880 15,996 6 43,938 48,191 (9)
Component Technologies 12,602 12,824 (2) 45,379 41,814 9
Portfolio Technologies 9,395 3,447 173 25,757 15,099 71
----------- --------- ------------ ---------- ----------
Total $117,437 $109,227 8% $368,887 $245,631 50%
=========== ========= ========== ==========
Engineering and Construction
Engineering and Construction revenues increased for the three and nine
month periods ended September 28, 2001, as compared with the corresponding
periods in fiscal 2000. The increases are due primarily to the following:
o Demand for the Company's newly introduced line of integrated Land Survey
products continued to be strong throughout the third fiscal quarter of
2001.
o Strong demand continued for our SiteVision machine control solution for the
construction industry.
o Revenues generated during the nine month period ended September 28, 2001
resulting from the purchase of the Spectra Precision Group in July 2000,
accounted for approximately $93.9 million for the nine month period.
o These increases were partially offset by declines in our construction
instrument product line that were impacted by the continued economic
slowdown which resulted in conservative buying behavior in certain customer
sectors.
Agriculture
Agriculture revenues decreased for the three month period ended September
28, 2001, as compared with the corresponding period in fiscal 2000. The decrease
is primarily due to the following:
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.
Agriculture revenues increased for the nine month period ended September
28, 2001, as compared with the corresponding period in fiscal 2000. The increase
on a year to date basis is primarily due to the following:
19
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 $3.9 million for the nine month period.
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.
Fleet and Asset Management
Fleet and Asset Management revenues increased for the three month period
ended September 28, 2001, as compared with the corresponding period in fiscal
2000. The increase is due to the following:
o The Company had strong demand for its GIS products and also strength of the
third fiscal quarter was fueled by strong, end of the year government
spending.
Fleet and Asset Management revenues decreased for the nine month period
ended September 28, 2001, as compared with the corresponding period in fiscal
2000. The decrease is 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 on a year to date
basis.
Component Technologies
Component Technologies revenues decreased for the three month period ended
September 28, 2001, as compared with corresponding period in fiscal 2000. The
decrease is due to the following:
o Embedded product lines were down approximately 34% for the three month
period due to economic softness in general.
Component Technologies revenues increased for the nine month period ended
September 28, 2001, as compared with corresponding period in fiscal 2000. The
increases are due to the following:
o Timing products for wireless communication networks continued to
demonstrate strength during the third quarter and were up 18% year to date
over the previous year.
Portfolio Technologies
Portfolio Technologies revenues increased for the three and nine month
periods ended September 28, 2001, as compared with corresponding periods in
fiscal 2000. The increases are due to the following:
o Revenue from the acquisition of Tripod Data Systems, which closed in
mid-November of fiscal 2000, contributed $5.5 million and $12.6 million to
revenue for the three and nine month periods ended September 28, 2001,
respectively.
o Military-related revenues increased by 68% for the three month period end
September 28, 2001, as compared with same period in prior year.
o These increases were partially offset by a 32% reduction in our commercial
aviation line for the nine month period ended September 28, 2001 as these
operations are being wound down as part of the
20
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.
Revenues outside the U.S.
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 48% and 51% in the first nine months of the Company's revenues in
fiscal 2001 and 2000, respectively. During the nine month period ended September
28, 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 29%, and Asia 10%. 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 51% for the three month period ending September 28, 2001 as
well as for the corresponding 2000 period. Gross margin as a percentage of total
product revenues was 50% for the nine month period ending September 28, 2001 as
compared with 55% in the corresponding 2000 period. The decrease in gross margin
percentage for the nine month period ended September 28, 2001, as compared with
the corresponding 2000 period is due, in part, to a 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 our 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.
21
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 Nine Months Ended
------------------------------------------- -----------------------------------------------
September 28, September 29, Increase/ September 28, September 29, Increase/
2001 2000 (Decrease) 2001 2000 (Decrease)
- ------------------------------ -------------- --------------- ------------ ---------------- ----------------- ------------
(dollars in thousands)
Research and development $15,726 $13,840 14% $47,281 $31,899 48%
Sales and marketing 25,345 25,079 1 81,016 51,758 57
General and administrative 9,727 9,585 1 29,098 22,532 29
Restructuring charges 363 -- N/A 1,273 -- N/A
Amortization of goodwill and
other purchased intangibles 7,378 5,922 25 22,088 5,922 273
----------- ------------ ------------ -------------
Total $58,539 $54,426 8% $180,756 $112,111 61%
=========== ============ ============ ============
Research and Development
Research and development expenses increased in both the three and nine
month periods ended September 28, 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 $1.0 million and $11.7 million of the increases for the three
and nine month periods ended September 28, 2001 over the prior year expense
levels, respectively.
o Trimble's receipt of approximately $60,000 and $1.1 million less from cost
reimbursement funds for military research and development programs for the
three and nine month periods ended September 28, 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 $2.4 million, respectively, of
the increases for the three and nine month periods ended September 28, 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 both the three and nine month
periods ended September 28, 2001, as compared with the corresponding periods in
fiscal 2000. The primary reasons for the increases are as follows:
o Expenses related to Tripod Data Systems, which was acquired in mid-November
of fiscal 2000, represented $0.7 million and $1.7 million of the increase
over the similar periods in the prior year, respectively.
o Increase in commission expenses of $0.8 million and $0.9 million for the
three and nine month periods ended September 28, 2001 as compared to the
same periods in fiscal 2000, respectively.
22
o Increase in travel, equipment and facility expenses of $0.2 million and
$1.0 million for the three and nine month periods ended September 28, 2001
as compared to the same periods in fiscal 2000, respectively
o The purchase of the Spectra Precision Group in July 2000 accounted for
$26.6 million of the increase over prior year expense levels.
o Increases above were partially offset by decreases in personnel,
consultants, and outside services of $1.4 million and $1.0 million for the
three and nine month periods ended September 28, 2001 as compared to the
same periods in fiscal 2000, 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
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 both the three and nine
month periods ended September 28, 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 $0.5 million and $5.2 million of the increases over the same
periods in the prior year, respectively.
o Expenses related to Tripod Data Systems, which was acquired in mid-November
of fiscal 2000, represented $0.3 million and $0.8 million of the increases
over the similar period in the prior year, respectively.
o Increase in expenses for the Boulder, Colorado facility of $0.5 million for
nine month period ended September 28, 2001 as compared to the same periods
in fiscal 2000.
o For the three month period ended September 28, 2001 the above increases
were partially offset by decreases in legal expenses of $0.6 million.
Restructuring charges
Restructuring charges of $0.4 million and $1.3 million were recorded for
the three and nine month periods ended September 28, 2001, which were related to
work force reduction. See Note 15 of the 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 nine month periods ended September 28, 2001 by approximately $1.5
million and $16.2 million, respectively, all of which is related primarily to
the purchase of the Spectra Precision Group.
23
Nonoperating income (expense), net
Nonoperating income (expense), net, decreased for the three month period
ended September 28, 2001 as compared with the corresponding periods in fiscal
2000. The primary reasons for the decrease are as follows:
o Decreased interest income resulting from the sale and maturities of
short-term investments accounted for approximately $0.5 million of the
change over the similar period in the prior year.
o Decreases in interest expenses related to loans and credit facilities
resulting from the acquisition of the Spectra Precision Group accounted for
approximately $0.3 million of the decrease over the similar periods in the
prior year.
o Certain penalties paid due to the early extinguishment of then outstanding
debt were approximately $0.9 million in the fiscal quarter ended September
29, 2000 and were not repeated in the fiscal third quarter of 2001.
o Foreign exchange gain of $0.8 million for the fiscal third quarter of 2001
as compared with a foreign exchange loss for the fiscal third quarter of
2000.
Nonoperating income (expense), net, increased for the nine month period
ended September 28, 2001 as compared with the corresponding periods in fiscal
2000. The primary reasons for the increase are as follows:
o Increase in interest expenses related to loans and credit facilities
resulting from the acquisition of the Spectra Precision Group accounted for
approximately $9.2 million 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 $3.2 million of the
change over the similar period in the prior year.
o Loss on the sale of our Air Transport Systems line of business and the
anticipated closure of the Austin, Texas facility totaled approximately
$2.0 million for the nine month period ended September 28, 2001.
o Above increases were offset by decrease in certain penalties paid due to
the early extinguishment of then outstanding debt were approximately $0.9
million in the fiscal period ended September 29, 2000 and were not repeated
in the fiscal 2001.
o Foreign exchange gain of $0.5 million for the fiscal 2001 as compared with
a foreign exchange loss of $0.2 million for fiscal 2000.
Income Taxes
The Company recorded provisions for income taxes of $0.2 million for the
three month period ended September 28, 2001 and $1.7 million for the nine month
period ended September 28, 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 ($0.5)
million and $1.9 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.
24
Liquidity and Capital Resources
At September 28, 2001, Trimble had cash and cash equivalents of $42.4
million. Trimble's debt mainly consisted of $155.0 million outstanding under
senior secured credit facilities, and an $84 million subordinated promissory
note. Trimble has relied primarily on cash provided by operating 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 nine month period ended September 28, 2001, cash provided by
operating activities was $11.6 million, as compared to cash provided of $15.7
million in the corresponding period in fiscal 2000. 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 $12.4 million in the nine
month period ended September 28, 2001 as compared to cash used in investing
activities that totaled $259.6 million in the same period in the prior year.
Cash used in investing activities decreased primarily due to payment for the
purchase of Spectra Precision in fiscal 2000, which totaled $294.0 million.
Cash provided by financing activities in fiscal year 2001 included the
proceeds from the issuance of common stock to employees pursuant to Trimble's
stock option plan and employee stock purchase plan, totaled $4.9 million, as
well as the exercise of certain warrants previously issued to John Hancock Life
Insurance Company of $4.4 million, and partially offset by net payments of
long-term debt and revolving credit lines of $6.8 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
subordinated note) over EBITDA). Trimble has used approximately $155 million
available under the New Credit Facilities, comprised of the $78 million
five-year term loan, $50 million three-year U.S. dollar only revolver, and $27
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. 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. Two of the Company's financial covenants, Minimum Fixed Charge
Coverage and Maximum Leverage Ratio's are extremely sensitive to Earnings before
Interest, Taxes, Depreciation and Amortization (EBITDA). As such, EBITDA is
highly correlated to our revenue and cost cutting. Due to uncertainties
associated with the downturn in the worldwide economy, future revenues by
quarter are becoming more difficult to forecast. New cost cutting measures have
been put in place by the management team; however, if revenues should decline at
a faster pace than cost cutting measures on a quarter to quarter basis, the two
above mentioned financial covenants may be violated. Should we default on one or
more covenants, we will have to obtain either negotiated waivers or amendments
to our Credit Agreement dated as of July 14, 2000 and as amended July 17, 2001.
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.
25
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. With the
automatic deferral provision exercised for the $40 million payment due in fiscal
2001, we elected to pay the minimum interest payment of $4 million in July 2001
and roll the remaining interest of $4 million into the First Anniversary Date
Installment as additional principal. Since the First Anniversary Date
Installment accumulated interest at an annual rate of 10%, we now have $44
million of principal due, relating to that Installment, with the rate of
interest on the unpaid balance (for this installment only) increasing by
twenty-five basis points for each 90 days. In no event shall the interest rate
applying to this First Anniversary Date Installment exceed 11% per annum. To the
extent that interest and principle due on the Second Anniversary Date becomes
delinquent an additional 4% interest rate per annum will apply. 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
carries certain limited covenants and defaults, the seller is 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
facilities restrict 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
During August 2001, the Financial Accounting Standards Board issued FAS No.
144, "Accounting for the Impairment or Disposal of Long-lived Assets". FAS No.
144 supercedes FAS No. 121, "Accounting for the Impairment of Long-lived Assets
and Assets to be Disposed of" and the accounting and reporting provisions of
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- -Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions." FAS
No. 144 also amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to eliminate the exception to consolidation for a subsidiary for
which control is likely to be temporary. The provisions of FAS No. 144 will be
effective for fiscal years beginning after December 15, 2001. The Company has
not yet determined the effect FAS No. 144 will have on the consolidated
financial position or results of operations.
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,
26
"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. 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 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
27
adequate supply of required components and reduced control over pricing.
The disruption or termination of any of these sources could have a material
adverse effect on our business, operating results and financial condition. Any
inability to obtain adequate deliveries or any other circumstance that would
require us to seek alternative sources of supply or to manufacture such
components internally could significantly delay our ability to ship our
products, which could damage relationships with current and prospective
customers and could have a material adverse effect on our business, operating
results and financial condition.
Risks Associated with Debt Covenants.
Two of the financial covenants in our Credit Agreement with ABN AMRO Bank,
N.V. and certain other banks, dated as of July 14, 2000 as amended July 17, 2001
(the "Credit Agreement"), minimum fixed charge coverage and maximum leverage
ratio are extremely sensitive to changes in earnings before interest, taxes,
depreciation and amortization (EBITDA). In turn, EBITDA is highly correlated to
revenues and cost cutting. Due to uncertainties associated with the downturn in
the worldwide economy, our future revenues by quarter are becoming increasingly
more difficult to forecast and we have recently put in place various cost
cutting measures. If revenues should decline at a faster pace than the rate of
these cost cutting measures, on a quarter to quarter basis we may not be in
compliance with the two above mentioned financial covenants. If we default on
one or more covenants, we will have to obtain either negotiated waivers or
amendments to the Credit Agreement. If we are unable to obtain such waivers or
amendments, the banks would have the right to accelerate the payment of our
outstanding obligations under the Credit Agreement, which would have a material
adverse effect on our financial condition and viability as an operating Company.
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 our 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.
28
Risks of Managing Future Growth.
Any significant growth in our sales or any significant expansion in the
scope of our operations could strain our current 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 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.
29
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.
30
Dependence on Proprietary Technology; Risk of Patent Infringement Claims.
Trimble's future success and competitive position is dependent upon its
proprietary technology, and we rely on patent, trade secret, trademark and
copyright law to protect our intellectual property. There can be no assurance
that the patents owned or licensed by us will not be invalidated, circumvented,
challenged, or that the rights granted thereunder will provide competitive
advantages to us or that any of our pending or future patent applications will
be issued within the scope of the claims sought by Trimble, if at all.
Furthermore, there can be no assurance that others will not develop technologies
that are similar or superior to our technology, duplicate our technology or
design around the patents owned by Trimble. In addition, effective copyright,
patent and trade secret protection may be unavailable, limited or not applied
for in certain foreign countries. There can be no assurance that the steps taken
by Trimble to protect its technology will prevent the misappropriation of such
technology. The value of our products relies substantially on our technical
innovation in fields in which there are many current patent filings. Trimble
recognizes that as new patents are issued or are brought to our attention by the
holders of such patents, it may be necessary for us to withdraw products from
the market, take a license from such patent holders, or redesign our products.
We do not believe any of our products currently infringe patents or other
proprietary rights of third parties, but we cannot be certain they do not do so.
In addition, the legal costs and engineering time required to safeguard
intellectual property or to defend against litigation could become a significant
expense of operations. Such events could have a material adverse effect on our
revenues or profitability.
Dependence on New Products.
Trimble's future revenue stream depends to a large degree on our ability to
bring new products to market on a timely basis. We must continue to make
significant investments in research and development in order to continue to
develop new products, enhance existing products and achieve market acceptance of
such products. However, there can be no assurance that development stage
products will be successfully completed or, if developed, will achieve
significant customer acceptance. If we were unable to successfully define,
develop and introduce competitive new products, and enhance existing products,
our future results of operations would be adversely affected. Development and
manufacturing schedules for technology products are difficult to predict, and
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 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.
31
Dependence on Key Customers.
We currently enjoy strong relationships with key customers. An increasing
amount of our revenue is generated from large OEMs such as Philips VDO, Nortel,
Caterpillar, CNH Global (formerly Case Corporation), Bosch, and others. A
reduction or loss of business with these customers could have a material adverse
effect on our financial condition and results of operations. There can be no
assurance that we will be able to continue to realize value from these
relationships in the future.
Dependence on Key Markets and Successful Identification of New Markets.
Trimble's current products serve many applications in Engineering &
Construction, Agriculture, Fleet & Asset Management, Component Technologies, and
Portfolio Technologies market segments. No assurances can be given that these
market segments will continue to generate significant or consistent demand for
our products. Existing market segments could be significantly diminished by new
technologies or products that replace or render obsolete our technologies and
products. Trimble is dependent on successfully identifying new markets for its
products. There can be no assurance that the Company will be able to
successfully identify new high-growth markets in the future. Moreover, there can
be no assurance that new markets will develop for Trimble or its customers'
products, or that our technology or pricing will enable such markets to develop.
Dependence on Retaining and Attracting Highly Skilled Development and
Managerial Personnel.
The ability of Trimble to maintain its competitive technological position
will depend, in a large part, on its ability to attract, motivate, and retain
highly qualified development and managerial personnel. Competition for qualified
employees in our industry and location is intense, and there can be no assurance
that we will be able to attract, motivate and retain enough qualified employees
necessary for the future continued development of our business and products.
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.
Our 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 Radiocommunication
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. Many of our products use other
radiofrequency bands, together with the GPS signal, to provide enhanced GPS
capabilities, such as real-time kinematic precision. The continuing availability
of these non-GPS radiofrequencies is essential to provide enhanced GPS products
to our precision survey markets. Any regulatory changes in spectrum allocation
or in allowable operating conditions 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
32
Communications Commission (FCC) continually receives proposals for novel
technologies and services, such as ultra-wideband technologies, 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 and other radio frequency
spectrum also used in our products may materially and adversely affect the
utility and reliability of our products, which could result in a material
adverse effect on our operating results.
Reliance on GPS Satellite Network.
NAVSTAR satellites and their ground support systems are complex electronic
systems subject to electronic and mechanical failures and possible sabotage. The
satellites were originally designed to have lives of 7.5 years and are subject
to damage by the hostile space environment in which they operate. However, of
the current deployment of 27 satellites in place, some have already been in
place for 12 years and have an average age of 6 years. To repair damaged or
malfunctioning satellites is currently not economically feasible. If a
significant number of satellites were to become inoperable, there could be a
substantial delay before they are replaced with new satellites. A reduction in
the number of operating satellites would impair the current utility of the GPS
system and the growth of current and additional market opportunities. In
addition, there can be no assurance that the U.S. government will remain
committed to the operation and maintenance of GPS satellites over a long period,
or that the policies of the U.S. Government for the use of GPS without charge
will remain unchanged. However, a 1996 Presidential Decision Directive marks the
first time in the evolution of GPS that access for civilian use free of direct
user fees is specifically recognized and supported by Presidential policy. In
addition, Presidential policy has been complemented by corresponding
legislation, signed into law. Because of ever-increasing commercial applications
of GPS, other U.S. Government agencies may become involved in the administration
or the regulation of the use of GPS signals. Any of the foregoing factors could
affect the willingness of buyers of the Company's products to select GPS-based
systems instead of products based on competing technologies. Any resulting
change in market demand for GPS products could have a material adverse effect on
Trimble's financial results. For example, European governments have expressed
interest in building an independent satellite navigation system, known as
Galileo. Depending on the as yet undetermined design and operation of this
system, there may be interference to the delivery of the GPS SPS and may
materially and adversely affect the utility and reliability of our products,
which could result in a material adverse effect on our operating results.
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.
33
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The following is a discussion of Trimble's exposure to market risk as of
September 28, 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
The Company is exposed to market risk due to the possibility of changing
interest rates under its senior secured credit facilities. The Company's 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 U.S. dollar and the Multi-Currency revolvers run through
July 2003 and have outstanding principle balances at September 28, 2001 of $50.0
million and $27.0 million, respectively. As of September 28, 2001 the Company
has borrowed from the Multi-Currency revolver in U.S. currency only. The term
loan runs through July 2005 and has an outstanding principle balance of $78.0
million at September 28, 2001. The three-month LIBOR effective rate at September
28, 2001 was 2.59125%. A ten percent increase in three-month LIBOR rates could
result in approximately $402,000 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 $3.4 million of Euro-denominated debt. At September
28, 2001 $3.4 million was classified as a current liability. 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
$67,000 was current at September 28, 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.
34
The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of September 28, 2001:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
- ----------------------------------------------------------------------------------------------------
Yen Sell 858,000 $7,259 $7,294
Euro Sell 5,175 $4,504 $4,749
Sterling Buy 1,011 $1,462 $1,485
35
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
In January 2001, Philip M. Clegg instituted a lawsuit 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 August 2001, Lockheed Martin Corporation served a Complaint alleging
patent infringement of U.S. Patent No. 4,949,089 on the Company, Spectra
Precision, Inc., Leica Geosystems, Inc., Sokkia Corporation and Carl Zeiss, Inc.
The lawsuit was filed in the United States District Court for the Eastern
District of Texas, Marshall Division. Lockheed seeks treble damages, an
injunction and attorney fees. Management believes the case to be without merit
and intends to defend the lawsuit vigorously.
On November 2, 2001 Qualcomm Incorporated filed a lawsuit against the
Company in Superior Court of the State of California. The complaint alleges
claims for an unspecified amount of money damages arising out of Qualcomm's
perceived lack of assurances in early 1999 that the Company's products purchased
by Qualcomm would work properly after a scheduled week number rollover event
that took place in August, 1999. The Company has not had an opportunity to
assess the merits of the lawsuit.
In the opinion of management, resolution of the foregoing litigation is not
expected to have a material adverse effect on the overall financial position of
the Company. However, depending on the amount and timing, an unfavorable
resolution of one of these matters could materially affect the Company's future
operations or cash flows in a particular period.
The Company is also a party to other disputes incidental to its business.
The Company believes that the ultimate liability of the Company as a result of
such disputes, if any, would not be material to its overall financial position,
results of operations, or liquidity.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
None.
(b) Reports on Form 8-K
The registrant did not file any Current Reports on Form 8-K during the
fiscal quarter ended September 28, 2001.
36
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: November 9, 2001