UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____to____
Commission File Number 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact name of registrant as specified in its charter)
California 94-2802192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
645 North Mary Avenue, Sunnyvale, California 94088
(Address of Principal Executive Offices) (Zip Code)
(408)481-8000
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of September 30, 1996, there were 22,074,100 shares of Common Stock (no par
value) outstanding.
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TRIMBLE NAVIGATION LIMITED
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those indicated in the
forward-looking statements as a result of the risk factors set forth in this
report. The Company has attempted to identify forward-looking statements in this
report by placing an asterisk (*) in the left-hand margin of paragraphs
containing those statements.
INDEX
Page
PART I. FINANCIAL INFORMATION Number
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of Operations -
Three and Nine Months ended September 30, 1996
and 1995 4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
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TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
- ----------------------------------------------------------------------------------------
(In thousands) (Unaudited) (Note)
ASSETS
<S> <C> <C>
Current assets:
Cash, cash equivalents and short term investments $ 81,181 $ 97,162
Accounts receivable, net 30,091 39,123
Inventories 41,645 31,201
Deferred income taxes - 722
Other current assets 3,277 3,198
------------- --------------
Total current assets 156,194 171,406
------------- --------------
Net property and equipment 22,094 19,751
Intangible assets 4,679 870
Deferred income taxes 393 852
Other assets 4,188 3,884
------------- --------------
Total assets $ 187,548 $ 196,763
------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 965 $ 2,014
Accounts payable 13,869 15,329
Accrued compensation and benefits 7,489 5,745
Other accrued liabilities 10,616 8,340
Customer advances - 1,080
Income taxes payable 796 3,002
------------- --------------
Total current liabilities 33,735 35,510
------------- --------------
Noncurrent liabilities:
Noncurrent portion of long-term debt and other liabilities 30,970 31,316
------------- --------------
Total liabilities 64,705 66,826
------------- --------------
Shareholders' equity:
Common stock 127,370 121,149
Retained earnings (3,866) 8,699
Treasury stock (799) -
Unrealized gain on short term investments 8 102
Foreign currency translation adjustment 130 (13)
------------- --------------
Total shareholders' equity 122,843 129,937
------------- --------------
Total liabilities and shareholders' equity $ 187,548 $ 196,763
============= ==============
</TABLE>
Note: The balance sheet at December 31, 1995, 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.
See accompanying notes to condensed consolidated financial statements.
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TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenue $ 54,086 $ 62,826 $ 169,410 $ 171,735
------------ ----------- ------------ -------------
Operating expenses:
Cost of sales 27,457 27,536 80,506 71,155
Research and development 9,882 8,150 27,851 24,094
Sales and marketing 16,559 15,644 49,472 45,369
General and administrative 6,608 6,779 23,075 18,166
Restructuring charges 2,046 - 2,046 -
------------ ----------- ------------ -------------
Total operating expenses 62,552 58,109 182,950 158,784
------------ ----------- ------------ -------------
Operating income (loss) (8,466) 4,717 (13,540) 12,951
------------ ----------- ------------ -------------
Non operating income (expense):
Interest income 1,101 1,153 3,498 2,231
Interest and other expenses (1,089) (971) (2,984) (3,074)
Foreign exchange gain (loss) 20 119 (73) 1,084
------------ ----------- ------------ -------------
Total non operating income 32 301 441 241
------------ ----------- ------------ -------------
Income (loss) before income taxes (8,434) 5,018 (13,099) 13,192
Income tax provision (benefit) 400 678 (534) 2,638
------------ ----------- ------------ -------------
Net income (loss) $ (8,834) $ 4,340 $ (12,565) $ 10,554
============ =========== ============ =============
Net income (loss) per share $ (0.40) $ 0.20 $ (0.58) $ 0.51
============ =========== ============ =============
Weighted average common and
dilutive common equivalent shares 22,029 21,975 21,833 20,863
============ =========== ============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------
1996 1995
- --------------------------------------------------------------------------------
(In thousands)
Net cash provided (used) by operating activities $ (8,157) $ 11,688
---------- -----------
Cash flow from investing activities:
Purchase of short term investments (59,338) (96,357)
Maturity of short term investments 54,049 38,100
Sales of short term investments 15,212 -
Acquisition of property and equipment (8,565) (12,347)
Capitalized patent expenditures (569) (667)
---------- -----------
Net cash used in investing activities 789 (71,271)
---------- -----------
Cash flow from financing activities:
Issuance of common stock 3,364 5,872
Net proceeds from common stock offering - 57,298
Purchase of treasury stock (799) -
Collection of notes receivable 48 87
Payment of long-term debt (1,303) (1,186)
---------- -----------
Net cash provided by financing activities 1,310 62,071
---------- -----------
Net increase/(decrease) in cash and cash equivalents (6,058) 2,488
Cash and cash equivalents -- beginning of period 29,711 17,643
---------- -----------
Cash and cash equivalents -- end of period $ 23,653 $ 20,131
========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 808 $ 2,867
Income taxes, net of refunds $ 487 $ 677
Supplemental other non-cash investing and financing
activities:
Common stock issued in connection with acquisition
of Terra Corporation $ 2,857 $ -
See accompanying notes to condensed consolidated financial statements.
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TRIMBLE NAVIGATION LIMITED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Basis of Presentation:
The condensed consolidated financial statements for the three and nine month
periods ended September 30, 1996, and 1995 presented in this Quarterly Report on
Form 10-Q are unaudited. In the opinion of management, these statements include
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair statement of the results for the interim periods presented. The condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report to Shareholders for the year ended December 31, 1995.
The results of operations for the three month and nine month periods ended
September 30, 1996, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
NOTE 2 - Inventories:
Inventories consist of the following:
September 30, December 31,
1996 1995
- ---------------------------------------------------------------------------
(In thousands)
Raw materials $ 20,933 $ 15,892
Work-in-process 7,074 6,782
Finished goods 13,638 8,527
------------ --------------
$ 41,645 $ 31,201
------------ --------------
NOTE 3 - Restructuring Charge:
During the quarter ended September 30, 1996, the Company recorded a
restructuring charge of $2,046,000 of which $597,000 had been paid as of
September 30,1996. Components of this restructuring reserve included employee
severance packages, the costs of redundant office space, write downs of idle
assets and the costs of moving people.
NOTE 4 - Contingencies:
Shareholder Litigation
On December 6, 1995, two shareholders filed a class action lawsuit against the
Company and certain directors and officers of the Company. Subsequent to that
date, additional lawsuits were filed by other shareholders. The lawsuits were
subsequently amended and consolidated into one Complaint which was filed on
April 5, 1996. The amended consolidated Complaint seeks to bring an action as a
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class action consisting of all persons who purchased the common stock of the
Company during the period April 18, 1995, through December 5, 1995 (the "Class
Period"). The plaintiffs allege that the defendants sought to induce the members
of the Class to purchase the Company's common stock during the Class Period at
artificially inflated prices. The plaintiffs seek recissory or compensatory
damages with interest thereon as well as reasonable attorneys' fees and
extraordinary equitable and/or injunctive relief. The Company filed a motion to
dismiss which was heard by the Court on August 16, 1996. The court rejected the
plaintiffs lawsuit, but allowed thirty days to resubmit its complaint. On
September 24, 1996, the plaintiffs filed an amended complaint. The Company plans
to file a motion to dismiss the amended complaint in the near future. The
Company does not believe that it is possible to predict the outcome of this
litigation.
DAC Arbitration and Litigation
In February 1995, DAC International Inc. ("DAC"), then a distributor and sales
representative of the Company, terminated its sales representative agreement
with the Company and thereafter filed an arbitration claim against the Company
in Palo Alto, California, seeking damages of approximately $2,100,000. On July
15, 1996, the Arbitrator issued a Final Liability and Opinion Award which called
for the Company to pay a total of $1,021,000, including interest, all of which
has now been paid.
On March 26, 1996, DAC filed a lawsuit entitled DAC International, Inc. v
Trimble Navigation Ltd., Case No. 96-02032, filed in the District Court of
Travis County, Texas. In April 1996, the Company removed this case to the
Federal District Court for the Western District of Texas. On August 6, 1996,
Trimble agreed to pay DAC $500,000 which was charged to income in the second
quarter of 1996. As a result of this agreement all litigation between the
Company and DAC has been settled.
AMSC Litigation
In March 1995, the Company signed a large contract for the supply of Galaxy/GPS
land mobile satellite terminals to American Mobile Satellite Corporation (AMSC),
a Reston, Virginia, based company that provides a variety of voice and data
services via satellite. AMSC contracted for delivery of product beginning in
mid-1995 and continuing through 1996. AMSC requested late in the fourth quarter
of 1995 that the Company cease delivery in part due to delays in their
completion of software. Shipments under the original contract were halted in the
fourth quarter of 1995 and the contract was modified. Since that time the
Company has made only limited shipments to AMSC and does not now expect
shipments to recur.
In October 1996 the Company filed a complaint against AMSC in the Superior Court
of California in Santa Clara County. The complaint alleges that AMSC breached
its March 1995 contract with the Company by refusing to accept additional
deliveries of Galaxy product. The complaint also alleges that AMSC fraudulently
induced the Company to execute a modification to the March 1995 contract. The
complaint seeks unspecified damages including lost profits and exemplary
damages. AMSC has acknowledged receipt of the complaint but has not yet filed a
responsive pleading.
Other Litigation
In July 1993, an individual filed a Complaint against the Company in which the
individual alleges the Company has an obligation to him for commissions earned
and services provided in an amount in excess of $1,500,000. In June 1995 the
Company's motion for summary judgment on all claims was granted by the court.
The individual has filed an appeal for which no hearing date has yet been set.
The Company believes the Complaint is without merit and intends to defend itself
vigorously.
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A former shareholder has filed an action against the Company claiming rights to
shares that were previously canceled on the Company's stock records pursuant to
lost stock certificate indemnification agreements. The Company does not believe
that there will be any adverse consequences to the Company as a result of this
case.
In October 1995, an employee who was terminated by the Company in 1992 filed a
Complaint against the Company alleging that his incentive stock options
continued to vest subsequent to his termination. He seeks damages in excess of
$1,000,000. The Company believes that the complaint is with out merit and
intends to defend itself vigorously.
Note 5 - Line of Credit
In August 1995, the Company entered into a $30,000,000 unsecured line of credit
agreement with two banks that expires in July 1997. The agreement enables the
Company to borrow up to $30,000,000 provided that certain financial and other
covenants are met. The agreement provides for payment of a commitment fee of
0.5% for the unused portion of the line of credit. Borrowings bear interest at
the higher of (i) one of the bank's annual prime rate and (ii) the federal funds
rate plus 0.5%. To date no borrowings have been made under the line of credit.
Under the current line of credit the Company is restricted from paying
dividends.
As of September 30, 1996, the Company was not in compliance with certain
covenants of the line of credit agreement. The agreement was subsequently
amended and the Company is currently in compliance.
Note 6 - Acquisition:
On July 2, 1996, the Company acquired certain assets and assumed certain
liabilities of Terra Corporation, a New Mexico aviation corporation, in exchange
for 140,860 shares of the Company's common stock and options to purchase 12,000
shares of the Company's common stock. The acquisition has been accounted for
using purchase accounting. The Company determined the value of the net
liabilities acquired to be $332,000 which resulted in the recording of
$3,189,000 of goodwill. The amounts of goodwill and net liabilities acquired are
the Company's best estimates at this time and are subject to adjustment. The
Company is amortizing this goodwill over its useful economic life which has been
estimated to be five years.
Note 7 - Offering of Common Stock:
In August 1995 the Company sold 2,100,000 shares of its Common Stock in an
underwritten public offering for aggregate net proceeds of $57,298,000 after
issuance costs.
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TRIMBLE NAVIGATION LIMITED
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Revenues for the three month and nine month periods ended September 30, 1996,
were $54,086,000 and $169,410,000, respectively, as compared with $62,826,000
and $171,735,000 in the corresponding 1995 periods. The table below shows
revenues under the Company's new operating structure that was created in
September 1996. Prior periods have been restated in order to make amounts
comparable.
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------------- ----------------------------------------------
Increase/ Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Systems $ 35,528 $ 43,986 (19%) $ 116,107 $ 120,545 (4%)
Software & Component Technology 9,331 10,832 (14%) 27,822 26,331 6%
Aerospace 9,227 8,008 15% 25,481 24,859 3%
--------------- --------------- ---------------- ---------------
Total $ 54,086 $ 62,826 (14%) $ 169,410 $ 171,735 (1%)
--------------- --------------- ---------------- ---------------
</TABLE>
Commercial Systems
The Commercial Systems business unit consists of the previous Survey and Mapping
business unit, the Tracking portion of the Tracking and Communications business
unit and the Marine portion of the Navigation business unit.
Commercial systems revenues for the three month and nine month periods ended
September 30, 1996, decreased primarily in the Land Survey and Tracking vertical
markets. The company believes that it has maintained its market share worldwide.
The decrease in Land Survey sales in the third quarter of 1996 compared to the
third quarter of 1995 was due to a slowdown in sales in Europe and Japan. Europe
experienced a down turn in shipments due in part to construction spending in the
major economies of Europe being lower than traditional levels. Shipments of the
higher end Real Time Kinematic (RTK) survey product in Japan has slowed due to
the Japanese governments decision to evaluate RTK survey methods before
certifying its use for official surveys. The Company has replaced this higher
price RTK product with the certified lower average selling price product lines.
Shipments in the U.S., Latin America, and Asia-Pacific outside Japan were higher
than last year.
The decrease in Land Survey sales for the nine month period ending September 30,
1996 as compared to the same period in 1995 was due to a slowdown in sales in
Europe and Japan in the second and third quarters (see paragraph above). This
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decrease was partially offset by an increase in revenues in the first quarter of
1996 as compared to the first quarter of 1995 which was due to increased
acceptance of the Company's products, extension of sales efforts into new
geographic territories and an increase in the number of field sales employees.
Tracking revenues are lower in both the three month and nine month periods ended
September 30, 1996, primarily due to lower sales to American Mobile Satellite
Corporation (AMSC) - see paragraph below for more details.
In March 1995, the Company signed a large contract for the supply of Galaxy/GPS
land mobile satellite terminals to AMSC, a Reston, Virginia, based company that
provides a variety of voice and data services via satellite. AMSC contracted for
delivery of product beginning in mid-1995 and continuing through 1996. AMSC
requested late in the fourth quarter of 1995 that the Company cease delivery in
part due to delays in their completion of software. Shipments under the original
contract were halted in the fourth quarter of 1995 and the contract was amended.
Revenue from shipments to AMSC under this contract during 1995 were $4,176,000
in the second quarter, and $3,125,000 in the third quarter. $1,080,000 of
contract renegotiation fees were recognized in the first quarter of 1996. The
amended contract between the Company and AMSC calls for production line shutdown
fees for the time that Trimble is not manufacturing product for shipment to
AMSC. Due to the uncertainty about AMSC's ability to pay, revenues for products
shipped and contractual shutdown fees were not recognized until collection was
considered probable. In the second quarter of 1996, the Company recognized
$1,700,000 in revenue from products shipped in December 1995 and March 1996 and
$1,000,000 of shutdown fees all of which have been paid. In the third quarter of
1996, the Company recognized $100,000 of shutdown fees all of which have been
paid.
In October 1996 the Company filed a complaint against American Mobile Satellite
Corporation ("AMSC") in the Superior Court of California in Santa Clara County
(See Note 4 of the Notes to the Condensed Consolidated Financial Statements for
more details).
In September 1996 the Company entered into a contract with Caterpillar Inc.
targeted at the construction and mining markets. The Company has agreed to
develop its equipment starting in the fourth quarter of 1996 and to sell it
exclusively to Caterpillar for use in this market. Shipments are expected to
start in the first half of 1997.
Software and Component Technologies
This new business unit consists of the OEM business which was previously
included in Tracking and Communications. In addition this business unit will be
responsible for selling licenses and other rights for the use of GPS to third
parties.
Software and Component Technologies decrease in the three month period ending
September 30, 1996, as compared to the same period in 1995, is due in part to
lower sales of in vehicle navigation GPS boards that were expected to be sold as
"after market" products. The Company believes that this slowdown was as a result
of a shift in demand from "after market" to new car sales.
Software and Component Technologies had a slight increase in the nine month
period ending September 30, 1996 as compared to the same period in 1995, due to
a very strong sales for the first quarter of 1996 as compared to a weak first
quarter for 1995 coupled with a weak second and third quarter for 1996, but
strong quarters for the second and third quarter of 1995.
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Aerospace
This new business unit consists of the Avionics portion of the Navigation
business unit and the previous Military business unit.
Sales of Aerospace products were higher in the 1996 periods, as compared to
1995, due in part to sales of product acquired from Terra Corporation (See Note
6 to the Condensed Consolidated Financial Statements for additional
information). The sale of the Terra Corporation products will are expect to
increase the Aerospace revenue for the rest of the year. *The Company considers
its Aerospace products to be a long term growth opportunity. *It believes that
success in this area will be dependent upon the success of a current strategic
alliance with Honeywell. The Company received FAA certification of the HT9100
product on September 18, 1996, which allowed the production and installation to
begin late in the third quarter. This product accounted for most of the increase
in Aerospace revenues for the third quarter of 1996 as compared to the third
quarter of 1995.
Military sales are highly dependent on contracts which are subject to government
approval and are, therefore, expected to continue to fluctuate from period to
period. The Company believes that opportunities in this market have been
substantially reduced by cutbacks in U.S. and foreign military spending.
Revenue outside the US
Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 46% of revenue in the first nine months of 1996 and approximately
54% in the first nine months of 1995. During 1996, lower revenues in Europe
affected many of the Company's product lines, and in Japan revenues were lower,
which primarily related to surveying products. The Company anticipates that
export revenue and sales made by its subsidiaries in locations outside the U.S.
will continue to account for a significant portion of its revenue, and therefore
the Company is subject to the risks inherent in these sales, including
unexpected changes in regulatory requirements, exchange rates, governmental
approval, tariffs or other barriers. Even though the U.S. Government announced
on March 29, 1996, that it would support and maintain the GPS system, as well as
eliminate the use of Selective Availability (S/A) (a method of degrading GPS
accuracy), in certain foreign markets there may be a reluctance to purchase
products based on GPS technology given the control of GPS by the U.S.
Government. The Company's results of operations could be adversely affected if
the Company were unable to continue to generate significant sales in locations
outside the U.S.
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 revenue
was 49% and 52% in the three month and nine month periods ended September 30,
1996, as compared with 56% and 59% in the corresponding 1995 periods. These
margins are enhanced by the positive impact of revenues recognized of $2,300,000
and $1,080,000 in the second and first quarters of 1996, respectively. (See
"Results of Operations - Revenue" for more details.) The Company has a history
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of recording such non-recurring items in the past, including revenues of
$1,333,000 and $1,000,000 recorded in the third quarter and fourth quarters of
1995, respectively. There can however be no assurance that similar items will
recur in the future. The lower gross margin percentage in the 1996 periods
primarily reflects a shift in product mix from higher margin commercial systems
sales to lower margin avionics and OEM sales and decreases in the margins
obtained on sales of commercial systems products. There is no assurance that
current margins will be sustained because of mix changes within and among the
business units, market pressures on unit selling prices, fluctuations in unit
manufacturing costs and other factors.
In the future the Company expects a higher percentage of its business to be
conducted through alliances with strategic partners, e.g. Honeywell and
Caterpillar. As a result of volume pricing and the assumption of certain
operating costs by the partner, margins on this business are likely to be lower
than sales directly to end users.
Operating Expenses
The following table shows operating expenses for the periods indicated and
should be read in conjunction with the narrative descriptions of those operating
expenses below:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
--------------------------------------- --------------------------------------
Increase/ Increase/
1996 1995 (Decrease) 1996 1995 (Decrease)
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 9,882 $ 8,150 21% $ 27,851 $ 24,094 16%
Sales and marketing 16,559 15,644 6% 49,472 45,369 9%
General and administrative 6,608 6,779 (3%) 23,075 18,166 27%
Restructuring charges 2,046 - N/A 2,046 - N/A
------------- ------------- ------------- -------------
Total $ 35,095 $ 30,573 15% $ 102,444 $ 87,629 17%
------------- ------------- ------------- -------------
</TABLE>
Research and Development
Research and development increased for the three month and nine month periods
ended September 30, 1996, as compared with the same periods in 1995, primarily
due to an increase in personnel and the related expenses which accompany an
increase in the number of employees. There was also an increase in the number of
specialized engineering consultants and temporary employees. The increases in
research and development is part of the Company's continuing aggressive
development of future products.
The Company expects that a significant portion of future revenues will continue
to be derived from sales of newly introduced products. Consequently, the
Company's future success depends on its ability to continue to develop and
manufacture new competitive products. Advances in product technology will
require continued substantial investment in research and development in order to
maintain and enhance the Company's market position and achieve high gross profit
margins. Development and manufacturing schedules for technology products are
difficult to predict, and there can be no assurance that the Company will
achieve timely initial customer shipments of new products. The timely
12
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availability of these products in volume and their acceptance by customers are
important to the future success of the Company. In addition, certain of the
Company's products are subject to governmental and similar certifications before
they can be sold. For example, FAA certification is required for all aviation
products. An inability or delay in obtaining such certifications could have an
adverse effect on the Company's operating results. The Company has experienced
delays in obtaining appropriate certifications for products acquired as part of
the Terra acquisition.
Sales and Marketing
The increased expense in the three month and nine month periods ended September
30, 1996, as compared with the same periods for 1995, is a primary result of an
increase in personnel and related expenses and an increase in advertising costs.
Selling and marketing expense is expected to decrease in future quarters as a
result of the restructuring actions taken in September 1996. Sales offices in
Egypt, Italy and Poland were closed and the size of certain offices in the US
has been reduced.
The Company's future growth will depend upon the timely development and
continued viability of the markets in which the Company currently competes and
upon the Company's ability to continue to identify and exploit new markets for
its products. In addition, the Company has encountered significant competition
in selected markets, and the Company expects such competition to intensify as
the market for GPS applications receives acceptance. Several of the Company's
competitors are major corporations with substantially greater financial,
technical, marketing and manufacturing resources. Increased competition is
likely to result in reduced market share and in price reductions of GPS-based
products, which could adversely affect the Company's revenues and profitability.
The increase in competition has also led to a longer sales cycle which has the
effect of reducing the ratio of revenues to sales and marketing expenses.
General and Administrative
The decrease in general and administrative expense in the three month period
ended September 30, 1996, as compared with the same period for 1995, primarily
reflects lower legal expenses as a result of reduced litigation. This decrease
was offset by an increase in the bad debt expense and amortization of goodwill
related to the Terra acquisition (See Note 6 to the Condensed Consolidated
Financial Statements for additional information).
The increase in general and administrative expense for the nine month period
ended September 30, 1996, as compared with the same period for 1995, is
primarily as a result of the higher litigation and legal settlement costs
incurred in the first six months of the year, as compared to the same period in
1995, as well as an increase in the bad debt expense and amortization of
goodwill related to the Terra acquisition (See Note 6 to the Condensed
Consolidated Financial Statements for additional information).
Restructuring Charges
During the quarter ended September 30, 1996, the Company recorded a
restructuring charge of $2,046,000 of which $597,000 had been paid as of
September 30, 1996. Components of this restructuring reserve included employee
severance packages, the costs of redundant office space, write downs of idle
13
<PAGE>
assets and the costs of moving people. The Company took this action in order to
bring operating expenses into line with revenues and to restructure existing
operations in a more efficient manner. As part of the restructuring the Company
reorganized itself into three business units - Commercial Systems, Software and
Component Technologies, and Aerospace. There can be no guarantee that the
results of the restructuring will be successful and will have the intended
effect. If they are not successful then the Company will take further action to
achieve its aims.
Income Taxes
The Company recorded tax expense of $400,000 on the loss before income taxes for
the three months ended September 30,1996, and a net tax benefit of $534,000 for
the nine months ended September 30,1996. The tax expense for the quarter is
primarily due to taxes paid in foreign jurisdictions. The income tax rate of 4%
for the first nine months ended September 30,1996, is less than federal
statutory rate primarily due to losses with no currently recognizable tax
benefit. The income tax rate of 20% for the first nine months ended September
30, 1995, is less than the federal statutory rate primarily due to the
realization of previously reserved deferred tax assets. The 1996 rate is
different from the 1995 rate primarily due to the inability to recognize benefit
of current year operating losses.
Liquidity and Capital Resources
For the nine month period ended September 30, 1996, the cash used in operating
activities was $8,157,000 as compared to an inflow of $11,688,000 in the same
period in 1995. Cash provided by sales of common stock in 1996 represents
proceeds from purchases made pursuant to the Company's stock option and employee
stock purchase plans and totaled $3,364,000 for the nine months ended September
30, 1996. During the last nine months the Company has relied primarily on cash
provided by financing activities and net sales of short-term investments to fund
operations, capital expenditures and other investing activities. The Company's
ability to generate cash from operations will depend in a large part on revenues
and the rate of collections of accounts receivable. Management believes that its
cash, cash equivalents and short-term investment balances, with its existing
credit line, will be sufficient to meet its anticipated cash needs for at least
one year. At September 30, 1996, the Company had cash and cash equivalents of
$23,653,000 and short-term investments of $57,528,000.
In February 1996, the Company announced that it had approved a discretionary
program where by up to 600,000 shares of its common stock may be repurchased to
offset potential dilutive effects to earnings per share from the issuance of
stock options. The Company intends to use existing cash, cash equivalents and
short-term investments to finance any stock repurchases under this program. In
the nine months ended September 30, 1996, 50,000 shares were purchased at a cost
of $799,000. Subsequent to September 30, 1996, the Company purchased an
additional 150,000 shares of its own stock.
Other Risk Factors
Revenue has tended to fluctuate on a quarterly basis due to the timing of
shipments of products under contracts, the sale of license rights and seasonal
patterns favoring spring and summer for the surveying and mapping business. This
pattern was not repeated in 1996 and the Company can give no assurances that
there will be any reversion to the seasonal revenue trends. A significant
portion of quarterly revenues occur from orders received and immediately shipped
14
<PAGE>
to customers in the last few weeks and days of a quarter. If orders are not
received, or shipments were to be delayed a few days at the end of a quarter,
operating results would be significantly adversely impacted. The visibility and
predictability of future revenues are difficult to predict and projections are
primarily based on historical models which are not necessarily accurate
representations of the future.
A significant number of components used by the Company in the manufacture of its
products are obtainable only from sole sources. Furthermore, in many cases,
despite the availability of multiple sources, the Company may select a single
source in order to maintain quality control and to develop a strategic
relationship with the supplier. However, if the Company is unable to obtain a
sufficient supply of these components from its current vendors, it is likely the
Company could experience a delay in product shipments that would adversely
affect the Company's results of operations and damage customer relationships
until an alternative source could be obtained. In addition, the Company has in
the past experienced shortages of semiconductors and other components that have
impacted the Company's ability to build inventory to ship on demand. While the
previous potential problems could cause lower revenue than expected it is also
possible that due to difficulties in forecasting these and other long lead time
parts the Company could be faced with an excess supply of certain component
inventories.
The Company has a relatively fixed cost structure in the short term which is
determined by the business plans and strategies the Company intends to implement
in the markets it addresses. As a result percentage increases or decreases in
revenues have a significantly higher percentage impact on net income or losses
and earnings per share than a company with a more variable cost structure.
A number of products that were previously being manufactured by Terra have yet
to be certified by the Federal Aviation Authority. Unless the Company receives
this certification revenues from sales of Terra products may be lower than
expected.
* In the longer term the Company believes that the Software and Component
Technologies business unit will comprise a significant portion of the Company's
business. The Software and Component Technologies business unit differs in
nature from most of the Company's markets because volumes are high and margins
relatively low. Software and Component Technologies customers are extremely
price sensitive. As costs decrease through technological advances these advances
will be passed on to the customer. To compete in the Software and Component
Technologies market requires high volume production and manufacturing
techniques. Customers expect high quality standards with very low defect rates.
The Company is relatively inexperienced compared to competitors with far greater
resources in such high volume manufacturing and associated support activities.
The Company's stock price is subject to significant volatility. If revenues
and/or earnings fail to meet the expectations of the investment community, there
could be an immediate and significant impact on the trading price of the
Company's stock.
The value of the Company's products relies substantially on the Company's
technical innovation in fields in which there are many current patent filings.
The Company recognizes that as new patents are issued or are brought to the
Company's attention by the holders of such patents, it may be necessary for the
Company to withdraw products from the market, take a license from such patent
holders, or redesign its products. The Company does not believe any of its
products infringe patents or other proprietary rights of third parties, but
cannot be certain they do not do so. In addition, the legal costs and
engineering time required to safeguard intellectual property or to defend
15
<PAGE>
against litigation could become a significant expense of operations. Such events
could have a material adverse effect on the Company's revenues or profitability.
The Company is continually evaluating alliances and external investments in
technologies related to its business and has already entered into alliances and
made relatively small investments in GPS related technology companies.
Acquisitions of companies, divisions of companies, or products and alliances
entail numerous risks, including (i) the potential inability to successfully
integrate acquired operations and products or to realize anticipated synergies,
economies of scale or other value, (ii) diversion of management's attention, and
(iii) loss of key employees of acquired operations. Any such problems could have
a material adverse effect on the Company's business, financial condition and
results of operations. No assurances can be given that the Company will not
incur problems from current or future alliances, acquisitions, or investments.
Furthermore, there can be no assurance that the Company will realize value from
any such alliances, acquisitions, or investments.
The Company's products rely on signals from the GPS Navstar satellite system
built and maintained by the U.S. Department of Defense. Navstar satellites and
their ground support systems are complex electronic systems subject to
electronic and mechanical failures and possible sabotage. Some of these 24
satellites have exceeded their design lives of 7.5 years and are also subject to
damage by the hostile space environment in which they operate. Repair of damaged
or malfunctioning satellites is impossible. 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 of time, nor that policies of
the U.S. Government allowing for the use of GPS without charge will remain
unchanged. 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 would have a material adverse effect on the
Company's financial results. Certain European government organizations have
expressed concern regarding the susceptibility of GPS equipment to intentional
or inadvertent signal interference. Such concern could translate into reduced
demand for GPS products in certain geographic regions.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits Page
Number
10.56 Revolving Credit Agreement - Third Amendment 19-20
11.1 Computation of Earnings (Loss) Per Common Share 21
27 Financial Data Schedule 22
B. Report on Form 8-K
There were no reports on Form 8-K filed during the
quarter ended September 30, 1996.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
(Registrant)
By: /s/Dennis Ing
Dennis Ing
(Vice President Finance and
Chief Financial Officer)
DATE: November 13, 1996
18
<PAGE>
TRIMBLE NAVIGATION LIMITED
THIRD AMENDMENT
to
REVOLVING CREDIT AGREEMENT
This THIRD AMENDMENT (the "Amendment"), dated as of November 12, 1996,
is among Trimble Navigation Limited (the "Borrower"), The First National Bank of
Boston ("FNBB"), Mellon Bank, N.A. ("Mellon", and together with FNBB, the
"Banks"), and The First National Bank of Boston as agent for itself and the
other Banks (the "Agent").
WHEREAS, the Borrower, the Banks and the Agent are parties to that
certain Revolving Credit Agreement, dated as of August 4, 1995 (as amended by
the First Amendment to Revolving Credit Agreement, dated as of April 30, 1996,
and the Second Amendment to Revolving Credit Agreement, dated as of June 30,
1996, the "Credit Agreement"), pursuant to which the Banks, upon certain terms
and conditions, have made loans to and may issue letters of credit for the
benefit of the Borrower; and
WHEREAS, the Borrower had requested that the Banks agree, and the Banks
have agreed, on the terms and subject to the conditions set forth herein, to
make certain changes to the Credit Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Capitalized terms which are used herein
without definition and which are defined in the Credit Agreement shall have the
same meanings herein as in the Credit Agreement.
Section 2. Amendment of Credit Agreement. The Credit Agreement is hereby
amended as follows:
(a) Section 9.1 of the Credit Agreement is amended by deleting such
Section 9.1 and restating it in its entirety as follows:
Section 9.1. Profitable Operations. The Borrower will not permit
Consolidated Net Deficit or Consolidated Net Operating Deficit
for any fiscal quarter of the Borrower to be greater than five
percent (5%) of Consolidated Tangible Net Worth as of the end of
the fiscal quarter immediately preceding the relevant date of
determination.
(b) Section 9.4 of the Credit Agreement is amended by deleting such
Section 9.4 and restating it in its entirety as follows:
Section 9.4 Consolidated Tangible Net Worth. The Borrower will
not permit Consolidated Tangible Net Worth at the end of any
fiscal quarter of the Borrower to be less than:
(i) for the fiscal quarter ended December 31, 1996, the
sum of $111,000,000, plus eighty percent (80%) of any new equity
issuance, plus, eighty percent (80%) of positive Consolidated Net
Income for, in each case, the fiscal quarter subsequent to the
fiscal quarter ended September 30, 1996; and
(ii) for the fiscal quarter ended March 30, 1997 and each
fiscal quarter thereafter, the sum of $105,000,000, plus eighty
percent (80%) of any new equity issuance, plus, on a cumulative
basis, eighty percent (80%) of positive Consolidated Net Income
for each fiscal quarter subsequent to the fiscal quarter ended
December 31, 1996.
(c) Section 9 of the Credit Agreement is further amended by adding the
following new Section 9.6:
Section 9.6. Minimum Net Cash. The Borrower will not at any time
permit the sum of cash, plus Cash Equivalents, plus Investments
of the kind described in paragraphs (a), (b), (c) and (g) of
Section 8.3 that mature within one (1) year from the date of
purchase by the Borrower, minus the outstanding amount of
Revolving Credit Loans as of the date of determination, to be
less than $50,000,000.
Section 3. Affirmation and Acknowledgment of the Borrower. The Borrower
hereby ratifies and confirms all of its Obligations to the Banks, including,
without limitation the Revolving Credit Loans, and the Borrower hereby affirms
its absolute and unconditional promise to pay to the Banks the Revolving Credit
Loans and all other amounts due under the Credit Agreement as amended hereby.
Section 4. Representations and Warranties. The Borrower hereby
represents and warrants to the Banks as follows:
(a) The execution and delivery by the Borrower of this Amendment
and the performance by the Borrower of its obligations and agreements
under this Amendment and the Credit Agreement as amended hereby, are
within the corporate authority of the Borrower, have been authorized by
all necessary corporate proceedings on behalf of the Borrower, and do
not and will not contravene any provision of law or any of the
Borrower's charter, other incorporation papers, by-laws or any stock
provision or any amendment thereof or of any indenture, agreement,
instrument or undertaking binding upon the Borrower.
(b) This Amendment and the Credit Agreement as amended hereby
constitute legal, valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting generally the enforcement of creditors' rights.
(c) No approval or consent of, or filing with, any governmental
agency or authority is required to make valid and legally binding the
execution, delivery or performance by the Borrower of this Amendment or
the Credit Agreement as amended hereby, or the consummation by the
Borrower of the transactions among the parties contemplated hereby and
thereby or referred to herein.
(d) The representations and warranties contained in Section 6 of
the Credit Agreement were correct at and as of the date made. Except to
the extent that the facts upon which such representations and warranties
were based have changed in the ordinary course of business (which
changes, either singly or in the aggregate, have not been materially
adverse) and after giving effect to the provisions hereof, such
representations and warranties also are correct at and as of the date
hereof.
(e) The Borrower has performed and complied in all material
respects with all terms and conditions herein required to be performed
or complied with by it prior to or at the time hereof, and as of the
date hereof, after giving effect to the provisions hereof, there exists
no Event of Default or Default.
Section 5. Effectiveness. The effectiveness of this Amendment
shall be subject to receipt by the Agent of this Amendment executed by each
of the Borrower, the Banks and the Agent.
Section 6. Miscellaneous Provisions. (a) Except as otherwise expressly
provided by this Amendment, all of the terms, conditions and provisions of the
Credit Agreement shall remain the same. It is declared and agreed by each of the
parties hereto that the Credit Agreement, as amended hereby, shall continue in
full force and effect, and that this Amendment and the Credit Agreement shall be
read and construed as one instrument.
(b) THIS AMENDMENT IS INTENDED TO TAKE EFFECT AS AN AGREEMENT UNDER SEAL
AND SHALL BE CONSTRUED ACCORDING TO AND GOVERNED BY THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS.
(c) This Amendment may be executed in any number of counterparts, but
all such counterparts shall together constitute but one instrument. In making
proof of this Amendment it shall not be necessary to produce or account for more
than one counterpart signed by each party hereto by and against which
enforcement hereof is sought.
(d) Pursuant to Section 15 of the Credit Agreement, the Borrower hereby
agrees to pay to the Agent, on demand by the Agent, all reasonable out-of-pocket
costs and expenses incurred or sustained by the Agent in connection with the
preparation of this Amendment (including reasonable legal fees).
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
TRIMBLE NAVIGATION LIMITED
By: /s/ Dennis R. Ing
Name:Dennis R. Ing
Title: Vice President Finance and Chief
Financial Officer
THE FIRST NATIONAL BANK
OF BOSTON, individually and
as Agent
By: /s/ Tena Lindenauer
Name:Tena Lindenauer
Title:Director
MELLON BANK, N.A.
By: /s/ Sean C. Gannon
Name:Sean C. Gannon
Title:Assistant Vice President
20
<PAGE>
TRIMBLE NAVIGATION LIMITED
EXHIBIT 11.1
Computation of Earnings (Loss) Per Common Share
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
PRIMARY EARNINGS (LOSS) PER COMMON SHARE
<S> <C> <C> <C> <C>
Computation of common and common
equivalent shares outstanding:
Common stock outstanding 22,029 20,338 21,833 19,425
Common stock options - 1,382 - 1,236
Common stock warrants - 255 - 202
--------- ---------- ---------- -----------
Total weighted average common
and dilutive common equivalent shares outstanding 22,029 21,975 21,833 20,863
========= ========== ========== ===========
Net income (loss) $ (8,834) $ 4,340 $ (12,565) $ 10,554
========== ========== ========== ===========
Primary earnings (loss) per share $ (0.40) $ 0.20 $ (0.58) $ 0.51
========== ========== ========= ===========
FULLY DILUTED EARNINGS (LOSS) PER COMMON SHARE
Computation of common and common
equivalent shares outstanding:
Common stock outstanding 22,029 20,338 21,833 19,425
Common stock options - 1,428 - 1,278
Common stock warrants - 264 - 211
---------- ---------- ---------- -----------
Total weighted average common
and dilutive common equivalent shares outstanding 22,029 22,030 21,833 20,914
========== ========== ========== ===========
Net income (loss) $ (8,834) $ 4,430 $ (12,565) $ 10,554
========== ========== ========== ===========
Fully diluted earnings (loss) per share $ (0.40) $ 0.20 $ (0.58) $ 0.50
========== ========== ========== ===========
</TABLE>
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND CONDENSED CONSOLIDATED STATEMENT OF
EARNINGS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,653
<SECURITIES> 57,528
<RECEIVABLES> 30,091
<ALLOWANCES> 0
<INVENTORY> 41,645
<CURRENT-ASSETS> 156,194
<PP&E> 22,094
<DEPRECIATION> 0
<TOTAL-ASSETS> 187,548
<CURRENT-LIABILITIES> 33,735
<BONDS> 0
0
0
<COMMON> 127,370
<OTHER-SE> (4,527)
<TOTAL-LIABILITY-AND-EQUITY> 187,548
<SALES> 169,410
<TOTAL-REVENUES> 169,410
<CGS> 80,506
<TOTAL-COSTS> 80,506
<OTHER-EXPENSES> 102,444
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,984
<INCOME-PRETAX> (13,099)
<INCOME-TAX> (534)
<INCOME-CONTINUING> (12,565)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,565)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>
