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 October 2, 1998
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 October 2, 1998, there were 22,106,300 shares of Common Stock (no par
value) outstanding.
1
<PAGE>
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 -
October 2, 1998 and January 2, 1998 3
Condensed Consolidated Statements of Operations -
Three and Nine Months ended October 2, 1998 and
September 30, 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine Months ended October 2, 1998 and September 30, 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
October 2, January 2,
1998 1998
-----------------------------------------------------------------------------
(In thousands) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $47,642 $ 19,951
Short term investments 9,149 53,171
Accounts and other receivable, net 37,121 49,101
Inventories 46,200 42,385
Other current assets 4,300 4,147
---------- -----------
Total current assets 144,412 168,755
Net property and equipment 17,203 19,676
Intangible assets 1,429 1,525
Deferred income taxes 305 356
Other assets 7,209 7,426
----------- -----------
26,146 28,983
----------- -----------
Net assets of discontinued operations - 9,925
----------- -----------
Total assets $170,558 $207,663
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,263 $ 44
Accounts payable 11,527 18,724
Accrued compensation and benefits 8,383 5,830
Customer advances 812 830
Accrued liabilities 15,433 9,391
Accrued liabilities related to disposal of
General Aviation 7,133 -
Income taxes payable 2,241 2,664
----------- -----------
Total current liabilities 46,792 37,483
----------- -----------
Noncurrent portion of long-term debt and
other liabilities 31,731 30,697
----------- -----------
Total liabilities 78,523 68,180
----------- -----------
Shareholders' equity:
Common stock 120,902 132,655
Common stock warrants 700 700
Retained earnings (deficit) (28,588) 6,676
Unrealized gain (loss) on short term investments 52 8
Foreign currency translation adjustment (1,031) (556)
----------- -----------
Total shareholders' equity 92,035 139,483
----------- -----------
Total liabilities and shareholders' equity $170,558 $207,663
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
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TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, Setember 30, October 2, September 30,
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenue $ 57,419 $ 61,806 $ 200,995 $184,692
------------ ------------ ------------ ------------
Operating expenses:
Cost of sales 32,592 27,516 102,157 83,267
Research and development 12,054 9,103 33,779 26,283
Sales and marketing 15,705 14,136 46,893 41,247
General and administrative 8,002 7,029 22,325 19,502
Restructuring charges 2,453 - 2,453 -
------------- ------------ ------------ ------------
70,806 57,784 207,607 170,299
------------- ------------ ------------ ------------
Operating income (loss) (13,387) 4,022 (6,612) 14,393
------------- ------------ ------------ ------------
Nonoperating income (expense):
Interest income 839 1,152 2,853 3,294
Interest and other expenses (2,362) (816) (4,040) (2,600)
Foreign exchange gain, net 78 81 358 235
------------- ------------ ------------ ------------
(1,445) 417 (829) 929
------------- ------------ ------------ ------------
Income (loss) before income taxes from
continuing operations (14,832) 4,439 (7,441) 15,322
Income tax provision 350 442 1,050 1,853
------------- ------------ ------------ ------------
Net income (loss) from continuing operations $ (15,182) $ 3,997 $ (8,491) $ 13,469
------------- ------------ ------------ ------------
Discontinued operations:
Loss from operations (net of income tax
benefit of $44 and $132 in 1997) (2,390) (2,405) (6,911) (6,583)
Estimated loss on disposal (19,862) - (19,862) -
------------- ------------ ------------ ------------
Loss on discontinued operations (22,252) (2,405) (26,773) (6,583)
------------- ------------ ------------ -----------
Net income (loss) $ (37,434) $ 1,592 $ (35,264) $ 6,886
============= ============ ============ ============
Basic income (loss) per share from continuing operations (0.68) 0.18 (0.38) 0.61
Basic income (loss) per share from discontinued operations (1.00) (0.11) (1.19) (0.30)
============= ============ ============ ============
Basic net income (loss) per share $ (1.68) $ 0.07 $ (1.56) $ 0.31
============= ============ ============ ============
Shares used in calculating basic
income (loss) per share 22,305 22,364 22,593 22,170
============= ============ ============ ============
Diluted income (loss) per share from continuing operations (0.68) 0.17 (0.38) 0.59
Diluted income (loss) per share from discontinued operations (1.00) (0.10) (1.19) (0.29)
============= ============ ============ ============
Diluted net income (loss) per share $ (1.68) $ 0.07 $ (1.56) $ 0.30
============= ============ ============ ============
Shares used in calculating diluted
income (loss) per share 22,305 23,163 22,593 22,684
============= ============ ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
Otober 2, September 30,
1998 1997
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities of continuing operations $ 9,102 $ 11,067
Net cash used by operating activities of discontinued operations $ (6,911) $ (6,583)
------------ -------------
Net cash provided by operating activities $ 2,191 $ 4,484
------------ -------------
Cash flow from investing activities:
Purchase of short term investments (69,163) (57,400)
Maturities of short term investments 104,712 42,575
Sales of short term investments 8,473 21,808
Equity investments (844) (886)
Acquisition of property and equipment (6,711) (7,179)
Capitalized patent expenditures (802) (642)
------------ -------------
Net cash provided (used) in investing activities of continuing operations 35,665 (1,724)
Net cash used in investing activities of discontinued operations (952) (1,063)
------------ -------------
Net cash provided (used) in investing activities 34,713 (2,787)
------------ -------------
Cash flow from financing activities:
Issuance of common stock 3,415 5,981
Repurchase of common stock (15,168) (1,834)
Payment of notes receivable (14) (1,507)
Proceeds from long-term debt and revolving
credit facilities 2,554 (237)
------------ -------------
Net cash provided (used) by financing activities of continuing operations (9,213) 2,403
------------ -------------
Net cash provided (used) by financing activities (9,213) 2,403
------------ -------------
Net increase in cash and cash equivalents 27,691 4,100
Cash and cash equivalents -- beginning of period 19,951 22,671
------------ -------------
Cash and cash equivalents -- end of period $ 47,642 $ 26,771
============ =============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 790 $ 746
Income taxes, net of refunds $ 1,410 $ 271
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
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 October 2, 1998, and September 30, 1997, which are presented
in this Quarterly Report on Form 10-Q are unaudited. The balance sheet at
January 2, 1998, has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, these statements include all adjustments (consisting
only of normal recurring adjustments) necessary for a fair statement of the
results for the interim periods presented. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Company's Annual Report to
Shareholders for the year ended January 2, 1998.
During fiscal year 1997 and effective as of the Company's 1997 fiscal year
end, the Company changed from a calendar fiscal year end and adopted a 52-53
week fiscal year ending on the Friday nearest to December 31, which for fiscal
1998 will be January 1, 1999. The Company does not expect the effects of any
differences due to the change of fiscal years to have a material impact on the
Company's financial position, results of operations, or cash flows.
The results of operations for the three and nine month periods ended
October 2, 1998 are not necessarily indicative of the results that may be
expected for the year ending January 1, 1999.
NOTE 2 - Discontinued Operations
On October 2, 1998, the Company adopted a plan to discontinue its General
Aviation division. The Company anticipates that the division will be disposed of
by March 31, 1999. Accordingly, the General Aviation division is being reported
as a discontinued operation for all periods presented in these financial
statements. Net assets of the discontinued operation at October 2, 1998 were
written off and consisted primarily of inventory, property, plant, and equipment
and intangible assets.
The estimated loss on the disposal of the discontinued operation is
$19,862,000. The estimate includes a write-off of net assets of $12,729,000 and
a provision of $7,133,000 for costs of disposal, including severance costs,
facility and certain other contractual costs and anticipated operating losses
through the estimated date of disposal.
6
<PAGE>
The net assets, which have been written off in September 1998, are
summarized as follows:
October 2,
1998
- -----------------------------------------------------------------
(In thousands)
Inventory $ 7,283
Other current assets 451
Plant and equipment, net 3,241
Other noncurrent assets 1,754
================
Net assets of discontinued operations $ 12,729
================
Net revenues of the discontinued operation for the nine months ended
October 2, 1998 and September 30, 1997 were $13,482,000 and $9,523,000,
respectively. These amounts are not included in net revenues of continuing
operations in the accompanying statements of operations.
The Operating results of the discontinued operation are summarized as
follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, September 30, October 2, September 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net Sales $ 4,599 $ 2,914 $ 13,482 $ 9,523
Income (loss) before tax provision (2,390) (2,449) (6,911) (6,715)
Income tax provision (44) (132)
Net income (loss) (2,390) (2,405) (6,911) (6,583)
Basic net income (loss) per share $ (1.00) $ (0.11) $ (1.19) $ (0.30)
Diluted net income (loss) per share $ (1.00) $ (0.10) $ (1.19) $ (0.29)
</TABLE>
The net assets of discontinued operations as of January 2, 1998 are
summarized as follows:
January 2,
1998
- -----------------------------------------------------------------
(In thousands)
Inventory $ 5,388
Other current assets 48
Plant and equipment, net 2,289
Other noncurrent assets 2,200
================
Net assets of discontinued operations $ 9,925
================
7
<PAGE>
NOTE 3 - Inventories:
Inventories from continuing operations consist of the following:
October 3, January 2,
1998 1998
- ----------------------------------------------------------------------------
(In thousands)
Raw materials $ 30,918 $ 28,562
Work-in-process 4,527 6,040
Finished goods 10,755 7,783
-------------- -------------------
$ 46,200 $ 42,385
-------------- -------------------
NOTE 4 - Restructuring Charge:
During the quarter ended October 2, 1998, the Company recorded a
restructuring charge of $2,453,000 of which $999,429 of idle assets had been
written off as of October 2, 1998. Components of this restructuring charge
included employee severance costs, including costs for the Company's former CEO
and certain other former senior employees of $1,453,571, and write-downs of idle
assets of $999,429. The related liabilities for the employee severance costs are
included in accrued liabilities.
NOTE 5 - New Accounting Standards:
As of January 3, 1998, the Company adopted Statement 130 (SFAS 130),
"Reporting Comprehensive Income." SFAS 130 establishes new rules for the
reporting and presentation of comprehensive income and its components; however,
the adoption of SFAS 130 did not have any impact on the Company's net loss or
shareholders' equity for the three and nine month periods ended October 2, 1998.
SFAS 130 requires unrealized gains or losses to be reported on the Company's
securities which are available for sale and foreign currency translation
adjustments, which prior to adoption were reported separately as part of
shareholders' equity and which were included in other comprehensive income.
Prior year financial statements have been reclassified and restated to conform
with the requirements of SFAS 130.
The components of comprehensive income, net of related tax for the three
and nine months ended October 2, 1998 and September 30, 1997 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, September 30, October 2, September 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------- ----------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net income (loss) $(37,434) $ 1,592 $(35,264) $ 6,886
Unrealized gains/(losses) on securities 56 50 44 56
Foreign currency translation adjustments (13) (273) (475) (555)
------------- ----------- -------------- --------------
Comprehensive income $(37,391) $ 1,369 $(35,695) $ 6,387
============= =========== ============== ==============
</TABLE>
8
<PAGE>
The components of accumulated other comprehensive income, net of related
taxes at October 2, 1998 and January 2, 1998 is as follows:
October 2, January 2,
1998 1998
- ------------------------------------------------------------------------------
(In thousands)
Unrealized gains/(losses) on securities $ 52 $ 8
Foreign currency translation adjustments (1,031) (556)
-------------- -------------------
Accumulated comprehensive income $ (979) $ (548)
============== ===================
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, (SFAS 131) "Disclosures about Segments
of an Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. SFAS 131 establishes standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Because SFAS 131 is effective for
financial statements for fiscal years beginning after December 15, 1997, the
Company will adopt the new requirements for reporting in fiscal year 1998 and
retroactively restate fiscal year 1997. Management has not completed its review
of SFAS 131, but does not anticipate that the adoption of this statement will
have a significant effect on the Company's reported segments.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, (SFAS 133) "Accounting for Derivative
Instruments and Hedging Activities". The Standard will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
derivatives will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings, or recognized in
other comprehensive income until the value related to the ineffective portion of
a hedge, if any, will be immediately recognized in earnings. The Company expects
to adopt this Standard as of the beginning of its fiscal year 2000. The effect
of adopting the Standard is currently being evaluated, but is not expected to
have a material effect on the Company's financial position or results of
operations.
9
<PAGE>
NOTE 6 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, September 30, October 2, September 30,
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------- ------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Income (loss) from continuing operations available to common
shareholders used in basic and diluted income per share $(15,182) $ 3,997 $ (8,491) $ 13,469
Loss from discontinued operations available to common
shareholders used in basic and diluted income per share $(22,252) $ (2,405) $(26,773) $ (6,583)
-------------- -------------- ------------- --------------
Income from operations available to common
shareholders used in basic and diluted income per share $(37,434) $ 1,592 $(35,264) $ 6,886
============== ============== ============= ==============
Denominator:
Weighted-average number of common
shares used in calculating basic income (loss) per share 22,305 22,364 22,593 22,170
Effect of dilutive securities:
Common stock options 642 406
Common stock warrants 157 108
-------------- -------------- ------------- --------------
Weighted-average number of common
shares and dilutive potential common shares
used in calculating diluted income (loss) per share 22,305 23,163 22,593 22,684
============== ============== ============= ==============
Basic income (loss) per share from continuing operations $ (0.68) $ 0.18 $ (0.38) $ 0.61
Basic income (loss) per share from discontinued operations $ (1.00) $ (0.11) $ (1.19) $ (0.30)
-------------- -------------- ------------- --------------
Basic income per share $ (1.68) $ 0.07 $ (1.56) $ 0.31
============== ============== ============= ==============
Diluted income (loss) per share from continuing operations $ (0.68) $ 0.17 $ (0.38) $ 0.59
Diluted income (loss) per share from discontinued operations $ (1.00) $ (0.10) $ (1.19) $ (0.29)
-------------- -------------- ------------- --------------
Diluted income per share $ (1.68) $ 0.07 $ (1.56) $ 0.30
============== ============== ============= ==============
</TABLE>
NOTE 7 - Contingencies:
Shareholder Litigation
On December 6, 1995, two shareholders filed a class action lawsuit against
the Company and certain directors and officers of the Company. Subsequent to
that date, additional lawsuits were filed by other shareholders. The lawsuits
were subsequently amended and consolidated into one complaint, which was filed
on April 5, 1996. The amended consolidated complaint sought to bring an action
as a class action consisting of all persons who purchased the common stock of
the Company during the period April 18, 1995, through December 5, 1995 (the
"Class Period"). The plaintiffs alleged that the defendants sought to induce the
members of the Class to purchase the Company's common stock during the Class
Period at artificially inflated prices. The plaintiffs seek recissory or
compensatory damages with interest thereon, as well as reasonable attorneys'
fees and extraordinary equitable and/or injunctive relief. The Company filed a
motion to dismiss, which was heard by the Court on August 16, 1996. The court
rejected the plaintiffs' lawsuit, but allowed thirty days to resubmit its
complaint. On September 24, 1996, the plaintiffs filed an amended complaint. On
April 28, 1997, the Court granted in part, and denied in part, the Company's
10
<PAGE>
motion to dismiss. The Court further granted the plaintiffs leave to
replead certain dismissed claims. On June 19, 1997, the plaintiffs filed a third
amended and consolidated complaint. The Company has answered the complaint by
denying all liability. A trial date has been set for August 1999. The Company
does not believe that it is possible to predict the outcome of this litigation.
Other Litigation
On May 8, 1998, Satloc, Inc. a Trimble customer and competitor, filed a
lawsuit in the United States District Court for the District of Arizona, action
No. CIV 98-0837 PHX PGR. The complaint alleged misappropriation of trade secrets
and confidential business information, intentional interference with contractual
relations, intentional interference with prospective contractual relations,
unfair competition, and unjust enrichment, arising from Trimble's hiring of a
former Satloc sales person. The complaint seeks injunctive relief, compensatory
and punitive damages, an accounting, and attorney fees. Trimble has answered the
complaint. In September 1998, Satloc, Inc dismissed its claims with prejudice.
On December 1, 1997, a Trimble former employee, filed a lawsuit in the
United States District Court for the Western District of Texas, Austin Division,
and action No. A97CA 731. The complaint alleged violation of the Americans With
Disabilities Act, U.S.C. Section 12101 et seq., arising from Trimble's alleged
discrimination, harassment, and demotion of the plaintiff in violation of the
Act. Trimble has answered the complaint. The case is in the discovery stage. The
Company currently does not believe there will be any adverse consequences to the
Company as a result of this case.
On January 31, 1997, counsel for one Philip M. Clegg wrote to Trimble
asserting that a license under Clegg's U.S. Patent No. 4,807,131, which was
issued February 21, 1989, would be required by Trimble because of a joint
venture Trimble had entered into with Caterpillar Corporation concerning the use
of Trimble GPS products in combination with earth moving equipment. To date, no
infringement action has been initiated on behalf of Mr. Clegg. The Company
currently does not believe that there will be any adverse consequences to the
Company as a result of this inquiry.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
Management Changes and Subsequent Events
In August of 1998, the Board of Directors announced that Charles Trimble,
the Company's founder, resigned as President and Chief Executive Officer.
However, Mr. Trimble remains on the Company's Board of Directors and serves as
Vice Chairman of the Board as well as a consultant to the Company. Dr. Bradford
Parkinson, a member of the Board of Directors since 1984 and served as a
consultant to the Company since 1982, assumed the role of President and CEO
while the Company conducts a search for a permanent replacement. At the same
time, Dr. Robert Cooper, a member of the Company's Board of Directors since
1989, was appointed to serve as the Chairman of the Board of Directors.
During the third quarter, the Board of Directors also performed an
intensive detailed investigation and review of each of the individual business
lines of the Company. Under the direction of Dr. Parkinson, the Company has
undertaken actions which focus on the review, restructuring and elimination of
unprofitable businesses, the implementation of strong cost controls and the
improvement of manufacturing efficiencies. As part of the changes taken to
strengthen the Company's competitive position in the market place, a decision
was made to discontinue the Company's General and Aviation Division, located in
Austin, Texas. The Company incurred a charge of $19.9 million in the third
quarter of 1998 for the discontinued operation.
The Company will continue to evaluate further cost reduction programs to
improve the Company's overall cost structure in the fourth quarter. Trimble
currently expects to further downsize its organization by approximately 5% to
8%. In addition the Company has taken recent steps to further strengthen and
improve employee relationships and incentives by extending the period of
exercisability effective as of November 3, 1998 for all current outstanding
employee stock options from five years three months to ten years.
In addition, in November 1998 the Company, announced a realignment of the
management structure of the remaining existing businesses which is expected to
strengthen the relationships between the Company's businesses and product lines
and to provide the Company with a better focus on the markets it serves. The
Company realigned its vertical markets, consolidated its worldwide sales team
and created an international business development function.
The realignment of its vertical markets consisted of Mobile Positioning
currently under the Commercial System Group being moved under the Software and
Component Technologies group. The Software and Component Technologies group has
changed its name to Mobile and Timing Technologies. The Commercial Systems Group
maintains the following vertical markets; Land Survey, GIS and Mapping, Marine,
Marine Survey and Precise Positioning. The Precise Positioning vertical market
has changed its name to Machine Control and the Commercial Systems Group has had
a name change to Precision Positioning. Aerospace continues to consist of the
Commercial Aviation System and Military and Advanced System vertical markets.
The discussions below are based on the management structure that existed at
the end of the quarter.
Revenues
Revenues of continuing operations for the three and nine month periods
ended October 2, 1998 were $57,419,000 and $200,995,000 respectively, compared
with $61,806,000 and $184,692,000 in the corresponding 1997 periods. The table
below breaks out the Company's revenues by business unit:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------- --------------------------------------------
October 2, September 30, Increase/ October 2, September 30, Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
- ----------------------------------------------------------------------------------- --------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial Systems $44,841 $39,143 15% $ 146,029 $ 122,306 19%
Software & Component Technologies 8,799 12,536 (30)% 27,286 34,321 (20)%
Aerospace 3,779 10,127 (63)% 27,680 28,065 (1)%
------------- ------------- ------------- ------------- ------------- -------------
Total $57,419 $61,806 (7)% $ 200,995 $ 184,692 9%
------------- ------------- ------------- ------------- ------------- -------------
</TABLE>
12
<PAGE>
Commercial Systems
Commercial Systems revenues increased for the three and nine month periods
ended October 2, 1998 as compared to the corresponding periods for 1997. The
increase for the three month period was primarily in the Land Survey and Mapping
and GIS Systems markets. The increase for the nine month period was primarily in
the Land Survey, Mapping and GIS Systems, Precise Positioning, and Marine Survey
markets.
Land Survey revenues increased in the three and nine month periods ended
October 2, 1998 as compared to the corresponding periods for 1997. This increase
is due in part to the continued strong customer acceptance of the Company's GPS
Total Station 4800 product.
Mapping and GIS sales increased in the three and nine month periods ended
October 2, 1998 as compared to the corresponding periods for 1997 principally
due to continuing strong demand for GIS products.
Precise Positioning sales increased in the nine month period ended October
2, 1998 as compared to the corresponding period for 1997 due to strong demand
for the Company's agricultural and mining products.
Marine Survey sales increased in the nine month period ended October 2,
1998 as compared to the corresponding period for 1997 due to strong demand in
marine survey and construction.
Software and Component Technologies
Software and Component Technologies revenues decreased for the three and
nine month periods ended October 2, 1998, as compared with the corresponding
periods for 1997 due primarily to the Company recognizing $1.8 million in
revenues from a development agreement in connection with an irrevocable non
refundable non recurring engineering fee recorded in the third quarter of 1997
and a non-recurring one-time $2.2 million technology license fee recorded in the
second quarter of 1997 from Pioneer Electronic Corporation in connection with
expansion of the original 1992 license for in-car navigation. In addition, the
Company is continuing to experience a softness in the U.S. embedded market due
to the financial difficulties of embedded customers and a delay in a new product
introduction.
Aerospace
Aerospace revenues decreased for the three and nine month periods ending
October 2, 1998, as compared with the corresponding periods for 1997 due to a
decrease in Air Transport and Military shipments which have been delayed.
Military sales are highly dependent on contracts that are subject to government
approval and are, therefore, expected to continue to fluctuate from period to
period.
Revenue outside the U.S.
* Sales to unaffiliated customers from continuing operations in locations
outside the U.S. comprised approximately 45% and 44% of revenue in the first
nine months of 1998 and 1997, respectively. During the first nine months of
1998, the Company experienced higher revenues in the U.S. due primarily to
strong U.S. customer acceptance of the new GPS total station 4800 product. 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
13
<PAGE>
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), customers in certain foreign markets may be
reluctant to purchase products based on GPS technology given the control of GPS
by the U.S. government. The Company's results of operations 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 from continuing operations varies on a quarterly basis due
to a number of factors, including product mix, technology license fees, domestic
versus international sales, customer type, the effects of production volumes and
fixed manufacturing costs on unit product costs and new product start-up costs.
Gross margin as a percentage of total product revenue was 43% and 49% for the
three and nine-month periods ended October 2, 1998, as compared with 56% and 55%
in the corresponding 1997 periods. The decrease in the gross margin percentages
primarily reflects increased labor costs from new product introductions,
expediting fees, inventory write downs, and unabsorbed fixed overhead due to
lower than expected volumes. Also, the 1997 gross margins were enhanced by the
positive impact of non-product revenues recognized of $1.8 million from a
development agreement in connection with an irrevocable non-refundable non-
recurring engineering fee recorded in the third quarter of 1997 and a
non-recurring one-time $2.2 million technology license fee recorded in the
second quarter of 1997. In addition, because of mix changes within and among the
business units, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, and other factors, there is no assurance that current
margins will be sustained.
* The Company also expects that a higher percentage of its business in the
future will be conducted through alliances with larger strategic partners such
as Honeywell, Caterpillar and Case. As a result of volume pricing and the
assumption of certain operating costs in connection with such partners, margins
related to these revenues from strategic alliances are likely to be lower than
revenues from sales directly to end-users.
Operating Expenses
The following table shows operating expenses from continuing operations for
the periods indicated and should be read in conjunction with the narrative
descriptions of those operating expenses below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------- -----------------------------------------------
October 2, September 30, Increase/ October 2, September 30, Increase/
1998 1997 (Decrease) 1998 1997 (Decrease)
- -----------------------------------------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Research and development $12,054 $ 9,103 32% $ 33,779 $26,283 29%
Sales and marketing 15,705 14,136 11% 46,893 41,247 14%
General and administrative 8,002 7,029 14% 22,325 19,502 14%
Restructuring charges 2,453 - 100% 2,453 - 100%
------------- -------------- ------------ -------------- -------------- -------------
Total $38,214 $30,268 26% $ 105,450 $87,032 21%
------------- -------------- ------------ -------------- -------------- -------------
</TABLE>
14
<PAGE>
Research and Development
Research and development expenses increased in the three and nine month
periods ended October 2, 1998, as compared with the corresponding 1997 periods.
The higher research and development expenses in the 1998 periods are due to the
Company receiving fewer funds from cost reimbursement projects in the third
quarter of 1998 as compared with the third quarter of 1997. The increase in
research and development is part of the Company's continuing aggressive
development of future products.
* The Company expects that a significant portion of its future revenues and
operating income will continue to be derived from sales of newly introduced
products. Consequently, the Company's future success depends, in part, on its
ability to continue to advance product technology and to develop and manufacture
new competitive products with high gross profit margins. Development and
manufacturing schedules for technology products are difficult to predict, and
there can be no assurance that the Company will achieve timely initial customer
shipments of new products. The timely availability of these products in volume
and their acceptance by customers are important to the future success of the
Company.
Sales and Marketing
The increase in sales and marketing expenses for the three and nine month
periods ended October 2, 1998, as compared with the corresponding periods in
1997 is due primarily to an increase in personnel and related expenses which
accompany an increase in the number of employees. In addition, the Company
experienced increases in expense related to trade shows, advertising, and demo
equipment expenses in the third quarter of 1998 as compared with third quarter
of 1997.
* The Company's future growth will also 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 penetrate 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.
General and Administrative
The increase in general and administrative expense for the three and nine
month periods ended October 2, 1998, as compared with the corresponding periods
for 1997, is primarily due to an increase in personnel and the related expenses
which accompany an increase in the number of employees and consultants.
Restructuring Charges
As noted in Note 4 during the quarter ended October 2, 1998, the Company
recorded a restructuring charge of $2,453,000. Components of this restructuring
reserve included employee severance costs for the Company's former CEO and for
certain other employees and write-downs of idle assets.
15
<PAGE>
Income Taxes
The effective tax rate on the loss from continuing operations was (2.4%)
for the three months ended October 2, 1998 and (14%) for the nine months ended
October 2, 1998. These rates reflect foreign taxes on profits in foreign
jurisdictions and the inability to benefit the operating loss in the United
States. The effective tax rates on the income from continuing operations for the
comparable periods in 1997 were 10% and 12%, respectively.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
* At October 2, 1998, the Company had cash and cash equivalents of
$47,642,000 and short-term investments of $9,149,000. The Company's cash and
cash equivalents have been reduced from the prior quarter primarily due to the
Company's stock repurchase program. The Company has relied primarily on cash
provided by operating and financing activities and net sales of short-term
investments to fund capital expenditures, the repurchase of the Company's common
stock (see further explanation below), and other investing activities.
Management believes that its cash, cash equivalents and short-term investment
balances, together with its existing credit line, will be sufficient to meet its
anticipated cash needs for at least the next twelve months.
For the nine month period ended October 2, 1998, net cash provided from
operating activities was $2,191,000 as compared to cash provided of $4,484,000
in the corresponding period in 1997. Inventory from continuing operations as of
October 2, 1998 increased by $3,815,000 from the 1997 year end levels primarily
due to purchases of strategic parts, an increase in finished goods, and
inventory accumulated due to delays in expected customer shipments. The
Company's ability to continue to generate cash from operations will depend in a
large part on revenues, the rate of collections of accounts receivable and
management of inventory levels.
Cash provided by sales of common stock in 1998 represents the proceeds from
purchases made pursuant to the Company's stock option and employee stock
purchase plans and totaled $3,415,000 for the nine month period ended October 2,
1998.
In August 1997, the Company entered into a three year $50,000,000 unsecured
revolving credit facility with four banks (the "Credit Agreement"). This credit
facility replaced the previous two-year $30,000,000 unsecured line that expired
in August 1997. The Credit Agreement enables the Company to borrow up to
$50,000,000, provided that certain financial and other covenants are met. The
Company obtained an unconditional waiver for certain covenants of the unsecured
revolving credit facility for the quarter ended October 2, 1998. The Company is
in the process of renegotiating its original covenants and must have amended
covenants or an additional extension by December 15, 1998. Under a separate
agreement the Company has an additional $5,000,000 line of credit provided only
by the lead bank under the Credit Agreement for "Letter of Credit" purposes, and
this is also subject to the covenants in the main facility. The Credit Agreement
provides for payment of a commitment fee of 0.25% and borrowings to bear
interest at 1% over LIBOR if the total funded debt to EBITDA is less than or
equal to 1.00 times, 0.3% and borrowings to bear interest at 1.25% over LIBOR if
the ratio is greater than 1.00 times and less than or equal to 2.00 times, or
16
<PAGE>
0.4% and borrowings to bear interest at 1.75% over LIBOR if the ratio is greater
than 2.00 times. In addition to borrowing at the specified LIBOR rate, the
Company has the right to borrow with interest at the higher of (i) one of the
bank's annual prime rate and (ii) the federal funds rate plus 0.5%. To date, the
Company has not made any borrowings under the $50,000,00 unsecured revlover, but
has issued certain letters of credit under the separate $5,000,000 line issued
by the lead bank under the credit agreement. In addition, the Company is
restricted from paying dividends under the terms of the Credit Agreement.
The failure to renegotiate the specified covenants and make mutually agreed
upon amendments to the credit facility could result in significant changes to
the terms of the revolving credit facility, including a reduction or
cancellation of the credit available to the Company. Although the Company has
never drawn on such credit facility, the failure to renegotiate the covenants of
the credit facility on terms acceptable to the Company could have a material
adverse effect on the Company's ability to borrow funds in the event that the
Company needs to do so after December 15, 1998 and there can be no assurance
that the Company will be able to secure a line of credit for a similar amount on
equivalent terms in the future.
The Company announced in February 1996 that it had approved a discretionary
program whereby up to 600,000 shares of its common stock could be repurchased on
the open market by the Company to offset the potential dilutive effects to
earnings per share from the issuance of stock options. In May of 1998 the
Company approved the repurchase of an additional 600,000 shares under the
discretionary program. In August of 1998 the Company approved the repurchase of
an additional 1,000,000 shares under the discretionary program. The Company
intends to use existing cash, cash equivalents and short-term investments to
finance any such stock repurchases under this program. In 1996, the Company
purchased 250,000 shares at a cost of $3,545,000. In 1997, the Company purchased
139,500 shares at a cost of $1,834,000. In the first nine months of 1998, the
Company purchased 980,000 shares at a cost of $15,169,000.
The Company is continually evaluating potential external investments in
technologies related to its business and, to date, has made relatively small
strategic investments in a number of GPS related technology companies. There can
be no assurance that any such outside investments made to date nor any potential
future investments will be successful.
The Company is looking into 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 to January 1, 2002. The Company does
not currently believe that the introduction of the Euro will have a material
affect on the Company's foreign exchange and hedging activities. The Company is
currently assessing the potential impact the euro conversion will have in
regards to its internal systems accommodating euro-denominated transactions. The
Company will continue to evaluate the impact of the Euro introduction over time,
based on currently available information. Since the Company is still in its
assessment phase, the Company cannot yet predict the anticipated impact of the
euro conversion on the Company.
Year 2000 / GPS Week Number Rollover Issues
Computers, software and other equipment that rely on only two digits to
identify or represent a year may be unable to accurately process or display
certain information at or after the Year 2000. This is commonly referred to as
the "Year 2000 issue." The Year 2000 issue materially affects or may materially
affect Trimble's vendors, suppliers, internal systems, products and customers.
The Company continues to address the Year 2000 issue to avoid what might
otherwise be a material and adverse effect upon the Company's consolidated
financial position, results of operations, or cash flows.
Another date related issue, known as the "GPS Week Number Roll-Over" or
"WNRO" issue, could also materially affect various Trimble products. The WNRO
issue is unrelated to the Year 2000 issue and is unique to GPS technology. All
GPS satellites, which are operated by the U.S. government, broadcast time in the
form of a "GPS week number" and a time offset into each "GPS week." Week numbers
range from 0 to 1023. Week 0 started on January 6, 1980, and week 1023 will end
on August 21, 1999, at which time the week number broadcast by all U.S. GPS
17
<PAGE>
satellites will roll-over back to 0. Among other potential effects, this
roll-over may cause GPS receivers and software that process data obtained by GPS
receivers to erroneously interpret high-week-number, pre-WNRO data as
post-dating later low-week-number, post-WNRO data. This may cause satellite
positions to be miscalculated and produce gross position fix errors. Receivers
that process and display calendar dates based on "weeks since 1980" may generate
date calculation errors. The Company continues to address the WNRO issue to
avoid what might otherwise be a material and adverse effect upon the Company's
future consolidated financial position, results of operations, or cash flows.
The Company continues to assess the potential impact of both the Year 2000
and WNRO issues on its vendors, suppliers, internal systems, products and
customers, and has begun, and in many cases completed, corrective efforts in
these areas.
Year 2000 Remediation Plan
The Company's board of directors has adopted a comprehensive Year 2000
Remediation Plan, the goal of which is to minimize business disruptions and risk
exposure that might otherwise arise as a consequence of moving into the
twenty-first century. The plan focuses on achieving Year 2000 readiness across
the company's entire supply chain, and is designed to deal with the most
critical systems first. Additionally, the Company's Year 2000 remediation plan
calls for the development of contingency plans to address potential problem
areas with internal systems and with suppliers and other third parties. To these
ends, a Y2K Program Management Office has been established to manage and
coordinate implementation of the plan on a company-wide basis. It is expected
that assessment, remediation, and contingency planning activities will be
on-going throughout 1998 and 1999 with the objective of appropriately resolving
all material Year 2000 issues before the 21st century roll-over.
Information Technology and Other Systems
The Company continues to assess the potential impact of the Year 2000 issue
on its internal systems, including information technology (IT) and non-IT
systems, and has begun corrective efforts in this area, as follows:
o As part of a plan to improve its operation in the normal course of
business, the Company is in the process of implementing a new enterprise
information system that will be Year 2000 compliant and will incidentally afford
a solution to many of the Company's Year 2000 readiness issues.
o Assessment and remediation efforts in connection with the Company's other
IT and non-IT systems will be undertaken as part of the Company's general Y2K
Remediation Plan.
The Company currently plans to complete renovation, testing and
implementation of critical systems, or successful execution of contingency
plans, during the third quarter of 1999. There can be no assurance, however,
that there will not be a delay in, or increased costs associated with, such
renovation, testing, implementation or execution, and the Company's inability to
successfully and timely complete these tasks could have a material adverse
effect on future results of operations or financial condition.
Products
To address and minimize the anticipated impact of both the Year 2000 issue
and the WNRO issue upon the Company's products, the Company continues to assess
18
<PAGE>
the anticipated impact these issues may have on the performance of its products,
and resolve various of its current products' related performance problems. In
addition, the Company has adopted a formal Year 2000/GPS Week Number Rollover
Policy to:
o Publish Year 2000 and WNRO related product performance information on the
Company's public web site
o Respond to individual customer inquiries regarding the anticipated
performance of particular Company products
o Furnish upgrades to customers whose Trimble products are upgradable
o Provide information regarding available product alternatives to customers
with noncompliant products
Assessment of products, resolution of certain products' Year 2000 and WNRO
performance problems, and implementation of the Company's Year 2000/GPS Week
Number Rollover Policy, are ongoing, and as to many Company products is
complete.
The Company does not anticipate that the Year 2000 and WNRO issues will
have a material adverse effect on sales of its products. The Company has
incurred and will continue to incur, through 1999 and thereafter, increased
expenses associated with Year 2000 and WNRO related product assessment,
resolution of certain products' Year 2000 and WNRO performance problems,
implementation of the Company's Year 2000/GPS Week Number Rollover Policy, and
fulfillment of Year 2000 and WNRO related customer support and warranty
obligations, in amounts that management believes has not had and will not have a
material adverse effect on the Company's historical or future results of
operations or financial condition.
Vendors and Suppliers
The Company materially relies for its successful operation upon goods and
services purchased from certain vendors. If these vendors fail to adequately
address the Year 2000 such that their delivery of goods and services to the
Company is materially impaired, it could have a material adverse impact on the
Company's operations and financial results. The Company is preparing to survey
its principal vendors to assess the effect the Year 2000 issue will have on
their ability to supply their goods and services without material interruption,
and at this time the Company cannot determine or predict the outcome of this
effort. Contingency plans will be developed and executed with respect to vendors
who will not be Year 2000 ready in a timely manner where such lack of readiness
is expected to have a material adverse impact on the Company's operations.
However, because the Company cannot be certain that its vendors will be able to
supply material goods and services without material interruption, and because
the Company cannot be certain that execution of its contingency plans will be
capable of implementation or result in a continuous and adequate supply of such
goods and services, the Company can give no assurance that these matters will
not have a material adverse effect on the Company's future consolidated
financial position, results of operations, or cash flows.
Customers
The Company has material relationships with certain customers. If the
Company's customers fail to achieve an adequate state of Year 2000 readiness in
their own operations, or if their Year 2000 readiness efforts consume
significant resources, their ability to purchase the Company's products may be
impaired. This could adversely affect demand for the Company's products and,
19
<PAGE>
therefore, the Company's future revenues. The Company plans to assess the effect
the Year 2000 issue will have on its principal customers, and at this time
cannot determine the impact it will have.
Related Costs to the Company
The Company currently expects that the total cost of Year 2000 remediation
efforts, including both incremental spending and redeployed resources, will not
exceed $1,000,000. The Company will expense these costs as incurred. The total
cost estimate does not include potential costs related to any customer or other
claims or the cost of internal software and hardware replaced in the normal
course of business. The total cost estimate is based on the current assessment
of the projects, and is subject to change as the projects progress. The cost
estimate does not include costs associated with its new enterprise information
system.
Overall Impact on the Company
At the present time and subject to the cost estimates above, management
does not believe that the Year 2000 and WNRO matters discussed above will have a
material adverse impact on the Company's financial condition or overall trends
in results of operation. However, it is uncertain to what extent the Company may
be affected by such matters and, therefore, there can be no assurance that these
matters will not have a material adverse effect on the Company's future
consolidated financial position, results of operations, or cash flows.
Other Risk Factors
The Company's revenues have historically tended to fluctuate on a quarterly
basis due to the timing of shipments of products under contracts and the sale of
licensing rights. A significant portion of the Company's quarterly revenues
occurs from orders received and immediately shipped to customers in the last few
weeks and days of a quarter. If orders are not received, or if shipments were to
be delayed a few days at the end of a quarter, the operating results and
reported earnings per share for that quarter could be significantly impacted.
Future revenues are difficult to predict, and projections are based primarily on
historical models, which are not necessarily accurate representations of the
future.
* The Company has a relatively fixed cost structure in the short term which
is determined by the business plans and strategies the Company intends to
implement in the three markets it addresses. This effective leveraging means
that increases or decreases in revenues have more than a proportional impact on
net income or losses. The Company estimates that a change in product revenue of
$1 million would change earnings per share by 2 to 3 cents.
* The Software and Component Technologies business unit differs in nature
from most of the Company's markets because volumes are high and margins are
relatively low. Software and Component Technologies customers are extremely
price sensitive. As costs decrease through technological advances, these
advances are typically 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.
Compared to competitors, which have far greater resources in such high-volume
manufacturing and associated support activities, the Company is relatively
inexperienced.
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.
20
<PAGE>
The value of the Company's products relies substantially on the Company's
technical innovation in fields in which there are many current patent filings.
The Company recognizes that as new patents are issued or are brought to the
Company's attention by the holders of such patents, it may be necessary for the
Company to withdraw products from the market, take a license from such patent
holders, or redesign its products. The Company does not believe any of its
products currently infringe patents or other proprietary rights of third
parties, but cannot be certain they do not do so. In addition, the legal costs
and engineering time required to safeguard intellectual property or to defend
against litigation could become a significant expense of operations. Such events
could have a material adverse effect on the Company's revenues or profitability.
(See Note 8 to the Condensed Consolidated Financial Statements - Contingencies:
Other Litigation)
The Company is continuously evaluating alliances and external investments
in technologies related to its business, and has already entered into alliances
and made relatively small strategic investments in a number of GPS related
technology companies. Acquisitions of companies, divisions of companies, or
products and alliances and strategic investments entail numerous risks,
including (i) the potential inability to successfully integrate acquired
operations and products or to realize anticipated synergies, economies of scale,
or other value; (ii) diversion of management's attention; (iii) loss of key
employees of acquired operations; and (iv) inability to recover strategic
investments in development stage entities. Any such problems could have a
material adverse effect on the Company's business, financial condition, and
results of operations. No assurances can be given that the Company will not
incur problems from current or future alliances, acquisitions, or investments.
Furthermore, there can be no assurance that the Company will realize value from
any such alliances, acquisitions, or investments.
Certain risks are inherent in making the types of changes in the senior
management of the Company which have occurred during the third fiscal quarter.
While the Company intends to name permanent replacements for such positions as
soon as practicable, there can be no assurance that such changes in senior
management and related uncertainties will not adversely affect the Company's
consolidated operating results and financial condition.
The ability of the Company to maintain its competitive technological
position will depend, in a large part, on its ability to attract, motivate and
retain highly qualified development and managerial personnel. Competition for
qualified employees in the Company's industry is intense, and there can be no
assurance that the Company will be able to attract, motivate and retain enough
qualified employees necessary for the future continued development of the
Company's business and products.
The Company has certain products that are subject to governmental and
similar certifications before they can be sold. For example, FAA certification
is required for all aviation products. Also, the Company's products which use
integrated radio communication technology require an end-user to obtain
licensing from The Federal Communications Commission (FCC) for frequency band
usage. An inability or delay in obtaining such certifications could have an
adverse effect on the Company's operating results. The Company's GPS technology
is dependent upon the use of radio spectrums. The assignment of the sepctrums is
controlled by a world wide organization, the International Telecomunications
Union (ITU). Any reallocation of the radio spectrum could have and adverse
effect on the Company's operating results.
The Company's products rely on signals from the GPS Navstar satellite
system built and maintained by the U.S. Department of Defense. Navstar
satellites and their ground support systems are complex electronic systems
subject to electronic and mechanical failures and possible sabotage. The
satellites have design lives of 7.5 years and are subject to damage by the
hostile space environment in which they operate. The array of satellites
consists of 24 of which the oldest satellite has been in orbit for 20 years and
the youngest satellite has been in orbit for 4 years. To repair damaged or
21
<PAGE>
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
of time, or that the policies of the U.S. government for the use of GPS without
charge will remain unchanged. However, the 1996 Presidential Decision Directive
marks the first time in the evolution of GPS that access and use for the
consumer, civilian and commercial use has a solid foundation in 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 in the future. Any of the foregoing factors could affect the willingness
of buyers of the Company's products to select GPS-based systems instead of
products based on competing technologies. Any resulting change in market demand
for GPS products would have a material adverse effect on the Company's financial
results. In 1995, certain European government organizations expressed concern
regarding the susceptibility of GPS equipment to intentional or inadvertent
signal interference. Such similar concern could translate into reduced demand
for GPS products in certain geographic regions in the future.
22
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
A. Exhibits Number
27.1 Financial Data Schedule for the quarters ended 25
October 2, 1998 and September 30, 1997
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
October 2, 1998.
23
<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/Mary Ellen Genovese
Mary Ellen Genovese
(Vice President Finance, Corporate Controller)
DATE: November 13, 1998
24
<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> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> JAN-01-1999 JAN-02-1998
<PERIOD-END> OCT-02-1998 SEP-30-1997
<CASH> 47,642 26,771
<SECURITIES> 9,149 52,884
<RECEIVABLES> 37,121 36,512
<ALLOWANCES> 0 0
<INVENTORY> 46,200 42,180
<CURRENT-ASSETS> 144,412 164,333
<PP&E> 17,203 19,656
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 170,558 201,140
<CURRENT-LIABILITIES> 46,792 35,817
<BONDS> 0 0
0 0
0 0
<COMMON> 121,602 130,382
<OTHER-SE> (29,567) 4,197
<TOTAL-LIABILITY-AND-EQUITY> 170,558 201,140
<SALES> 200,995 184,692
<TOTAL-REVENUES> 200,995 184,692
<CGS> 102,157 83,267
<TOTAL-COSTS> 102,157 83,267
<OTHER-EXPENSES> 105,450 87,032
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (1,187) 694
<INCOME-PRETAX> (7,441) 15,322
<INCOME-TAX> 1,050 1,853
<INCOME-CONTINUING> (8,491) 13,469
<DISCONTINUED> (26,773) (6,583)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (35,264) 6,886
<EPS-PRIMARY> (1.56) 0.31
<EPS-DILUTED> (1.56) 0.30
</TABLE>
