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 April 2, 1999
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 May 7, 1999, there were 22,278,800 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 -
April 2, 1999 and January 1, 1999 3
Condensed Consolidated Statements of Operations -
Three Months ended April 2, 1999 and April 3, 1998 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended April 2, 1999 and April 3, 1998 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURES 27
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2, January 1,
1999 1999
-----------------------------------------------------------------------------
(In thousands) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $53,427 $ 40,865
Short term investments 8,614 16,269
Accounts and other receivable, net 37,079 33,431
Inventories 34,879 37,166
Other current assets 5,042 4,173
------------- -------------
Total current assets 139,041 131,904
Net property and equipment 15,001 15,104
Intangible assets 1,297 1,320
Deferred income taxes 408 405
Other assets 8,191 7,546
------------- -------------
Total assets $163,938 $156,279
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,388 $ 1,388
Accounts payable 14,418 13,000
Accrued compensation and benefits 7,837 4,696
Customer advances 997 808
Accrued liabilities 14,416 15,474
Accrued liabilities related to disposal of
General Aviation 7,084 6,743
Accrued warranty expense 5,901 5,681
Income taxes payable 2,618 2,158
------------- -------------
Total current liabilities 54,659 49,948
------------- -------------
Noncurrent portion of long-term debt
and other liabilities 31,529 31,640
------------- -------------
Total liabilities 86,188 81,588
------------- -------------
Shareholders' equity:
Common stock 121,666 121,501
Common stock warrants 700 700
Accumulated deficit (43,704) (46,718)
Unrealized gain on short term investments 12 19
Foreign currency translation adjustment (924) (811)
------------- -------------
Total shareholders' equity 77,750 74,691
------------- -------------
Total liabilities and shareholders' equity $163,938 $156,279
============= =============
See accompanying notes to condensed consolidated financial statements.
3
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TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
April 2, April 3,
1999 1998*
- ------------------------------------------------------------------------------
(In thousands, except per share data)
Total revenue $ 68,770 $ 74,161
------------ ----------
Operating expenses:
Cost of sales 33,203 35,835
Research and development 8,507 11,154
Sales and marketing 13,304 15,826
General and administrative 10,023 7,064
------------ ----------
Total operating expenses 65,037 69,879
------------ ----------
Operating income 3,733 4,282
------------ ----------
Nonoperating income (expense):
Interest income 691 1,043
Interest and other expenses (817) (858)
Foreign exchange gain (loss) , net (61) 35
------------ ----------
(187) 220
------------ ----------
Income before income taxes from
continuing operations 3,546 4,502
Income tax provision 532 500
------------ ----------
Net income from continuing operations $ 3,014 $ 4,002
------------ ----------
Discontinued operations:
Loss from operations (net of income tax
benefit of zero in 1998) - (2,087)
------------ ----------
Net income $ 3,014 $ 1,915
============ ==========
Basic income per share from continuing operations $ 0.14 $ 0.18
Basic income (loss) per share from
discontinued operations - (0.09)
------------ ----------
Basic net income per share $ 0.14 $ 0.08
============ ==========
Shares used in calculating basic
income (loss) per share 22,262 22,780
============ ==========
Diluted income per share from continuing operations $ 0.14 $ 0.17
Diluted income (loss) per share from
discontinued operations - (0.09)
------------ ----------
Diluted net income per share $ 0.14 $ 0.08
============ ==========
Shares used in calculating diluted
income (loss) per share 22,265 23,620
============ ==========
* Certain amounts in this period have been restated for the discontinued
operation (General Aviation) and subsequent to the restatement, certain amounts
in this period related to certain product lines have been reclassified to
include amounts in continuing operations that were previously included in
discontinued operations. See Note 3 for further explanation.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
April 2, April 3,
1999 1998*
- -------------------------------------------------------------------------------
(In thousands)
Net cash provided by operating activities of
continuing operations $ 8,054 $ 3,121
Net cash used by operating activities of
discontinued operations $ - $ (2,087)
------------ ------------
Net cash provided by operating activities $ 8,054 $ 1,034
------------ ------------
Cash flow from investing activities:
Purchase of short term investments (2,595) (14,853)
Maturities of short term investments 10,250 14,500
Sales of short term investments - -
Acquisition of property and equipment (2,186) (2,665)
Capitalized patent expenditures (277) (282)
------------ ------------
Net cash provided (used) in investing
activities of continuing operations 5,192 (3,300)
Net cash used in investing activities
of discontinued operations - 43
------------ ------------
Net cash provided (used) in
investing activities 5,192 (3,257)
------------ ------------
Cash flow from financing activities:
Issuance of common stock 165 1,097
Repurchase of common stock - (1,858)
Payment of notes receivable (877) (183)
Proceeds from long-term debt and revolving
credit facilities 28 147
------------ ------------
Net cash used by financing activities of
continuing operations (684) (797)
------------ ------------
Net cash used by financing activities (684) (797)
------------ ------------
Net increase (decrease) in cash and cash equivalents 12,562 (3,020)
Cash and cash equivalents -- beginning of period 40,865 19,951
------------ ------------
Cash and cash equivalents -- end of period $ 53,427 $ 16,931
============ ============
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest $ 838 $ 792
Income taxes, net of refunds $ (31) $ 681
* Certain amounts in this period have been restated for the discontinued
operation (General Aviation) and subsequent to the restatement, certain amounts
in this period related to certain product lines have been reclassified to
include amounts in continuing operations that were previously included in
discontinued operations. See Note 3 for further explanation.
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 month periods
ended April 2, 1999, and April 3, 1998, which are presented in this Quarterly
Report on Form 10-Q are unaudited. The balance sheet at January 1, 1999, 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 on Form 10-K for the
year ended January 1, 1999. The quarter ended April 3, 1998 has been restated to
reflect a subsequently retained portion of discontinued operations. See Note 3.
The Company has a 52-53 week fiscal year which ends on the Friday nearest
to December 31, which for fiscal 1999 will be December 31, 1999.
The results of operations for the three month period ended April 2, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
NOTE 2 - Inventories:
Inventories from continuing operations consist of the following:
April 2, January 1,
1999 1999
- ---------------------------------------------------------------------------
(In thousands)
Raw materials $ 18,249 $ 22,480
Work-in-process 6,474 4,033
Finished goods 10,156 10,653
-------------- -------------------
$ 34,879 $ 37,166
-------------- -------------------
NOTE 3 - Discontinued Operations:
On October 2, 1998, the Company adopted a plan to discontinue its General
Aviation division. The Company currently anticipates that the division will be
disposed of by June 30, 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.
As of April 2, 1999, the Company had incurred cumulative expenses of $4.1
million consisting of $596,000 for severance, $254,000 for other contractual
costs, and $3.3 million for operating loss for the discontinued operation
through the date of disposal. The Company has a remaining provision of $7.1
million which consists of $2.2 of severance costs, $1.6 million for facility and
certain other contractual costs, and $3.3 million for the estimated operating
losses through the estimated date of disposal.
6
<PAGE>
On March 31, 1999 the Company made the decision to retain certain product
lines included within the General Aviation division which were part of the
previously planned discontinued operation. The basis of the decision was that
these products use common raw materials and labor which are necessary for the
Company's Air Transport products and, therefore, these product lines could be
retained without adding additional overhead from the overhead currently required
for the Air Transport products. The revenues and costs related to the products
retained have been included in the results of operations of continuing
operations in the periods presented.
The net revenues of the discontinued operation have been restated to
exclude the retained product lines and are not included in net revenues of
continuing operations in the accompanying statements of operations. The
operating results for the first quarter of 1998 of the discontinued operation
are summarized as follows:
Three Months Ended
April 3,
1998
- ---------------------------------------------------------------------
(In thousands)
Net revenues $ 2,447
Income (loss) before tax provision (2,087)
Income tax provision -
-------------
Net loss $ (2,087)
=============
Basic net loss per share $ (0.09)
Diluted net loss per share $ (0.09)
The following table represents revenue, gross margin, and operating income
(loss) associated with certain product lines that were included in previously
disclosed loss from discontinued operation numbers reported in the Company's
Annual Report on Form 10-K, for the year ended January 1, 1999.
Fiscal Operating
Year Revenue Gross Margin Income (Loss)
- ---------------------------------------------------------------------------
(In thousands)
1994 $ 5,916 $ 3,907 $ 1,265
1995 6,623 3,467 471
1996 4,861 2,055 (552)
1997 7,545 2,513 (1,141)
1998 6,939 1,666 (1,069)(1)
(1) The Operating loss represents the loss incurred for the first three
quarters of 1998, as the operating loss for the fourth quarter was included in
the estimated loss on disposal.
7
<PAGE>
During the fourth quarter of 1998, the following results associated with
these product lines were included in our estimated loss on disposal of
discontinued operations.
Revenue Gross Margin Income (Loss)
- -------------------------------------------------------------------------------
(in thousands)
Q4 1998 $ 1,369 $ 417 $ 417
NOTE 4 - Restructuring Charge:
In fiscal 1998, the Company recorded restructuring charges totaling $10.3
million in operating expenses.
These charges were a result of the Company's ongoing reorganization
activities, through which the Company has downsized its operations, including
reducing headcount and facilities space usage, and canceled its enterprise wide
information system project as well as certain research and development projects.
The impact of these decisions was that significant amounts of the Company's
fixed assets, prepaid expenses, and purchased technology have been impaired and
certain liabilities incurred. The Company wrote down the related assets to their
net realizable values and made provisions for the estimated liabilities as part
of these restructuring activities.
The activity in fiscal 1999 related to the restructuring and the amounts
remaining at April 2, 1999 on the balance sheet are as follows (in thousands):
<TABLE>
<CAPTION>
Total
charged to Amounts paid/ Amounts paid/ Remaining in
expense in written off written off accrued liabilites
fiscal 1998 in 1998 in Q1 1999 as of April 2, 1999
------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Employee termination benefits $ 2,864 $ (1,200) $ (465) $ 1,199
Facility space reductions 1,061 - (371) 690
ERP system abandonment 6,360 (4,895) (665) 800
------------- ---------------- -------------------- ---------------------
Subtotal $10,285 $ (6,095) $ (1,501) $ 2,689
============= ================ ==================== =====================
</TABLE>
NOTE 5 - Segment Information:
The Company manages its industry segment within two Business Units: the
Precision Positioning Group (PPG) and the Mobile and Timing Technologies (MTT)
Group.
The accounting policies applied by each of the markets are the same as
those used by the Company in general.
8
<PAGE>
The following table presents revenues, operating income (loss), and
identifiable assets by the Company's Business Units. The Company has no
inter-Business Unit sales or transfers. As presented operating income (loss)
consists of net sales less operating expenses, excluding general corporate
expenses, interest income (expense), and income taxes. The identifiable assets
that the Chief Operating Decision Maker (CODM) views by industry market are
accounts receivable and inventory. The Company does not report depreciation and
amortization or capital expenditures by industry markets to the CODM.
----------------------------------------
Three Months Ended
April 2, 1999
----------------------------------------
(in thousands)
----------------------------------------
PPG MTT Total
----------------------------------------
External net revenue $ 42,566 $ 26,204 $ 68,770
Operating profit/(loss) before
corporate allocations 14,385 3,325 17,710
Corporate allocations (1) (6,186) (2,491) (8,677)
----------------------------------------
Operating profit/(loss) from
continuing operations $ 8,199 $ 834 $ 9,033
Assets:
Accounts recievable (2) 31,188 20,858 52,046
Inventory 11,935 20,670 32,605
----------------------------------------
Three Months Ended
April 3, 1998
----------------------------------------
(in thousands)
----------------------------------------
PPG MTT Total
----------------------------------------
External net revenue $ 41,146 $ 33,015 $ 74,161
Operating profit/(loss) before
corporate allocations 6,147 4,314 10,461
Corporate allocations (1) (3,847) (1,958) (5,805)
----------------------------------------
Operating profit/(loss) from
continuing operations $ 2,300 $ 2,356 $ 4,656
Assets:
Accounts recievable (2) 38,230 23,311 61,541
Inventory 15,815 20,315 36,130
(1) For the quarter ended April 2, 1999, the Company determined the amount of
corporate allocations charged to its Business Units based on a percentage
of the Business Units' monthly revenue, gross profit, and controllable
spending (Research and Development marketing, and General and
Administrative). For the quarter ended April 3, 1998, the Company
determined the amount of the corporate allocations charged to its Business
Units based on a percentage of the Business Units' monthly inventory
balance and gross profit. Allocation percentages were determined at the
beginning of each of the respective fiscal years.
(2) As presented, accounts receivable excludes cash in advance which is not
allocated between Business Unit segments.
9
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Following are reconciliations corresponding to totals in the accompanying
consolidated financial statements (in thousands):
April 2, April 3,
Revenues: 1999 1998
- ---------------------------------------------------- ------------ -------------
Total for reportable markets $ 68,770 $ 74,161
============= =============
Operating profit/(loss) from continuing operations:
- -----------------------------------------------------
Total for reportable markets $ 9,033 $ 4,656
Unallocated corporate expenses (5,300) (374)
============= =============
Income before income taxes from
continuing operations $ 3,733 $ 4,282
============= =============
Assets:
- -----------------------------------------------------
Accounts receivable total for reportable markets $ 52,046 $ 61,541
Unallocated (1) (14,967) (12,285)
============= =============
Total $ 37,079 $ 49,256
============= =============
Inventory total for reportable markets $ 32,605 $ 36,130
Common inventory (2) $ 2,274 $ 11,333
============= =============
Net inventory $ 34,879 $ 47,463
============= =============
(1) Includes cash in advance and reserves that are not allocated by
Business Unit segment.
(2) Consists of inventory that is common between the Business Unit
segments. Parts can be used by either segment.
NOTE 6 - Comprehensive Income (Loss):
The components of comprehensive income, net of related tax for the three
months ended April 2, 1999 and April 3, 1998 are as follows:
Three Months Ended
April 2, April 3,
1999 1998
- --------------------------------------------------------------------------
(In thousands)
Net income $ 3,014 $ 1,915
Unrealized gains/(losses) on securities (7) 5
Foreign currency translation adjustments (113) (204)
------------- ---------------
Comprehensive income $ 2,894 $ 1,716
============= ===============
10
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The components of accumulated other comprehensive income (loss), net of
related taxes at April 2, 1999 and January 1, 1999 is as follows:
April 2, January 1,
1999 1999
- ----------------------------------------------------------------------------
(In thousands)
Unrealized gains on securities $ 12 $ 19
Foreign currency translation adjustments (924) (811)
-------------- ---------------
Accumulated comprehensive income (loss) $ (912) $ (792)
============== ===============
NOTE 7 - New Accounting Standards:
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." SFAS 133 will require the Company to record
all derivatives held on the balance sheet at fair value beginning for fiscal
year 2000. Derivatives that are not hedges must be adjusted to fair value
through income. With respect to derivatives which are hedges, then depending on
the nature of the hedge, changes in the fair value of derivatives either will be
offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings, or will be recognized in other comprehensive
income until the hedged item is recognized in earnings. The ineffective portion
of a derivative's change in fair value will be immediately recognized in
earnings. The Company expects to adopt SFAS 133 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 adverse effect on the
Company's financial position or results of operations.
11
<PAGE>
NOTE 8 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended
April 2, April 3,
1999 1998
- -------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
Numerator:
Income from continuing operations available to common
shareholders used in basic and diluted income per share $ 3,014 $ 4,002
Loss from discontinued operations available to common
shareholders used in basic and diluted income per share $ - $ (2,087)
------------- --------------
Income from operations available to common
shareholders used in basic and diluted income per share $ 3,014 $ 1,915
============= ==============
Denominator:
Weighted-average number of common
shares used in calculating basic income per share 22,262 22,780
Effect of dilutive securities:
Common stock options 3 658
Common stock warrants - 182
------------- --------------
Weighted-average number of common
shares and dilutive potential common shares
used in calculating diluted income per share 22,265 23,620
============= ==============
Basic income per share from continuing operations $ 0.14 $ 0.18
Basic income (loss) per share from discontinued operations $ - $ (0.09)
------------- --------------
Basic income per share $ 0.14 $ 0.08
============= ==============
Diluted income per share from continuing operations $ 0.14 $ 0.17
Diluted income (loss) per share from discontinued operations $ - $ (0.09)
------------- --------------
Diluted income per share $ 0.14 $ 0.08
============= ==============
</TABLE>
NOTE 9 - 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
12
<PAGE>
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
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. The parties have executed a Memorandum of Understanding with
respect to settlement of the litigation and anticipate the negotiation and
execution of a definitive agreement in the near term. The settlement will
require court approval, and there can be no assurance that such approval will be
granted. If the litigation is settled as provided by the current Memorandum of
Understanding, the outcome will not have a material adverse effect on the
Company's financial position or results of operations.
Other Litigation
On November 12, 1998, the Company brought suit in district court in San
Jose, California against Silicon RF Technology, Inc. (SiRF) for alleged patent
infringement of three Trimble patents. No action by the Court has taken place
yet.
On January 31, 1997, counsel for Philip M. Clegg wrote to the Company
asserting that a license under Mr. Clegg's U.S. Patent No. 4,807,131, which was
issued February 21, 1989, would be required by the Company because of a joint
venture that the Company had previously 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 does not believe that there will be any adverse
consequences to the Company as a result of this inquiry.
Other Matters
Western Atlas, a Houston based supplier to the oil exploration business,
has accused the Company and other GPS manufactures, suppliers and users of
infringing two U.S. Patents owned by it, namely U.S. Patent Nos. 5,014,066 and
5,619,212. Western Atlas contends that the foregoing patents cover certain
aspects of GPS receiver design. Lawsuits for infringement of these two patents
are currently pending in federal district court in Houston, Texas against Garmin
International Inc. and Rockwell International Corp. Although Trimble has not
been sued by Western Atlas on the foregoing patents, Trimble has instructed its
counsel thoroughly to investigate the infringement threat. At present time, the
Company does not expect this threat to have adverse consequences on the
Company's business.
13
<PAGE>
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT CHANGES AND SUBSEQUENT EVENTS
On March 17, 1999, Steven W. Berglund joined the Company as president and
chief executive officer. Mr. Berglund has a diverse background with experience
in engineering, manufacturing, finance, global operations and general
management.
On March 31, 1999, the Company made the decision to retain certain product
lines included within the General Aviation division which were part of the
previously planned discontinued operation. The basis of the decision was that
these products use common raw materials and labor which are necessary for the
Company's Air Transport products and, therefore, these product lines could be
retained without adding additional overhead from the overhead currently required
for the Air Transport products.
On April 13, 1999, the Company signed a non-binding letter of intent for
Solectron to acquire the Company's manufacturing assets in Sunnyvale,
California, and to assume full manufacturing responsibility for all of its GPS
and related RF technology products. The Company is currently in the process of
negotiating the full terms and conditions of the proposed transaction, however,
there can be no assurance that the parties will reach a definitive agreement.
The Company continues to manufacture certain avionics and military products in
its Austin facility.
RESULTS OF CONTINUING OPERATIONS
Revenues
Revenues for the Company's continuing operations for the three months ended
April 2, 1999 decreased 7% to $68,770,000 from $74,161,000 in the corresponding
period during fiscal 1998. The table below breaks out the Company's revenues by
Business Unit segment:
Three Months Ended
-------------------------------------------
April 2, April 3, Increase/
1999 1998 (Decrease)
- ----------------------------------------------------------------------------
(In thousands)
Precision Positioning Group $ 42,566 $41,146 3%
Mobile and Timing Technologies 26,204 33,015 (21%)
------------- ------------- -------------
Total $ 68,770 $74,161 (7%)
------------- ------------- -------------
14
<PAGE>
Precision Positioning Group
Precision Positioning Group revenues increased slightly for the three
months ended April 2, 1999 as compared to the corresponding period for 1998. The
increase for the three month period was primarily in the Mapping and GIS Systems
and Mining, Construction and Agricultural product lines with offsetting
decreases in the Land Survey and Marine Survey product lines.
Mobile and Timing Technologies
Mobile and Timing Technologies revenues decreased for the three months
ended April 2, 1999, as compared with the corresponding period in 1998 due
primarily to decreases in the Military, Commercial Marine, and Commercial
Avionics product lines which were not offset by increases in the remaining
Automotive, Timing, and Mobile Positioning product lines.
Revenues outside the U.S.
* Sales to unaffiliated customers from continuing operations in locations
outside the U.S. comprised approximately 51% and 49% of the Company's revenues
in the first three months of fiscal 1999 and 1998, respectively. During the
first three months of 1999, the Company has continued to experience strength in
the demand from U.S. and European markets, and had stronger than expected demand
in Asia. The Company anticipates that export revenues and sales made by its
subsidiaries in locations outside the U.S. will continue to account for a
significant portion of its revenues and, therefore, the Company is subject to
the risks inherent in these international sales, including unexpected changes in
regulatory requirements, exchange rates, governmental approvals, 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 would 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 revenues was 52% for both the
three month periods ending April 2, 1999 and April 3, 1998. 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.
15
<PAGE>
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:
Three Months Ended
----------------------------------------------
April 2, April 3, Increase/
1999 1998 (Decrease)
- --------------------------------------------------------------------------------
(In Thousands)
Research and development $ 8,507 $11,154 (24)%
Sales and marketing 13,304 15,826 (16)%
General and administrative 10,023 7,064 42%
-------------- -------------- ------------
Total $31,834 $34,044 (6)%
-------------- -------------- ------------
Research and Development
* Research and development expenses decreased in the three months ended
April 2, 1999, as compared with the corresponding period in fiscal 1998. The
lower research and development expenses during the first three months of fiscal
1999 are due to the Company receiving increased funds from cost reimbursement
projects as compared with the first quarter of fiscal 1998. Also there was a
decrease in temporary employees and consultants expense from the first quarter
of fiscal 1999 compared to the first quarter of fiscal 1998 as part of the
Company's restructuring plan which was implemented in the last half of fiscal
1998.The Company plans to continue its 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 decrease in sales and marketing expenses for the three months ended
April 2, 1999, as compared with the corresponding period in fiscal 1998 is due
primarily to decreases in personnel, travel, advertising, and trade show
expenses as part of the Company's restructuring plan which was implemented in
the last half of 1998.
* The Company's future growth will also depend upon the timely development
and continued viability of the Business Unit segments 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
16
<PAGE>
of GPS-based products, which could adversely affect the Company's revenues and
profitability if the Company is unable to make corresponding changes to compete
effectively.
General and Administrative
The increase in general and administrative expenses for the three months
ended April 2, 1999, as compared with the corresponding period for fiscal 1998,
is primarily due to an increase in the allowance for doubtful accounts related
to customers in South America based on a slow down in the South American
economy. In addition, the Company had an increase in outside services related to
legal fees associated with certain litigation matters during the first quarter
of 1999.
Income Taxes
The Company's effective income tax rates from continuing operations are 15%
and 11% for the three months ended April 2, 1999 and April 3, 1998,
respectively. These rates are less than the federal statutory rate of 35%
primarily due to the utilization of net operating loss carryforwards and the
realization of previously reserved deferred tax assets.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
* At April 2, 1999, the Company had cash and cash equivalents of
$53,427,000 and short-term investments of $8,614,000. 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 three months ended April 2, 1999, net cash provided from operating
activities was $8,054,000 as compared to cash provided of $1,034,000 in the
corresponding period in 1998. Cash provided by operating activities in 1999
arose from decreases in inventories and increases in accounts payable and
accrued compensation and benefits. Inventory from continuing operations as of
April 2, 1999 decreased by $2,287,000 from the 1998 year end levels primarily
due to a focused effort by the Company to reduce inventory by supply chain
synchronization; reduce lead and cycle times; simplify product lines; and
implement tighter control over its material forecasting process. 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 during fiscal 1999 represents the
proceeds from purchases made pursuant to the Company's stock option plan and
totaled $165,000 for the three months ended April 2, 1999.
* 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.
As of February 16, 1999, the Company, the Agent and the Lenders agreed to new
covenants for the life of the loan, which expires in August of 2000. The new
17
<PAGE>
covenants have certain limitations which could limit the Company's available
credit. The Company does not currently anticipate that these limitations will
impact the available credit of the Company. The $50,000,000 revolving credit
facility was modified to include the Company's prior separate $5,000,000 line of
credit and to simplify the entire arrangement, as less than $150,000 was being
utilized under the separate facility as of January 1, 1999. 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
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 revolving
credit facility, but has issued certain letters of credit under the $5,000,000
line of credit which is now under the Credit Agreement. In addition, the Company
is restricted from paying dividends under the terms of the Credit Agreement.
In June 1994, the Company issued $30.0 million of subordinated promissory
notes bearing interest at an annual rate of 10%, with principal due on June 15,
2001. Interest payments are due monthly in arrears. The notes are subordinated
to the Company's senior debt, which is defined as all pre-existing indebtedness
for borrowed money and certain future indebtedness for borrowed money
(including, subject to certain restrictions, secured bank borrowings and
borrowed money for the acquisition of property and capital equipment) and trade
debt incurred in the ordinary course of business. If the Company prepays any
portion of the principal, it is required to pay additional amounts if U.S.
Treasury obligations of a similar maturity exceed a specified yield. Under the
agreement, the Company is also restricted from paying dividends.
The issuance of the subordinated promissory notes also included the
issuance of warrants entitling holders to purchase 400,000 shares of common
stock at a price of $10.95 per share at any time through June 15, 2001. The
warrants are included in shareholders' equity at their appraised fair value of
$700,000 at the time of issue. The net proceeds of the notes were $29,348,000
after issuance costs of $652,000. The notes are recorded as noncurrent
liabilities, net of appraised fair value attributed to the warrants. The value
of the warrants and the issuance costs are being amortized to interest expense,
using the interest rate method over the term of the subordinated promissory
notes. The effective annual interest rate on the notes is 11.5%. Under the terms
of the note, the Company is required to meet a minimum consolidated net worth
requirement. If the Company falls below the minimum consolidated net worth
requirement the Company could be in default of its loan covenants. Such events
could have a material adverse effect on the Company's operations and liquidity.
In 1998, the Company approved the repurchase of 1.6 million shares on the
open market under a discretionary program to offset the potential dilutive
effects to earnings (loss) per share from the issuance of additional stock
options. The Company intends to use existing cash, cash equivalents and
short-term investments to finance any such stock repurchases under this program.
During 1998, the Company purchased 1.08 million shares at a cost of $16.1
million. During the first three months of fiscal 1999, no shares have been
repurchased under the discretionary program.
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 has evaluated the issues raised by the introduction of the
Single European Currency (Euro) for initial implementation as of January 1,
1999, and during the transition period through January 1, 2002. The Company does
18
<PAGE>
not currently believe that the introduction of the Euro will have a material
effect on the Company's foreign exchange and hedging activities. The Company has
also assessed the potential impact the Euro conversion will have in regard 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. The Company does not currently anticipate
any adverse impact of the Euro conversion on the Company.
Year 2000 and GPS Week Number Rollover Issues
Computers and software, as well as other equipment that relies 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 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 on 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
satellites will roll over, back to 0. Among other potential effects, this
rollover 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 on 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 companywide basis. It is expected
that assessment, remediation, and contingency planning activities will be
ongoing throughout 1999, with the objective of appropriately resolving all
material Year 2000 issues before the 21st century rollover.
19
<PAGE>
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 The Company has a plan to upgrade its existing MRP/ERP information
systems to be Year 2000 compliant which will be completed by the end
of the second quarter.
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 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 and 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;
and
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 and 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 and 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.
20
<PAGE>
Vendors and Suppliers
For its successful operation, the Company materially relies on goods and
services purchased from certain vendors. If these vendors fail to adequately
address the Year 2000 issue 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 has sent a survey to
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. The Company intends to develop and execute contingency plans 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 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 will 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,
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 will not exceed approximately $1,000,000. The Company has
been and will be expensing 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.
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
21
<PAGE>
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 two segments it addresses. This effective leveraging means that
increases or decreases in revenues have more than a proportional impact on net
income or losses.
The Mobile and Timing Technologies Business Unit relies on high volumes and
relatively low margin sales. Mobile and Timing Technologies customers are
extremely price-sensitive. As costs decrease through technological advances,
these advances are typically passed on to the customer. To compete, Mobile and
Timing Technologies 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.
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 9 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.
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.
22
<PAGE>
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 that use
integrated radio communication technology require an end-user to obtain
licensing from the Federal Communications Commission (FCC) for frequency-band
usage. For example, during the fourth quarter of 1998, the FCC temporarily
suspended the issuance of licenses for certain of the Company's Real-time
Kinematic products because of interference with certain other users of similar
radio frequencies. An inability or delay in obtaining such certifications or
FCC's delays could have an adverse effect on the Company's operating results.
The Company's GPS technology is dependent on the use of radio frequency
spectrum. The assignment of spectrum is controlled by an international
organization, the International Telecommunications Union (ITU). Any ITU
reallocation of radio frequency spectrum, including frequency band segmentation
or sharing of spectrum, may materially and adversely affect the utility and
reliability of the Company's products, causing a material adverse effect on the
Company's operating results. In addition, emissions from mobile satellite
service and other equipment operating in adjacent frequency bands may materially
and adversely affect the utility and reliability of the Company's products,
causing a material 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 27 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
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, in 1996 the U.S. Administration announced
the first comprehensive national policy statement on GPS, known as the
Presidential Decision Directive, which confirms, civilian, commercial, and
consumer access to the use of GPS free of direct user fees. The U.S. Congress
provided a statutory foundation for this access in the National Defense
Authorization Act for fiscal year 1998. 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.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
Following is a discussion of the Company's exposure to market risk related
to changes in interest rates and foreign currency exchange rates. The Company
uses certain derivative financial instruments to manage these risks. The Company
does not use derivative financial instruments for speculative or trading
purposes. All financial instruments are used in accordance with board-approved
polices.
23
<PAGE>
Market Interest Rate Risk
Short-term Investments Owned by the Company. As of April 2, 1999, the
Company had short-term investments of $8.6 million. These short-term investments
consist of highly liquid investments with original maturities at the date of
purchase between three and twelve months. These investments are subject to
interest rate risk and will decrease in value if market interest rates increase.
A hypothetical 10 percent increase in market interest rates from levels at April
2, 1999, would cause the fair value of these short-term investments to decline
by an immaterial amount. Because the Company has the ability to hold these
investments until maturity the Company would not expect the value of these
investments to be affected to any significant degree by the effect of a sudden
change in market interest rates. Declines in interest rates over time will,
however, reduce the Company's interest income.
Outstanding Debt of the Company. As of April 2, 1999, the Company had
outstanding long-term debt of approximately $30.0 million of subordinated
promissory notes at a fixed interest rate of 10 percent. The interest rate of
this instrument is fixed. However, a hypothetical 10 percent decrease in the
interest rates would not have a material impact on the Company. Increases in
interest rates could, however, increase interest expense associated with future
borrowings of the Company, if any. The Company does not currently hedge against
interest rate increases.
Foreign Currency Exchange Rate Risk
The Company hedges risks associated with foreign currency transactions in
order to minimize the impact of changes in foreign currency exchange rates on
earnings. The Company utilizes forward contracts to hedge trade and intercompany
receivables and payables. These contracts reduce the exposure to fluctuations in
exchange rate movements, as the gains and losses associated with foreign
currency balances are generally offset with the gains and losses on the hedge
contracts. All hedge instruments are marked to market through earnings every
period.
* The Company does not anticipate any material adverse effect on its
consolidated financial position utilizing the current hedging strategy.
All contracts have a maturity of less than one year, and the Company does
not defer any gains and losses, as they are all accounted for through earnings
every period.
The following table provides information about the Company's foreign
exchange forward contracts outstanding:
<TABLE>
<CAPTION>
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
- -------------------- --------- --------------------- -------------------- -----------------
<S> <C> <C> <C> <C>
YEN Sell 666,900 $ 5,775 $ 5,652
NZD Buy 4,100 $ 2,197 $ 2,181
Euro Sell 1,400 $ 1,625 $ 1,503
STERLING Buy 800 $ 1,299 $ 1,282
</TABLE>
* The hypothetical changes and assumptions made above will be different
from what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by the Company's management, should the
24
<PAGE>
hypothetical market changes actually occur over time. As a result, actual
earnings effects in the future will differ from those quantified above.
25
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Page
A. Exhibits Number
10.67+ Employment Agreement between the Company
and Steven W. Berglund dated March 17, 1999 (1)
27.1 Financial Data Schedule for the quarters ended 28
April 2, 1999 and April 3, 1998
B. Reports on Form 8-K
There were no reports on Form 8-K filed
during the quarter ended April 2, 1999.
- ---------------------
+ Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Quarterly report on Form 10-Q pursuant to Item 6A
thereof.
(1) Incorporated by reference to identically numbered exhibits filed in response
Item 14(a), "Exhibits," of the registrant `s Annual Report on Form 10-K for
the fiscal year ended January 1, 1999.
26
<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, Chief Financial Officer, and
Corporate Controller)
DATE: May 13, 1999
27
<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> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 JAN-01-1999
<PERIOD-END> APR-02-1999 APR-3-1998
<CASH> 53,427 16,931
<SECURITIES> 8,614 53,524
<RECEIVABLES> 37,079 48,986
<ALLOWANCES> 0 0
<INVENTORY> 34,879 47,463
<CURRENT-ASSETS> 139,041 170,651
<PP&E> 15,001 19,383
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 163,938 209,018
<CURRENT-LIABILITIES> 54,659 37,973
<BONDS> 0 0
0 0
0 0
<COMMON> 122,366 139,831
<OTHER-SE> (44,616) 607
<TOTAL-LIABILITY-AND-EQUITY> 163,938 209,018
<SALES> 68,770 74,161
<TOTAL-REVENUES> 68,770 74,161
<CGS> 33,203 35,835
<TOTAL-COSTS> 33,203 35,835
<OTHER-EXPENSES> 31,834 34,044
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 856 840
<INCOME-PRETAX> 3,546 4,502
<INCOME-TAX> 532 500
<INCOME-CONTINUING> 3,014 4,002
<DISCONTINUED> 0 (2,087)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,014 1,915
<EPS-PRIMARY> 0.14 0.08
<EPS-DILUTED> 0.14 0.08
</TABLE>
