UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from____to____
Commission File Number 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact name of registrant as specified in its charter)
California 94-2802192
--------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
645 North Mary Avenue, Sunnyvale, CA 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 November 3, 2000, there were 23,472,924 shares of Common Stock
(no par value) outstanding
1
<PAGE>
TRIMBLE NAVIGATION LIMITED
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 29, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three and Nine Months ended September 29, 2000
and October 1, 1999 4
Condensed Consolidated Statements of Cash Flows -
Three and Nine Months ended September 29, 2000
and October 1, 1999 5
Notes to Condensed Consolidated Financial Statement 6-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-30
Item 3. Quantitative and Qualitative Disclosure of Market Risk 31-32
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 33
SIGNATURES 34
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 29, December 31,
2000 1999
-------------------------------------------------------------------------------------------------------------
(In thousands) (Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 29,480 $ 49,264
Short term investments 9,116 52,728
Accounts and other receivable, net 89,986 36,005
Inventories 56,273 16,435
Other current assets 6,197 4,510
------------------ ------------------
Total current assets 191,052 158,942
Net property and equipment 32,800 12,333
Intangible assets 249,570 1,238
Deferred income taxes 312 387
Other assets 12,423 8,851
------------------ ------------------
Total assets $ 486,157 $ 181,751
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank & other short-term borrowings $ 62,000 $ -
Current portion of long-term debt 51,691 1,388
Accounts payable 22,425 11,710
Accrued compensation and benefits 22,391 7,011
Accrued liabilities 35,568 14,091
Accrued liabilities related to disposal of
General Aviation 1,312 2,212
Accrued warranty expense 7,565 5,786
Income taxes payable 3,937 2,983
Deferred gain on sale of assets 1,953 1,953
------------------ ------------------
Total current liabilities 208,842 47,134
------------------ ------------------
Noncurrent portion of long-term debt and other liabilities 136,190 -
Noncurrent portion of gain on sale of assets 1,790 3,255
Deferred tax liabilities 8,650 -
Other noncurrent liabilities 5,071 30,566
------------------ ------------------
Total liabilities 360,543 80,955
------------------ ------------------
Shareholders' equity:
Common stock 136,959 126,962
Accumulated deficit (8,324) (25,125)
Accumulated other comprehensive loss (3,021) (1,041)
------------------ ------------------
Total shareholders' equity 125,614 100,796
------------------ ------------------
Total liabilities and shareholders' equity $ 486,157 $ 181,751
================== ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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<TABLE>
<CAPTION>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
------------------------------------------------------------------------------------- -----------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenue $ 109,227 $ 69,636 $ 245,631 $ 209,245
-------------- ------------ ------------ -------------
Operating expenses:
Cost of sales 53,295 32,657 110,769 99,088
Research and development 13,840 9,724 31,899 27,675
Sales and marketing 25,079 13,705 51,758 40,981
General and administrative 9,585 7,738 22,532 26,391
Amortization of goodwill & other
purchased intangibles 5,922 - 5,922 -
-------------- ------------ ------------- -------------
Total operating expenses 107,721 63,824 222,880 194,135
-------------- ------------ ------------- -------------
Operating income 1,506 5,812 22,751 15,110
-------------- ------------ ------------- -------------
Nonoperating income (expense):
Interest income 863 1,108 4,069 2,493
Interest and other expenses (6,883) (922) (7,990) (2,574)
Foreign exchange gain (loss), net (228) 31 (162) 24
-------------- ------------ ------------- -------------
(6,248) 217 (4,083) (57)
-------------- ------------ ------------- -------------
Income (loss) before income taxes (4,742) 6,029 18,668 15,053
Income tax provision (benefit) (474) 905 1,867 2,259
-------------- ------------ ------------- -------------
Net income (loss) from Continuing Operations (4,268) 5,124 16,801 12,794
Loss from Discontinued Operations (net of tax) - - - -
Estimated Loss on disposal of Discontinued
Operations (net of tax) - 2,931 - 2,931
-------------- ------------ ------------- -------------
Net Income (loss) $ (4,268) $ 8,055 $ 16,801 $ 15,725
============== ============ ============= =============
Basic net income (loss) per share from Continuing
Operations $ (0.18) $ 0.23 $ 0.72 $ 0.57
Basic net income (loss) per share from Discontinued
Operations - 0.13 - 0.13
-------------- ------------ ------------- -------------
Basic net income (loss) per share $ (0.18) $ 0.36 $ 0.72 $ 0.70
============== ============ ============= =============
Shares used in calculating basic
income (loss) per share 23,411 22,519 23,284 22,367
============== ============ ============= =============
Diluted net income (loss) per share from Continuing
Operations $ (0.18) $ 0.22 $ 0.65 $ 0.57
Diluted net income (loss) per share from Discontinued
Operations - 0.13 - 0.13
-------------- ------------ ------------- -------------
Diluted net income (loss) per share $ (0.18) $ 0.35 $ 0.65 $ 0.70
============== ============ ============= =============
Shares used in calculating diluted
income (loss) per share 23,411 22,860 25,822 22,573
============== ============ ============= =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 29, October 1,
2000 1999
---------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities of continuing operations $ 15,695 $ 13,848
Net cash used by operating activities of discontinued operations - 2,931
-------------- -------------
Net cash provided by operating activities $ 15,695 $ 16,779
-------------- -------------
Cash flow from investing activities:
Purchase of short term investments (6,386) (40,735)
Maturities of short term investments 31,648 17,350
Sales of short term investments 18,350 -
(Purchase)/sale of equity investments/loans 475 752
Payment for purchase of Spectra Precision (298,064) -
Acquisition of property and equipment (5,037) (4,887)
Proceeds from sale of assets - 26,863
Capitalized patent expenditures (574) (717)
-------------- -------------
Net cash provided (used) in investing activities of continuing operations (259,588) (1,374)
Net cash used in investing activities of discontinued operations - -
-------------- -------------
Net cash provided (used) in investing activities (259,588) (1,374)
-------------- -------------
Cash flow from financing activities:
Issuance of common stock 9,996 2,048
Repurchase of common stock - -
(Payment)/collections of notes receivable 960 221
Proceeds from long-term debt and revolving credit lines 242,000 -
(Payments) on long-term debt and revolving credit lines (34,475) (1,302)
-------------- -------------
Net cash provided (used) by financing activities of continuing operations 218,481 967
-------------- -------------
Net cash provided (used) by financing activities 218,481 967
-------------- -------------
Net increase in cash and cash equivalents (25,412) 16,372
Cash and cash equivalents -- beginning of period 54,892 40,865
-------------- -------------
Cash and cash equivalents -- end of period $ 29,480 $ 57,237
============== =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 1,126 $ 824
Income taxes, net of refunds $ 1,176 $ 200
</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
months ended September 29, 2000, and October 1, 1999, which are presented in
this Quarterly Report on Form 10-Q are unaudited. The balance sheet at December
31, 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 Trimble's Annual Report on Form 10-K for the year
ended December 31, 1999.
The condensed consolidated financial statements of the Company include
the operating results of the Spectra Precision Group for 11 weeks since the
effective date of the acquisition of July 14, 2000.
Trimble has a 52-53 week fiscal year, which ends on the Friday nearest
to December 31, which for fiscal 2000 will be December 29, 2000. The Company's
fiscal year normally consists of 52 weeks split into four equal quarters of 13
weeks each; however, due to the fact that there are not exactly 52 weeks in a
calendar year and that there is at least slightly more than one additional day
per calendar year, as compared to a 52-week fiscal year, the Company will have a
fiscal year composed of 53 weeks in certain fiscal years.
In those resulting fiscal years that have 53 weeks, one quarter of the
fiscal year will have 14 weeks and the Company will record an extra week of
revenues, costs and related financial activity. Therefore, the financial results
of those fiscal years, and the associated quarter, having the extra week, will
not be exactly comparable to the prior and subsequent 52-week fiscal years, and
the associated quarters having only 13 weeks. Thus, due to the inherent nature
of a 52-53 week fiscal year, the Company, analysts, shareholders, investors and
others will have to make appropriate adjustments to any analysis performed when
comparing the Company's activities and results in fiscal years that contain 53
weeks, to those that contain only the standard 52 weeks. The next 53-week year
will be fiscal year 2002.
The results of operations for the three and nine months ended September
29, 2000 are not necessarily indicative of the results that may be expected for
the year ending December 29, 2000.
NOTE 2 - Acquisition:
Effective as of July 14, 2000, Trimble completed the acquisition of the
Spectra Precision wholly owned businesses formerly owned by Thermo Electron
Corporation ("Thermo Electron"), collectively known as the "Spectra Precision
Group" for an aggregate purchase price, excluding acquisition costs, of
approximately $294 million, which is subject to a final adjustment in the
purchase price as provided for in the acquisition agreements. The acquisition
includes 100% of the stock of Spectra Precision Inc., a Delaware corporation,
Spectra Precision SRL, an Italian corporation, Spectra Physics Holdings GmbH, a
German corporation, and Spectra Precision BV, a Netherlands corporation. The
acquisition also consists of certain assets and liabilities of Spectra Precision
AB, a Swedish corporation, including 100% of the shares of Spectra Precision SA,
a French corporation, Spectra Precision Scandinavia AB, a Swedish corporation,
Spectra Precision of Canada Ltd., a Canadian corporation, and Spectra Precision
Handelsges mbH, an Austrian corporation.
The acquisition has been accounted for as a purchase for accounting
purposes; accordingly, Trimble's consolidated results of operations include the
operating results of the Spectra Precision Group since the effective date of the
acquisition. The acquisition was financed with $80 million in seller
subordinated debt, $140 million of cash provided through a syndicate of banks,
and $74 million of the Company's available cash on hand. (See further
discussions below under "Acquisition Financing".) The Company acquired
approximately $133 million of identifiable intangible assets as part of the
acquisition which the Company expects to amortize over various time periods
ranging from 5 to 10 years. The preliminary allocation of purchase price has
also resulted in the recording of approximately $133 million of goodwill due to
the acquisition, which will be amortized over 20 years. Acquisition costs
relating to the purchase of the Spectra Precision Group approximated $7.0
million.
6
<PAGE>
In connection with the acquisition of the Spectra Precision Group, the
Company accrued approximately $12.0 million for costs to close certain
duplicative office facilities and combine operations and relocate certain
employees. These costs were accrued for as part of the preliminary allocation of
the purchase price. The facility consolidation and employee relocations resulted
from primarily combining certain office facilities and duplicative functions,
including management functions, of the Spectra Precision Group. The Company has
not yet finalized its plans to consolidate facilities and to relocate employees,
nor has it finalized a determination of the total costs to be incurred upon the
termination of certain office facility leases or its ability to sublease vacated
office space. Accordingly, unresolved issues could result in an increase or
decrease in the liabilities for facility consolidation, product reconfiguration,
and employee relocation. These adjustments will be reported as an increase or
decrease in goodwill.
Acquisition Financing:
In order to finance the acquisition of the Spectra Precision Group,
fund the Company's on-going working capital requirements, and pay related fees
and expenses of the acquisition, Trimble (i) obtained a new senior secured
credit facility, (ii) issued an $80 million subordinated seller promissory note,
(iii) terminated its existing $50 million unsecured revolving credit facility
and (iv) prepaid its existing $30 million outstanding subordinated promissory
notes, as briefly summarized below.
o New Credit Facilities: In July 2000, ABN AMRO Bank, N.V. led a syndicate of
banks which underwrote $200 million of new senior, secured credit
facilities for the Company (the "New Credit Facilities") to support the
acquisition of the Spectra Precision Group and to refinance certain
existing debt. The New Credit Facilities are comprised of a $50 million
3-year U.S. dollar only revolver; a $50 million 3-year multi-currency
revolver; and a $100 million 5-year term loan. Pricing for any borrowings
under the New Credit Facilities is fixed for the first 6 months at LIBOR
plus 275 basis points and is thereafter tied to a formula, based on the
Company's leverage ratio (which is defined as all outstanding debt
(excluding the seller subordinated note) over EBITDA). Trimble immediately
used approximately $170 million available under the New Credit Facilities
to fund the acquisition of the Spectra Precision Group. $30 million was
used to pay off the principal portion of Company's existing subordinated
notes to John Hancock (as described below) and $140 million was paid in
cash to the seller. The balance of the $294 million aggregate purchase
price was paid by the Company with $74 million of excess available cash on
hand and an $80 million subordinated seller note was issued to effect the
acquisition. The New Credit Facilities are secured by all material tangible
and intangible assets of the Company, subject to foreign tax
considerations. If Trimble is able to achieve and maintain a leverage ratio
(Debt/EBITDA) of 2.0x or less for four consecutive quarters, the security
for the New Credit Facilities will be released. Financial covenants of the
New Credit Facilities include leverage, fixed charge, and minimum net worth
tests. The two $50 million revolvers are paid as the loans mature and the
loan commitment fees are paid on a quarterly basis. The 5-year term loan is
payable commencing March 31, 2001 in quarterly installments of $4 million
over the first year, $5 million over the second year, $6 million over the
next year and a half and $7 million for the remaining quarters until the
debt is paid off. In addition, Trimble is restricted from paying dividends
and is limited as to the amount of is common stock it can repurchase under
the terms of the New Credit Facilities. The Company is allowed to
repurchase shares of its common stock in the current year only up to 12.5%
of net income in the previous fiscal year and for each succeeding year up
to the aggregate amount of 25% of net income for the previous year.
o New Seller Promissory Note: The $80 million promissory note issued by the
Company to the seller is subordinated to the New Credit Facilities and
carries a 10% coupon, payable in cash or additional seller paper at the
Company's option. The subordinated seller note has a stated two year
maturity, but carries an automatic maturity deferral provision which
effectively extends the maturity date to that date on which Trimble is
allowed to repay the note without triggering a default under the New Credit
Facilities. The New Credit Facilities allow Trimble to repay the seller
note at any time (in part or in whole), provided that (a) Trimble's
leverage ratio (Debt (excluding the seller note)/EBITDA) prior to such
repayment is less than 1.0x and (b) after giving effect to such repayment
Trimble would have (i) a leverage ratio (Debt (excluding any remaining
portion of the seller note)/EBITDA) of less than 2.0x and (ii) cash and
unused availability under the revolvers of the New Credit Facilities of at
least $35 million. Although the subordinated seller note will carry certain
limited covenants and defaults, the seller will be barred in the event of
default from pursuing such rights and remedies for the stated maturity of
the New Credit Facilities (i.e., a five-year standstill). The New Credit
Facilities also prohibit cash payments of interest or principal on the
subordinated seller note during a period of default.
7
<PAGE>
o Prepayment of Existing $30 million Subordinated Notes: In June 1994,
Trimble issued $30 million of subordinated promissory notes to John Hancock
bearing interest at an annual rate of 10%, with principal and interest due
on June 15, 2001. Interest payments under such notes were due monthly in
arrears. The notes were subordinated to the Company's senior debt, which
was 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. In order to effect the acquisition of the
Spectra Precision Group and as part of obtaining the New Credit Facilities,
Trimble prepaid all such outstanding long-term note obligations to John
Hancock for a total of $31,069,108, which consisted of $30 million in
principal, $183,333 in accrued interest and $885,775 as a prepayment
penalty. Pursuant to the terms of such original notes, any prepayment of
any portion of the outstanding principal required Trimble to pay additional
amounts if U.S. Treasury obligations of a similar maturity exceed a
specified yield. The prepayment penalty is included in interest expense for
the three and nine month periods ended September 29, 2000.
o Termination of Existing $50 million Unsecured Revolving Credit Facility: In
August 1997, Trimble entered into a three-year, $50,000,000 unsecured
revolving credit facility with four banks (the "Credit Agreement"). This
Credit Agreement enabled Trimble to borrow up to $50,000,000, provided that
certain financial and other covenants were met. Trimble never made any
borrowings under such $50,000,00 unsecured revolving portion of the Credit
Agreement, but had issued certain letters of credit amounting to
approximately $1.2 million as of June 30, 2000. In order to effect the
acquisition of the Spectra Precision Group, in July 2000 Trimble completely
terminated this Credit Agreement in favor of obtaining the New Credit
Facilities described above.
NOTE 3 - Unaudited Pro Forma Information:
The accompanying condensed consolidated statements of operations of
Trimble include the accounts of the Spectra Precision Group for the period July
14, 2000 through September 29, 2000. The following pro forma information for the
three and nine months ended September 29, 2000 and October 1, 1999 presents net
sales, income (loss) before extraordinary items, and net loss for each of these
periods as if this transaction was consummated at the beginning of each period.
The following pro forma information does not reflect final purchase price
allocation results. These results may have a material effect on the reported
results of operations.
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
Proforma
----------------------------------------------------------------
Three Months Ended Nine Months Ended
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Net revenue $114,266 $ 122,045 $ 367,269 $ 374,193
Net income (loss) from continuing operations (7,661) (5,282) 151 (12,259)
Net income (loss) (7,661) (2,351) 151 (9,328)
Basic net income (loss) per share from continuing operations $ (0.33) $ (0.23) 0.01 $ (0.55)
Basic net income (loss) per share from discontinued operations - 0.13 - 0.13
-------------- -------------- ------------- --------------
Basic net income (loss) per share $ (0.33) $ (0.10) $ 0.01 $ (0.42)
Diluted net income (loss) per share from continuing operations $ (0.33) $ (0.23) $ 0.01 $ (0.55)
Diluted net income (loss) per share from discontinued operations - 0.13 - 0.13
-------------- -------------- ------------- --------------
Diluted net income (loss) per share $ (0.33) $ (0.10) $ 0.01 $ (0.42)
</TABLE>
The pro forma results of operations are for comparative purposes only
and reflect increased amortization and interest expense resulting from the
acquisition described above, but do not include any potential cost savings from
combining the acquired businesses with the Company's operations. Consequently,
the pro forma results do not reflect the actual results of operations had the
acquisitions occurred on the dates indicated, and are not intended to be a
projection of future results or trends.
8
<PAGE>
NOTE 4 - Cash Equivalents, Short Term Investments:
Trimble considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. All
other liquid investments are classified as short-term investments. Trimble has
classified all its short-term/marketable investments as "available-for-sale"
securities. Available-for-sale securities are carried at fair value, with the
unrealized holding gains and losses, net of tax effects, reported as a separate
component of shareholders' equity. Fair value is based on quoted market prices.
The cost of debt securities in this classification is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization, as well
as interest, dividends, and realized gains and losses, is included in interest
and investment income. The cost of securities sold is based on the specific
identification method. Trimble has classified all investments as short-term
since it has the intent and ability to redeem them within the year.
At September 29, 2000, investments with scheduled maturities within one
year were $8.0 million and for maturities between one to three years were $1.1
million. At December 31, 1999, investments with scheduled maturities within one
year were $50.2 million and for maturities between one to three years were $2.5
million.
NOTE 5 - Inventories:
Inventories consist of the following:
September 29, December 31,
2000 1999
-------------------------------------------------------------------------
(In thousands)
Raw materials $ 21,814 $ 2,582
Work-in-process 6,573 2,232
Finished goods 27,886 11,621
-------------- -------------------
$ 56,273 $ 16,435
============== ===================
Increases in inventory from December 31, 1999 are due to the purchase
of the Spectra Precision Group in July 2000, which accounted for $30.4 million
of the increase, and additional purchases to help mitigate the continued
delivery problems related to critical part shortages in our supply chain
NOTE 6 - Discontinued Operations:
On October 2, 1998, Trimble adopted a plan to discontinue its General
Aviation division. Accordingly, the General Aviation division is being reported
as a discontinued operation for all periods presented in these financial
statements. Net assets of the discontinued operation at October 2, 1998 were
written off and consisted primarily of inventory, property, plant and equipment
and intangible assets.
The original estimated loss on the disposal of the discontinued
operation in fiscal 1998 was $19.9 million, but was adjusted in March 1999 for
certain product lines that were retained. The adjusted estimated loss on the
disposal is $20.3 million. The original fiscal 1998 estimate included a
write-off of net assets of $12.7 million and a provision of $7.2 million for
costs of disposal, including severance costs, facility and certain other
contractual costs, and anticipated operating losses through the estimated date
of disposal. The adjusted fiscal 1999 estimate included the write-off of net
assets of $12.7 million and a provision of $7.6 million for costs of disposal,
including severance costs, facility and certain other contractual costs, and
anticipated operating losses through the estimated date of disposal.
During the fourth fiscal quarter of 1999, the Company had revised its
accrual for the remaining costs expected to be incurred based on the status of
the related liabilities. This resulted in a reversal of approximately $2.9
million of prior amounts accrued related to the discontinued operations.
9
<PAGE>
As of September 29, 2000, Trimble has a remaining provision of $1.3
million, which includes $600,000 for the estimated remaining operating losses
for service and warranty support and remaining severance costs, and $700,000 for
facility and certain other contractual costs.
NOTE 7 - Restructuring Charge:
In fiscal 1998, Trimble recorded restructuring charges totaling $10.3
million in operating expenses. These charges were a result of Trimble's
reorganization activities, through which the Company downsized its operations,
including reducing headcount and facilities space usage, and canceled its
enterprise-wide information system project and certain research and development
projects. The impact of these decisions was that significant amounts of
Trimble's fixed assets, prepaid expenses, and purchased technology had been
impaired and certain liabilities incurred. Trimble wrote down the related assets
to their net realizable values and made provisions for the estimated
liabilities.
The activity in fiscal 2000, 1999 and 1998 related to the restructuring
charges and the amounts remaining at September 29, 2000 on the balance sheet are
as follows (in thousands):
<TABLE>
<CAPTION>
Total
charged to Amounts paid/ Amounts paid/ Amounts paid/ Remaining in
expense in written off written off written off accrued liabilities
fiscal 1998 in fiscal 1998 in fiscal 1999 in fiscal 2000 as of September 29, 2000
------------- ------------------- ------------------ ----------------- --------------------------
<S> <C> <C> <C> <C> <C>
Employee termination benefits $ 2,864 $ (1,200) $ (371) $ (414) $ 879
Facility space reductions 1,061 - (1,053) (8) -
ERP system abandonment 6,360 (4,895) (1,465) - -
------------- ------------------- ------------------ ----------------- --------------------------
Subtotal $ 10,285 $ (6,095) $ (2,889) $ (422) $ 879
============= =================== ================== ================= ==========================
</TABLE>
NOTE 8 - Segment Information:
Trimble is a leading worldwide designer and distributor of innovative
positioning products and applications enabled by GPS, optical, laser, and
wireless communications technology. We design and market products which deliver
integrated information solutions, such as, collecting, analyzing, and displaying
position data to our end-users. We offer an integrated product line for diverse
applications in our targeted markets.
Effective in this third quarter of fiscal year 2000, management changed
the number of its reportable segments from two to five segments. The five
segments are now made up of the following divisions: engineering and
construction, agriculture, fleet and asset management, GPS component
technologies, and portfolio technologies. This change resulted primarily from a
reorganization of management responsibility announced in August 2000 in
connection with the completion of the purchase of the Spectra Precision Group.
(See Note 2 of Notes to Condensed Consolidated Financial Statements.)
To achieve distribution, marketing, production, and technology
advantages for our targeted markets, we manage our industry segments within five
Divisions:
o Engineering and Construction Division - Consists of products
currently used by construction professionals in the field for
positioning data collection, field computing, data management, and
automated machine guidance and control. These products provide
solutions for numerous construction applications, including:
surveying; general construction; site preparation and excavation;
road and runway construction; and underground construction.
o Agriculture Division - Consists of products that provide key
advantages in a variety of agriculture applications, primarily in
the areas of precise land leveling, machine guidance, yield
monitoring and variable-rate applications of fertilizers and
chemicals.
o Fleet and Asset Management Division - Consists of products that
enable end-users to efficiently monitor and manage their mobile
and fixed assets by transmitting location-relevant and
time-sensitive information from the field to the office. We
currently offer a range of products that address the following:
long-haul trucking;
10
<PAGE>
municipal fleet management; shipping; and fixed asset data collection
for a wide variety of governmental and private entities.
o GPS Component Technologies Division - Currently, we market our
component products through an extensive network of OEM
relationships. These products include proprietary chipsets,
modules and a variety of intellectual property (IP). The
applications into which end-users currently incorporate our
component products include: timing applications for synchronizing
wireless and computer systems; in-vehicle navigation and
telematics (tracking) systems; fleet management; security systems;
data collection systems; and wireless handheld consumer products.
o Portfolio Technologies Division - This division is comprised of
various markets that use accurate position, velocity, and timing
information. The products in this division are used in airborne
navigation, flight management, commercial marine navigation, and
military applications.
Trimble evaluates each of these division's performance and allocates
resources based on profit and loss from operations before income taxes.
The accounting policies applied by each of the divisions are the same
as those used by Trimble in general.
The following table presents revenues, operating income (loss), and
identifiable assets by Trimble's five divisions. The information includes the
operations of the Spectra Precision Group after July 14, 2000 and the
information for 1999 has been restated in order to conform to the new basis of
presentation. There is no recognition of inter-division sales or transfers.
Operating income (loss) is net sales less operating expenses, excluding general
corporate expenses, interest income (expense), and income taxes. The
identifiable assets that Trimble's Chief Operating Decision Maker (CODM) views
by division are accounts receivable and inventory, except for the accounts
receivable and inventory for Spectra Precision Group which are not allocated to
business segments. Trimble does not report depreciation and amortization or
capital expenditures by division to the CODM.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Three Months Ended
September 29, 2000
------------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------------
Engineering Fleet and GPS
& Asset Component Portfolio
Construction Agriculture Management Technology Technologies Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
External net revenue $ 67,654 $ 9,306 $ 15,996 $ 12,824 $ 3,447 $ 109,227
Operating profit before corporate
allocations 12,484 1,320 3,342 2,741 (1,481) 18,406
Corporate allocations (1) (3,780) (681) (2,058) (1,197) (672) (8,388)
------------------------------------------------------------------------------------------
Operating profit $ 8,704 $ 639 $ 1,284 $ 1,544 $ (2,153) $ 10,018
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Nine Months Ended
September 29, 2000
------------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------------
Engineering Fleet and GPS
& Asset Component Portfolio
Construction Agriculture Management Technology Technologies Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
External net revenue $ 122,381 $ 18,146 $ 48,191 $ 41,814 $ 15,099 $ 245,631
Operating profit before corporate
allocations 31,364 3,626 10,795 11,044 (1,605) 55,224
Corporate allocations (1) (11,340) (2,043) (6,174) (3,591) (2,015) (25,163)
------------------------------------------------------------------------------------------
Operating profit $ 20,024 $ 1,583 $ 4,621 $ 7,453 $ (3,620) $ 30,061
Assets:
Accounts receivable (2) $ 23,385 $ 4,826 $ 15,336 $ 7,719 $ 4,767 $ 56,033
Inventory (3) 8,307 633 3,688 3,592 6,335 22,555
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
Three Months Ended
October 1, 1999
------------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------------
Engineering Fleet and GPS
& Asset Component Portfolio
Construction Agriculture Management Technology Technologies Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
External net revenue $ 26,639 $ 2,730 $ 18,220 $ 16,000 $ 6,047 $ 69,636
Operating profit before corporate
allocations 9,404 245 4,842 4,986 (954) 18,523
Corporate allocations (1) (3,929) (491) (2,299) (1,545) (898) (9,162)
------------------------------------------------------------------------------------------
Operating profit $ 5,475 $ (246) $ 2,543 $ 3,441 $ (1,852) $ 9,361
------------------------------------------------------------------------------------------
Nine Months Ended
October 1, 1999
------------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------------
Engineering Fleet and GPS
& Asset Component Portfolio
Construction Agriculture Management Technology Technologies Total
------------------------------------------------------------------------------------------
External net revenue $ 81,933 $ 10,745 $ 54,175 $ 44,002 $ 18,390 $ 209,245
Operating profit before corporate
allocations 27,989 2,561 12,665 10,787 (2,020) 51,982
Corporate allocations (1) (12,092) (1,807) (6,490) (3,876) (2,626) (26,891)
------------------------------------------------------------------------------------------
Operating profit $ 15,897 $ 754 $ 6,175 $ 6,911 $ (4,646) $ 25,091
------------------------------------------------------------------------------------------
Twelve Months Ended
December 31, 1999
------------------------------------------------------------------------------------------
(in thousands)
------------------------------------------------------------------------------------------
Assets: Engineering Fleet and GPS
& Asset Component Portfolio
Construction Agriculture Management Technology Technologies Total
------------------------------------------------------------------------------------------
Accounts receivable (4) $ 22,304 $ 1,510 $ 11,009 $ 9,273 $ 5,299 $ 49,395
Inventory 6,236 2 1,915 1,984 5,316 15,453
</TABLE>
-------------------------------------------------------------------------------
(1) For the three and nine months ended September 29, 2000 and October 1, 1999,
the Company determined the amount of corporate allocations charged to each of
its divisions based on a percentage of the divisions' monthly revenue, gross
profit, and controllable spending (research and development, marketing,
and general and administrative).
(2) As presented, the accounts receivable number excludes cash in advance,
reserves, and the Spectra Precision Group's accounts receivable as of
September 29, 2000, which are not allocated between divisions.
(3) As presented, the inventory number excludes the Spectra Precision Group's
inventory as of September 29, 2000, which is not allocated between divisions.
(4) As presented, the accounts receivable number excludes cash in advance and
reserves, which are not allocated between divisions.
12
<PAGE>
The following are reconciliations corresponding to totals in the
accompanying consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, October 1, September 29, October 1,
Revenues: 2000 1999 2000 1999
------------------------------------------------------------- --------------------------------- ------------------------------
<S> <C> <C> <C> <C>
Total for reportable markets $ 109,227 $ 69,636 $ 245,631 $ 209,245
================ =============== ============== ==============
Operating profit/(loss) from continuing operations:
-------------------------------------------------------------
Total for reportable divisions $ 10,018 $ 9,361 $ 30,061 $ 25,091
Unallocated corporate expenses (8,512) (3,549) (7,310) (9,981)
---------------- --------------- -------------- --------------
Income before income taxes from continuing operations $ 1,506 $ 5,812 $ 22,751 $ 15,110
================ =============== ============== ==============
</TABLE>
<TABLE>
<CAPTION>
Nine Months Twelve Months
Ended Ended
September 29, December 31,
Assets: 2000 1999
------------------------------------------------------------- -------------- --------------
<S> <C> <C>
Accounts receivable total for reportable divisions $ 56,033 $ 49,395
Unallocated (1) 33,953 (13,390)
-------------- --------------
Total $ 89,986 $ 36,005
============== ==============
Inventory total for reportable divisions $ 22,555 $ 15,453
Common inventory (2) 33,718 982
-------------- --------------
Net inventory $ 56,273 $ 16,435
============== ==============
</TABLE>
-------------------------------------------------------------------------------
(1) Includes cash in advance and reserves that are not allocated by division.
Also for September 29, 2000 accounts receivable includes the Spectra
Precision Group as its accounts receivable is not allocated by division.
(2) Consists of inventory that is common between the divisions. Parts can be
used by any division. Also for September 29, 2000 inventory consists of
$30.4 million of Spectra Precision Group as its inventory is not allocated
by division.
13
<PAGE>
NOTE 9 - Comprehensive Income (Loss):
The components of other comprehensive income (loss), net of related tax
include:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
------------------------------------------------------------------------------------------- ----------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net unrealized gain (loss) on short-term investments 36 (31) 122 (83)
Cumulative foreign currency translation adjustments (1,362) 80 (2,102) (123)
-------------- ------------------- -------------- ------------------
Other comprehensive income (loss) $ (1,326) $ 49 $ (1,980) $ (206)
============== =================== ============== ==================
</TABLE>
Accumulated other comprehensive income (loss) on the condensed
consolidated balance sheets consists of unrealized gains on available for sale
investments and foreign currency translation adjustments. The components of
accumulated other comprehensive income (loss), net of related tax include:
<TABLE>
<CAPTION>
September 29, December 31,
2000 1999
------------------------------------------------------------------------------ -------------------
(In thousands)
<S> <C> <C>
Net unrealized gains (loss) on short-term investments $ (1) $ (123)
Cumulative foreign currency translation adjustments (3,020) (918)
-------------- -------------------
Accumulated other comprehensive income (loss) $ (3,021) $ (1,041)
============== ===================
</TABLE>
NOTE 10 - 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 Trimble to record all
derivatives held on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. With respect to
derivatives which are hedges, 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. In June of 1999 the Financial
Accounting Standards Board delayed the effective date of implementation for one
year; therefore, SFAS 133 is effective for fiscal years beginning after June 15,
2000. Trimble expects to adopt SFAS 133 as of the beginning of its fiscal year
2001. The effect of adopting the SFAS 133 is currently being evaluated, but is
not expected to have a material adverse effect on Trimble's financial position
or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") 101, Revenue Recognition in Financial
Statements which provides guidance related to revenue recognition based on
interpretations and practices followed by the SEC. SAB 101 was effective the
first fiscal quarter of fiscal years beginning after December 15, 1999 and
requires companies to report any changes in revenue recognition as cumulative
change in accounting principle at the time of implementation in accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes." In March 2000,
the SEC issued SAB 101A "Amendment: Revenue Recognition in Financial
Statements," which delays implementation of SAB 101 until the Company's first
fiscal quarter of 2000. In June 2000, the SEC issued SAB 101B "Second Amendment:
Revenue Recognition in Financial Statements," which delays the implementation of
SAB 101 until the Company's fourth fiscal quarter of 2000. The effect of
adopting SAB 101 is currently being evaluated, but is not expected to have a
material adverse effect on the Company's financial position or result of
operations.
14
<PAGE>
NOTE 11 - Earnings Per Share:
The following table sets forth the computation of Trimble's basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------- ------------------------------
(In thousands, except per share amounts)
Numerator:
<S> <C> <C> <C> <C>
Income (loss) available from continuing operations to common
shareholders used in basic and diluted income (loss) per share $ (4,268) $ 5,124 $ 16,801 $ 12,794
Income available from discontinued operations to common
shareholders used in basic and diluted income (loss) per share - 2,931 - 2,931
-------------- ------------- -------------- --------------
Income (loss) available from operations to common
shareholders used in basic and diluted income (loss) per share $ (4,268) $ 8,055 $ 16,801 $ 15,725
============== ============= ============== ==============
Denominator:
Weighted-average number of common
shares used in calculating basic income per share 23,411 22,519 23,284 22,367
Effect of dilutive securities:
Common stock options - 328 2,249 206
Common stock warrants - 13 289 -
-------------- ------------- -------------- --------------
Weighted-average number of common
shares and dilutive potential common shares
used in calculating diluted income per share 23,411 22,860 25,822 22,573
============== ============= ============== ==============
Basic income (loss) per share from continuing operations $ (0.18) $ 0.23 $ 0.72 $ 0.57
Basic income per share from discontinued operations - 0.13 - 0.13
-------------- ------------- -------------- --------------
Basic income per share $ (0.18) $ 0.36 $ 0.72 $ 0.70
============== ============= ============== ==============
Diluted income (loss) per share from continuing operations $ (0.18) $ 0.22 $ 0.65 $ 0.57
Diluted income per share from discontinued operations - 0.13 - 0.13
-------------- ------------- -------------- --------------
Diluted income per share $ (0.18) $ 0.35 $ 0.65 $ 0.70
============== ============= ============== ==============
</TABLE>
NOTE 12 - Long-Term Obligations:
Trimble's long-term debt consists of $162 million outstanding under
senior secured credit facilities, and a $80 million subordinated promissory
note. (See Note 2 to the Condensed Consolidated Financial Statements under
Acquisition Financing.)
The Company obtained a controlling interest in the assets of the joint
venture with Carl Zeiss Jena GmbH called ZSP Geodetic Systems GmbH (ZSP). As
part of the joint venture arrangement the Company issued Euro-denominated debt,
in the form of a note payable, and nonvoting shares of ZSP. At September 29,
2000, the debt was approximately $4.6 million of which $3.7 million was current.
This debt is payable in eight quarterly installments, and bears interest at six
percent. Under this arrangement, the right to sell or acquire the nonvoting
shares of ZSP may not be exercised earlier than 2 years or later than 3 years
after September 30, 1999. The purchase price of the nonvoting shares under this
arrangement is subject to reduction by the amounts received by Carl Zeiss under
the note payable through the date of the purchase. The Company has accounted for
the transaction as an acquisition of the assets of ZSP and has recorded the
obligation to Carl Zeiss as debt in the accompanying balance sheet.
15
<PAGE>
NOTE 13 - Related-party Transactions:
Related-party Lease
The Company currently leases office space in Ohio from an association
of three individuals, two of which are vice presidents of one of the Company's
U.S. operating units, under a noncancelable operating lease arrangement expiring
in 2011 entered into in connection with the acquisition of the Spectra Precision
Group. The annual rent is $345,000, and is subject to adjustment based on the
terms of the lease. The condensed consolidated statements of operations include
expenses from this operating lease of $86,351 for the period July 14, 2000
through September 29, 2000.
NOTE 14 - Contingencies:
Settled Matters.
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. Trimble, SiRF, and six other competitors
and potential competitors of Trimble in the GPS business, and other defendants,
entered into a settlement agreement as of September 8, 2000, which includes a
cross licensing of certain technologies. The claims of both parties have been
dismissed with prejudice, and the terms of the settlement are confidential.
Other Matters.
Western Atlas, a Houston-based supplier to the oil exploration
business, has accused the Company and other GPS manufacturers, 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 were filed in federal district court in Houston, Texas against Rockwell
International Corp. and Garmin International Inc., and both have settled.
Although Trimble has not been sued by Western Atlas on the foregoing patents,
the Company has instructed its counsel to thoroughly investigate the
infringement threat. At the present time, the Company does not expect this
threat to have adverse consequences on the Company's business.
On January 31, 1997, counsel for one Philip M. Clegg wrote to the
Company asserting that a license under Mr. Clegg's U.S. Patent No. 4,807,131
(131 patent), 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. The Company denied this allegation. On
November 13, 1998, counsel for Clegg again wrote to the Company this time
alleging that the Company's "BenchGuide" product would require a license under
the 131 patent. The Company denied this allegation. On February 28, 2000,
counsel for Clegg sent another letter, this time reasserting its allegations
that the Company's "BenchGuide" product infringes the 131 patent and asserting
that the Company's "SiteVision GPS" Grade Control System also infringes the 131
patent. The Company has denied these allegations. To date, no infringement
action has been initiated on behalf of Mr. Clegg.
After an investigation, the Company concluded that its relationship
with Caterpillar should not result in liability to the Company under the 131
patent. Moreover, the Company believes that should an action for infringement be
initiated on behalf of Clegg based upon the Company's relationship with
Caterpillar, the Company should be indemnified by Caterpillar against losses
arising out of such litigation. The Company has also concluded that its
"BenchGuide" product does not require a license under the patent to Clegg and by
letter dated April 14, 2000, Clegg's counsel was so informed. After
investigation of the infringement allegation made against the Company's
"SiteVision" product, the Company has concluded that its "SiteVision" product
does not infringe the 131 patent, and by letter dated May 1, 2000 Clegg's
counsel was so informed. The Company does not believe that a dispute with Clegg
concerning whether the foregoing Trimble products infringe the 131 patent would
result in adverse consequences for the Company.
Prior to the acquisition by the Company of the Spectra Precision Group,
Clegg alleged that the Spectra Precision Group was not performing it obligations
to pay royalties to Clegg under a 1991 patent license agreement (Agreement)
between Clegg and the Spectra Precision Group concerning the 131 patent. As a
result of the acquisition, the Company may have acquired any potential
liabilities of the Spectra Precision Group under that patent license agreement.
16
<PAGE>
Although it is too early to evaluate the potential loss to Trimble of an
unfavorable outcome on the infringement allegations by Clegg involving the
Spectra Precision Group products, the Company does not believe that a dispute
with Clegg over compliance by the Spectra Precision Group with the 1991
Agreement is likely to result in any material adverse consequences to the
Company.
The Company believes that the ultimate liability of the Company as a
result of all such disputes, if any, would not be material to its overall
financial position, results of operations, liquidity.
17
<PAGE>
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Actual results could differ materially from
those indicated in the forward-looking statements due to a number of factors
including, but not limited to, as a result of the risk factors set forth below
in this report as well as the Company's Annual Report on Form 10-K and other
reports and documents that the Company files from time to time with the
Securities and Exchange Commission. The Company has attempted to identify
forward-looking statements in this report by placing an asterisk (*) before
paragraphs containing such material.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RECENT BUSINESS DEVELOPMENTS
Effective as of July 14, 2000, Trimble completed the acquisition of the
Spectra Precision wholly owned businesses formerly owned by Thermo Electron
Corporation ("Thermo Electron"), collectively known as the "Spectra Precision
Group" for an aggregate purchase price of approximately $294 million, which
conform to financials subject to a final adjustment in the purchase price as
provided for in the acquisition agreements. The acquisition includes 100% of the
stock of Spectra Precision Inc., a Delaware corporation, Spectra Precision SRL,
an Italian corporation, Spectra Physics Holdings GmbH, a German corporation, and
Spectra Precision BV, a Netherlands corporation. The acquisition also consists
of certain assets and liabilities of Spectra Precision AB, a Swedish
corporation, including 100% of the shares of Spectra Precision SA, a French
corporation, Spectra Precision Scandinavia AB, a Swedish corporation, Spectra
Precision of Canada Ltd., a Canadian corporation, and Spectra Precision
Handelsges mbH, an Austrian corporation. (See "Liquidity and Capital Resources"
for a description of how this acquisition was financed.)
The Spectra Precision Group develops instruments and systems that
provide positioning solutions for two market segments, Engineering &
Construction and Agriculture. Within those segments are four major customer
applications: surveying, construction site positioning, construction and
agricultural machine control, and software.
Spectra Precision Group products measure distances very accurately by
means of a light beam. A laser uses energy from a power source to stimulate a
particular type of material, which creates and emits photons (i.e., light). The
light emitted by lasers is more intense and has higher purity than the light
emitted by conventional light sources. These characteristics enable applications
in several broad markets. The principal factors that distinguish different types
of lasers and determine the particular laser suitable for a specific application
are wavelength (color), output power, repetition rate, cost and operating life.
* The Company expects that the acquisition of the Spectra Precision Group
will strengthen Trimble's position as a leading provider of positioning
solutions worldwide. The acquisition also gives Trimble one of the most
comprehensive product portfolios in the industry, strengthens its distribution
network, and serves as a platform for future growth. The complementary product
lines and technologies of Trimble and the Spectra Precision Group, should help
the combined Company to become a leader in the Engineering and Construction,
Agriculture, and Fleet and Asset Management market segments of the positioning
solution industry. There is very little overlap between each of the companies'
product offerings. In the two areas of overlap that were identified, the Company
has announced plans to discontinue Trimble's Geotracer, TTS Optical Survey
Family and the Spectra Precision Group's Elta GPS receiver. In addition, the
Spectra Precision Group's well-established and extensive distribution network
should extend Trimble's reach into new segments of its target market segments
both domestically and internationally.
Trimble's current strategy is to focus on leveraging existing
technologies, distribution, and marketing resources and identifying and taking
advantage of synergies between the companies. The Company's initial priorities
for the combined entities are centered on the following:
o The alignment of distribution channels. This included our
worldwide sales organization being managed within each of the
Company's targeted market segments. The consolidation of
facilities as part of this activity is expected to generate the
bulk of identified savings.
18
<PAGE>
o Defining the basic corporate organization, reporting and
structure. This included the announcement by Trimble in August
2000 of its new segment and management organization. As part of
the August 2000 announcement, the Engineering and Construction
division of Trimble will be headquartered form our Dayton, Ohio
facility. Trimble's Agriculture and Component Technologies
divisions will continue to operate from our Sunnyvale, California
facility. The Mobile Positioning and Communications market of the
Fleet and Asset Management division will be headquartered from our
Sunnyvale, California facility. While the GIS market of the Fleet
and Asset Management division will be headquartered in New Zealand
with operations in Sunnyvale, California and Boulder, Colorado.
The manufacturing facilities acquired, as a result of the
acquisition of the Spectra Precision Group, will support the
Engineering and Construction divisions and report through the
segment management.
o Branding and imaging of company products. Trimble is still
evaluating this with the intent to leverage industry recognition
of both Trimble and the Spectra Precision Group brands.
As part of integrating the two companies Trimble reorganized management
responsibilities in the third quarter of fiscal year 2000 by realigning its
reportable market segments from the previous two segments: Precision Positioning
Group (PPG) and Mobile Timing and Technologies Group (MTT) to five segments: (i)
Engineering and Construction, (ii) Agriculture, (iii) Fleet and Asset
Management, (iv) GPS Component Technologies, and (v) Portfolio Technologies. The
Engineering and Construction segment includes the Spectra Precision Group
surveying and construction markets and the land survey, marine survey, mining
and construction markets that had been under the PPG segment. The Agriculture
segment includes the Spectra Precision Group agriculture market and the
agriculture market that had been under the PPG segment. The Fleet and Asset
Management segment includes the mapping and GIS market that had been under the
PPG segment, as well as, the mobile positioning market that had been under the
MTT segment. The GPS Component Technologies segment includes the embedded, IVN
and timing markets that had been under the MTT segment. The Portfolio
Technologies segment includes air transport, military, commercial marine and
advance technology markets that had been under the MTT segment.
* In the Engineering and Construction segment, we focus on centimeter
positioning, data collection management, wireless communication, and machine
guidance and control. In the Agriculture segment we focus on precise machine
guidance, yield monitoring, and variable rate application of fertilizer and
chemicals. In the Fleet and Asset Management segment we focus on asset tracking,
fleet management, intelligent transportation systems, and public safety through
integration of our technologies, information technology and wireless
communication. In the GPS Component technologies segment we integrate our GPS
technology into various applications (automotive navigation, and timing systems)
for various OEMs. In the Portfolio Technologies segment we focus on accurate
position, velocity, and timing information for use in airborne navigation,
flight management, commercial marine navigation, and military applications. We
intend to continue to leverage our GPS, optical, and laser component technology
directly to Original Equipment Manufacturers (OEMs) for integration into various
applications. We look to establish and sustain our leadership position in each
of these market segments by offering products that are differentiated through
software, firmware, customized user interfaces, and quality service and support.
Where feasible, we emphasize application-specific systems that solve end-user
problems in its targeted market segments.
* As part of the acquisition of the Spectra Precision Group, Trimble has
identified approximately $20 million of potential cost reductions which could be
achieved over the next eighteen months; however, the Company is still in the
early stages of combining Trimble and the Spectra Precision Group and this
involves certain inherent risks, including: the potential inability to
successfully integrate acquired operations and businesses or to realize
anticipated synergies, economies of scale or other value; diversion of
management's attention; difficulties in coordinating the management of
operations at new sites; and the possible loss of key employees of acquired
operations. The Company's profitability may suffer if we are unable to
successfully integrate and manage this acquisition, or if we do not generate
sufficient revenue to offset the increased expenses associated with this
acquisition.
19
<PAGE>
RESULTS OF OPERATIONS
The income from operations measurement utilized by management excludes
certain one-time and acquisition related charges and discontinued operations
adjustment that management believes are not reflective of on-going operations.
The following table reflects results of operations normalized to exclude the
effects of such items as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------------------------------
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (4,268) $ 8,055 $ 16,801 $ 15,725
One time & acquisition related charges 9,734 (1) - 8,812 (2) -
Estimated Loss on disposal of Discontinued Operations (net of tax) - (2,931) - (2,931)
------------ ------------- -------------- -------------
Normalized net income from Continuing Operations $ 5,466 $ 5,124 $ 25,613 $ 12,794
============ ============= ============== =============
Normalized net income per share $ 0.21 $ 0.22 $ 0.99 $ 0.56
============ ============= ============== =============
</TABLE>
-------------------------------------------------------------------------
(1) Reflects after tax acquisition charges of $7.9 million or $0.31 per diluted
share for amortization of goodwill and other purchased intangibles, as well as
an inventory purchase accounting adjustment. Also includes, an after tax debt
extinguishment charge of $1.1 million or $0.04 per diluted share. In addition,
there was an after tax one time charge of $0.7 million or $0.03 per diluted
share for relocation costs related to opening a new office in Boulder, Colorado.
(2) Reflects after tax acquisition charges of $7.9 million or $0.31 per diluted
share for amortization of goodwill and other purchased intangibles, as well as
an inventory purchase accounting adjustment. Also includes, an after tax debt
extinguishment charge of $1.1 million or $0.04 per diluted share and a one time
after tax charge of $0.7 million or $0.03 per diluted share for relocation costs
related to opening a new office in Boulder, Colorado. In addition, there was a
one time after tax gain on sale of a minority investment of ($0.9) million or
($0.04) per diluted share.
Revenues
Revenue from Trimble's operations for the three and nine months ended
September 29, 2000 were $109,227,000 and $245,631,000 respectively, compared
with $69,636,000 and $209,245,000 in the corresponding periods in fiscal 1999.
The table below breaks out Trimble's revenues by segment:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------- --------------------------------------------
September 29, October 1, Increase / September 29, October 1, Increase /
2000 1999 (Decrease) 2000 1999 (Decrease)
---------------------------------------------------------------------------------- --------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Engineering & Construction $ 67,654 $ 26,639 154% $ 122,381 $ 81,933 49%
Agriculture 9,306 2,730 241% $ 18,146 10,745 69%
Fleet and Asset Management 15,996 18,220 (12%) $ 48,191 54,175 (11%)
GPS Component Technologies 12,824 16,000 (20%) $ 41,814 44,002 (5%)
Portfolio Technologies 3,447 6,047 (43%) $ 15,099 18,390 (18%)
-------------- -------------- ------------- ------------- ------------- -------------
Total $ 109,227 $ 69,636 57% $ 245,631 $ 209,245 17%
-------------- -------------- ------------- ------------- ------------- -------------
</TABLE>
Engineering and Construction
Engineering and Construction revenues increased for the three and nine
months ended September 29, 2000, as compared with the corresponding periods in
fiscal 1999. The increase is due primarily to the following:
o Revenues generated since the purchase of the Spectra Precision Group
in July 2000, which accounted for approximately $42.0 million.
o Introduction of a new product, the SiteVision machine control solution
for the construction industry.
20
<PAGE>
o These increases were partially offset due to continued delivery
problems related to critical part shortages in our supply chain.
Agriculture
Agriculture revenues increased for the three and nine months ended
September 29, 2000, as compared with the corresponding period in fiscal 1999.
The increase is due to the following:
o Revenues generated since the purchase of the Spectra Precision Group
in July 2000, which accounted for approximately $3.6 million.
o Introduction of new products, including the AgGPS 170 Field Computer,
the AgGPS 114, and the PSO Plus Parallel Swathing Option with Data
Logging.
o Strong growth in demand for Agriculture products in general.
Fleet and Asset Management
Fleet and Asset Management revenues decreased for the three and nine
months ended September 29, 2000, as compared with the corresponding period in
fiscal 1999. The decrease is due to the following:
o Asset management and tracking product revenues were down due to
continued delivery problems related to critical part shortages in our
supply chain.
o These decreases were partially offset by increased demand in our
Mapping products, especially our new GeoExplorer 3 used for GIS data
collection and data maintenance.
GPS Component Technologies
GPS Component Technologies revenues decreased for the three and nine
months ended September 29, 2000, as compared with corresponding period in fiscal
1999. The decrease is due to the following:
o In-vehicle navigation (IVN)product revenues were down due to
continued delivery problems related to critical part shortages in
our supply chain.
Portfolio Technologies
Portfolio Technologies revenues decreased for the three and nine months
ended September 29, 2000, as compared with corresponding period in fiscal 1999.
The decrease is due to the following:
o Decreases in revenues for Military and air transport products.
o Trimble's decision to exit the commercial marine business in the
fourth quarter of 1998 and the sale of the last of such products in the
second quarter of 1999.
Revenues outside the U.S.
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 48% and 51% in the three and nine months ended September 29, 2000,
as compared with approximately 52% and 50% in the three and nine months ended
October 1, 1999. The increase in the percentage of sales to unaffiliated
customers in locations outside of the United States for the three months ended
September 29, 2000, as compared with the same period in 1999 reflects the
domestic mix of our Spectra Precision Group. During the first nine months of
2000, Trimble experienced strong demand in Europe and South and Central America.
Trimble anticipates that export revenue and sales made by its subsidiaries in
locations outside the U.S. will continue to account for a significant portion of
its revenue. For this reason, Trimble is subject to the risks inherent in these
foreign sales, including unexpected changes in regulatory requirements, exchange
rates, governmental approval, and tariffs or other barriers. For products based
on GPS technology, there may be reluctance in certain foreign markets to
purchase such products given the control of GPS by the U.S. Government. Even
though the U.S. Government announced on March 29, 1996, that it would support
and maintain the GPS system, and on May 1, 2000 eliminated the use of Selective
Availability (SA) -- a method of degrading GPS accuracy -- Trimble's results of
operations could be adversely affected if we were unable to continue to generate
significant sales in locations outside the U.S.
21
<PAGE>
Gross Margin
* Gross margin varies on a quarterly basis due to a number of factors,
including product mix, domestic versus international sales, customer type, the
effects of production volumes and fixed manufacturing costs on unit product
costs, and new product start-up costs. Gross margin as a percentage of total
product revenues was 51% and 55% for the three and nine month periods ending
September 29, 2000 as compared with 53% in each of the corresponding 1999
periods. The decrease in gross margin percentage for the three months ended
September 29, 2000, as compared with the corresponding 1999 period is primarily
due to a $2.9 million inventory purchase accounting adjustment for the purchase
of Spectra Precision Group. The increase in gross margin percentage for the nine
months ended September 29, 2000, as compared with the corresponding 1999 period
is primarily due to favorable product mix of Engineering and Construction and
Agriculture products, which yield higher margins due to integration of software
and wireless communications. In addition, gross margins for the first nine
months of fiscal 2000 were favorably impacted by the cost benefits of
outsourcing our manufacturing. The favorable product mix and the cost benefits
of outsourcing our manufacturing for the nine month period more than offset the
$2.9 million inventory purchase accounting adjustment that occurred in the third
quarter of 2000. Because of product mix changes within and among the industry
markets, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, including increases in component prices and other factors,
current level gross margins cannot be assured.
* Trimble expects that in the future a higher percentage of its business will be
conducted through alliances with strategic partners. As a result of volume
pricing and the assumption of certain operating costs by the partner, margins on
this business are likely to be lower than sales directly to end-users.
Operating Expenses
The following table shows operating expenses for the periods indicated
and should be read in conjunction with the narrative descriptions of those
operating expenses below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------------- -----------------------------------------------
September 29, October 1, Increase/ September 29, October 1, Increase/
2000 1999 (Decrease) 2000 1999 (Decrease)
---------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 13,840 $ 9,724 42% $ 31,899 $ 27,675 15%
Sales and marketing 25,079 13,705 83% 51,758 40,981 26%
General and administrative 9,585 7,738 24% 22,532 26,391 (15%)
Amortization of goodwill &
other purchased intangibles 5,922 - 100% 5,922 - 100%
--------------- --------------- ----------- --------------- --------------- -------------
Total $ 54,426 $ 31,167 75% $ 112,111 $ 95,047 18%
=============== =============== =========== =============== =============== =============
</TABLE>
Research and Development
Research and development expenses increased in the three and nine
months ended September 29, 2000, as compared with the corresponding periods
in fiscal 1999. The primary reasons for the increases are as follows:
o Purchase of the Spectra Precision Group in July 2000, which accounted
for approximately $4.5 million of the increase. Since the acquisition
closed on July 14, 2000, the amount represents 11 weeks versus
Trimble's normal 13 week quarter.
o Trimble's receipt of approximately $450,000 and $1.7 million less
from cost reimbursement funds for projects in fiscal year 2000 as
compared to fiscal year 1999.
o Increases in facilities costs and other expenses of approximately
$ 237,000 and $900,000 respectively.
o The above increases were partially offset by decreases of
approximately $1.0 million and $3.0 million respectively related to
personnel, temporary help, and consulting expenses.
The Company plans to continue its aggressive development of future
products.
22
<PAGE>
Sales and Marketing
Sales and marketing expenses increased for the three and nine months
ended September 29, 2000, as compared with the corresponding periods in fiscal
1999. The primary reasons for the dollar increases in expenses from fiscal 1999
to fiscal 2000 are as follows:
o Purchase of the Spectra Precision Group in July 2000, which accounted
for approximately $12.3 million of the increase. Since the acquisition
closed on July 14, 2000, the amount represents 11 weeks versus Trimble's
normal 13 week quarter.
o Increases in facilities costs and other expenses of approximately
$103,000 and $373,000, respectively.
o Increases in temporary help and consulting expenses of $272,000 for
the three months ended September 29, 2000 and a slight increase for the
nine months ended September 29, 2000 over the corresponding periods in
the prior fiscal year.
o The above increases were partially offset by a decrease in sales
commissions of approximately $510,000 and $1.6 million, respectively.
The commissions were lower as a percentage of sales, due to the change
in dealer structure for some of our product lines from commission
dealers to buy/sell.
o Also partially offsetting the increases were decreases in our
advertising and promotion expenses of approximately $473,000 and
$462,000, respectively.
o The above increases were also partially offset by decreases in
compensation and related expenses of approximately $181,000 for the
three months ending September 29, 2000 and by decreases in telephone,
freight and electronic parts expenses of approximately $264,000 for the
nine months ended September 29, 2000.
* Trimble's future growth will depend in part on the timely development and
continued viability of the markets in which we currently compete, and on our
ability to continue to identify and exploit new markets for our products. In
addition, we have encountered significant competition in selected markets, and
we expect such competition to intensify as the market for our GPS applications
receives acceptance. Several of Trimble's competitors are major corporations
with substantially greater financial, technical, and marketing resources.
Increased competition may result in reduced market share for the Company and is
likely to result in price reductions of our products, which could adversely
affect Trimble's revenues and profitability.
General and Administrative
General and administrative expenses increased for the three months
ended September 29, 2000, as compared with the corresponding period for fiscal
1999. The primary reasons for the increase are as follows:
o The purchase of Spectra Precision Group in July 2000, which accounted
for approximately $1.8 million of the increase. Since the acquisition
closed on July 14, 2000, the amount represents 11 weeks versus Trimble's
normal 13 week quarter.
o Increase of approximately $480,000 in relocation expenses related to
the opening of Trimble's new Colorado facility in the third quarter of
fiscal 2000.
o Increases in outside services of approximately $396,000.
o Increases in bad debt and depreciation and amortization expenses of
approximately $138,000.
o The above increases were partially offset by decreases of
approximately $950,000 related to personnel, temporary help, consulting,
facilities, and bank charges.
General and administrative expenses decreased for the nine months ended
September 29, 2000 as compared with the corresponding period for fiscal 1999.
The primary reasons for the decrease are as follows:
o Approximately $1.3 million allowance for doubtful accounts charge
in the first nine months of fiscal 1999 related to customers in South
America which was not repeated in the first nine months of fiscal 2000.
o Trimble had decreases of approximately $4.9 million in expenses for
personnel, legal, facilities, equipment and other office supplies in
the first nine months of fiscal 2000 as compared to the first nine
months of fiscal 1999.
o The above decreases were partially offset by approximately $1.8
million of Spectra Precision Group's expenses included since its
purchase in July 2000.
o The above decreases were also partially offset by an increase in
relocation expenses related to the opening of Trimble's new Colorado
facility in the third quarter of fiscal 2000 of approximately $568,000.
23
<PAGE>
Amortization of Goodwill and Other Intangibles
Amortization expense of goodwill and other intangibles increased for
the three and nine months ended September 29, 2000 by approximately $5.9 million
related to the purchase of Spectra Precision Group.
Nonoperating income(expense), net
Nonoperating income (expense), net, increased for the three and nine
months ended September 29, 2000 as compared with the corresponding periods for
fiscal 1999, respectively. The primary reasons for the increase are as follows:
o Due to the acquisition of the Spectra Precision Group, the Company
incurred increased interest expenses offset by related interest income
of approximately $5.1 million and $3.4 million respectively.
o Penalties paid due to the early extinguishment of the John Hancock
note were approximately $0.9 million.
o Loss on foreign currency transactions totaled approximately
$376,000 and $303,000 respectively.
o The above increases for the nine month period were partially offset
by a gain of approximately $1.0 million on the sale of a minority
interest. This investment was accounted for under the cost method.
The gain is included in other income for the nine months ended
September 29, 2000.
Income Taxes
The Company's effective income tax rate from continuing operations for
the three months ended September 29, 2000 and the nine months ended September
29, 2000 was 10% as compared with the effective income tax rate from continuing
operations of 15% for the corresponding periods in 1999. These rates are less
than the federal statutory rate of 35% primarily due to the realization of the
benefits from prior net operating losses and previously 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 September 29, 2000, Trimble had cash and cash equivalents of $29.5
million and $9.1 million in short-term investments. Trimble's cash and cash
equivalents and short-term investments decreased from the prior year, due to the
purchase of the Spectra Precision Group in July 2000. Trimble's long-term debt
consisted of $162 million outstanding under senior secured credit facilities,
and a $80 million subordinated promissory note. Trimble 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, and other investing activities. Management believes that its cash, cash
equivalents, and short-term investment balances, together with its new credit
facility, will be sufficient to meet its anticipated operating cash needs for at
least the next twelve months.
* For the nine months ended September 29, 2000, the cash provided by
operating activities was $15.7million, as compared to cash provided of $16.8
million in the corresponding period in fiscal 1999. Cash provided by operating
activities in fiscal 2000 arose from the Company's net income, plus depreciation
and amortization and increase in accounts payable and offset partially by
increases in inventories and increases in accounts receivable. Trimble's ability
to continue to generate cash from operations will depend in a large part on
revenues, the rate of collections of accounts receivable, and the successful
management of the Company's manufacturing relationship with Solectron
Corporation.
Cash provided by sales of common stock in fiscal year 2000 represents
the proceeds from purchases made by employees pursuant to Trimble's stock option
plan and employee stock purchase plan and totaled $10.0 million for the nine
months ended September 29, 2000.
Effective as of July 14, 2000, Trimble completed the acquisition of the
Spectra Precision Group for an aggregate purchase price of approximately $294
million. The acquisition was financed with $80 million in seller subordinated
debt, $140 million of cash provided through a syndicate of banks, and $74
million of the Company's then available cash on hand. The Company also expects
to incur $7 to $8 million of costs and expenses in connection with the
acquisition of which approximately $6.9 million has already been incurred to
date.
24
<PAGE>
In order to finance the acquisition of the Spectra Precision Group,
fund the Company's on-going working capital requirements, and pay related fees
and expenses of the acquisition, Trimble (i) obtained a new senior secured
credit facility, (ii) issued an $80 million subordinated seller promissory note,
(iii) terminated its existing $50 million unsecured revolving credit facility
and (iv) prepaid its existing $30 million outstanding subordinated promissory
notes. (See Note 2 to the Condensed Consolidated Financial Statements under
Acquisition Financing.)
In 1996 and 1998, Trimble approved a discretionary program whereby up
to a total of 2.2 million shares of its common stock could be repurchased on the
open market by the Company to offset the potential dilutive effects to earnings
(loss) per share from the issuance of additional stock options. During 1997 and
1998, Trimble purchased a total of 1.22 million shares at a cost of $17.9
million. During fiscal 1999 and the first nine months of fiscal 2000, no shares
were repurchased under the discretionary program. Trimble's current credit
facility restricts the Company from repurchasing any of its shares. (See Note 2
to the Condensed Consolidated Financial Statements under Acquisition Financing.)
* Trimble has evaluated the issues raised by the introduction of the Single
European Currency (Euro) for initial implementation as of January 1, 1999, and
during the transition period through January 1, 2002. Trimble does not currently
believe that the introduction of the Euro will have a material effect on its
foreign exchange and hedging activities. Trimble has also assessed the potential
impact the Euro conversion will have in regard to its internal systems
accommodating Euro-denominated transactions. Trimble will continue to evaluate
the impact of the Euro introduction over time, based on currently available
information. Trimble does not currently anticipate any adverse impact of the
Euro conversion on the Company.
Other Risk Factors
Difficulties in Integrating New Acquisitions Could Adversely Affect Our
Business.
Critical to the success of our growth is the ordered, efficient
integration of acquired businesses into our organization. If our integration
efforts are unsuccessful, our businesses will suffer. We have recently acquired
the Spectra Precision Group. The acquisition presents unique product, marketing,
research and development, facilities, information systems, accounting, personnel
and other integration challenges. This transition is still in its early stages
and involves certain risks, including the following: the potential inability to
successfully integrate acquired operations and businesses or to realize
anticipated synergies, economies of scale or other value; diversion of
management's attention; difficulties in scaling up production at new sites and
coordinating management of operations at new sites; and loss of key employees of
acquired operations. Also, our information systems and those of the companies we
acquire are often incompatible, requiring substantial upgrades to one or the
other. Further, our current senior combined management is a combination of the
prior senior management teams of Trimble and the Spectra Precision Group several
of whom have not previously worked with other members of management. The
benefits to us of the acquisition and our success, as a whole, depends upon our
succeeding in each of these and other integration challenges. Nevertheless, the
integration of our business with another may result in unanticipated operations
problems, expenses and liabilities and the diversion of management attention.
Our integration efforts may not be successful, and, if so, our operating results
would suffer as a result.
Our sales force is and will in the future be a combination of our sales
force and the sales forces of the businesses we acquire, which must be
effectively integrated for us to remain successful. Our acquisition of the
Spectra Precision Group has resulted in sales forces differing in products sold,
marketing channels used and sales cycles and models applied. Accordingly, we may
experience disruption in sales and marketing in connection with our efforts to
integrate our various sales and marketing forces, and we may be unable to
efficiently or effectively correct any such disruptions or achieve our sales and
marketing objectives if we fail in these efforts. Furthermore, it may be
difficult to retain key sales personnel. As a result, we may fail to take full
advantage of the combined sales forces' efforts, and one company's sales
approaches and distribution channels may be ineffective in promoting another
entity's products, all of which may materially harm our business, financial
condition or operating results.
Risks Associated with Sole Suppliers and Limited Sources.
With the selection of Solectron Corporation in August 1999 as an
exclusive manufacturing partner for many of our GPS products previously
manufactured out of our Sunnyvale facilities, Trimble is substantially dependent
upon a sole supplier for the manufacture of its products. In addition, we rely
on sole suppliers for a number of our critical ASICS. We have experienced
shortages of such supplies in the past. Our reliance on sole or a limited group
25
<PAGE>
of suppliers involves several risks, including a potential inability to obtain
an adequate supply of required components and reduced control over pricing. The
disruption or termination of any of these sources could have a material adverse
effect on our business, operating results and financial condition. Any inability
to obtain adequate deliveries or any other circumstance that would require us to
seek alternative sources of supply or to manufacture such components internally
could significantly delay our ability to ship our products, which could damage
relationships with current and prospective customers and could have a material
adverse effect on our business, operating results and financial condition.
Fluctuations in Annual and Quarterly Performance.
Our operating results have fluctuated and can be expected to continue
to fluctuate in the future on a quarterly and annual basis as a result of a
number of factors, many of which are beyond our control. Results in any period
could be affected by changes in market demand, competitive market conditions,
market acceptance of new or existing products, fluctuations in foreign currency
exchange rates, the cost and availability of components, our ability to
manufacture and ship products, the mix of our customer base and sales channels,
the mix of products sold, our ability to expand our sales and marketing
organization effectively, our ability to attract and retain key technical and
managerial employees and general economic conditions. Due to the foregoing
factors, our operating results in one or more future periods are expected to be
subject to significant fluctuations. In the event such fluctuations result in
our financial performance being below the expectations of public market analysts
and investors, the price of our common stock could decline substantially.
Our revenues have historically tended to fluctuate on a quarterly basis
due to the timing of shipments of products under contracts and the sale of
licensing rights. A significant portion of Trimble's quarterly revenues occurs
from orders received and immediately shipped to customers in the last few weeks
and days of 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.
Despite the fluctuations in its quarterly sales patterns, the Company's
operating expenses are incurred on an approximately ratable basis. As a result,
if expected sales are deferred for any reason, the Company's business, operating
results and financial condition could be materially adversely affected.
Trimble gross margin is affected by a number of factors, including
product mix, product pricing, cost of components, foreign currency exchange
rates and manufacturing costs. For example, since Engineering & Construction and
Agriculture products generally have higher gross margins than GPS Component
Technologies products, absent other factors, a shift in sales toward Engineering
& Construction and Agriculture products would lead to a gross margin improvement
for Trimble. On the other hand, if market conditions in the highly competitive
Engineering & Construction and Agriculture market segments forced us to lower
unit prices, we would suffer a decline in gross margin unless we were able to
timely offset the price reduction by a reduction in production costs or by sales
of other products with higher gross margins. Either of these events could have a
material effect on our business, operating results and financial condition.
Our backlog on a given date consists of written purchase orders or
other commitments for products, which are scheduled to be shipped within the
following twelve months. Orders in our backlog are firm, but are generally
subject to cancellation or rescheduling without penalty. Decisions by customers
to reduce inventory levels could lead to reductions in purchases from Trimble
and could have a material adverse effect on our business, operating results and
financial condition.
Risks of Managing Future Growth.
Any significant growth in our sales or any significant expansion in the
scope of our operations could strain our management, financial, manufacturing
and other resources and may require us to implement and improve a variety of
operating, financial and other systems, procedures and controls. While Trimble
plans significant expansion of its sales, accounting, manufacturing, and other
information systems to meet these challenges, there can be no assurance that
these efforts will succeed, or that any existing or new systems, procedures or
controls will be adequate to support our operations or that our systems,
procedures and controls will be designed, implemented or improved in a cost
effective and timely manner. Any failure to implement, improve and expand such
systems, procedures and controls in a timely and efficient manner could have a
material adverse effect on our business, operating results and financial
condition.
26
<PAGE>
Competition.
Trimble's markets are highly competitive. Our overall competitive
position depends on a number of factors including the price, quality and
performance of our products, the level of customer service, the development of
new technology and our ability to participate in emerging markets. Within each
of our markets, we have encountered direct competition from other GPS, optical
and laser suppliers and expect competition to continue to intensify from various
larger domestic and international competitors and new market entrants, some of
which may be current Trimble customers. The increased competition has resulted
and is expected, in the future, to result in price reductions, reduced margins
or loss of market share, any of which could materially and adversely affect our
business, operating results and financial condition. We believe that our ability
to compete successfully in the future against existing and additional
competitors will depend largely on our ability to execute our strategy to
provide systems and products with significantly differentiated features compared
to currently available products. There can be no assurance that we will be able
to implement this strategy successfully, or that any such products will be
competitive with other technologies or products that may be developed by our
competitors, many of whom have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than we do. We also believe
that in certain emerging markets our success will depend on our ability to form
and maintain strategic alliances with established system providers and industry
leaders. Our failure to form and maintain such alliances, or the preemption of
such alliances by actions of other competitors or us will adversely affect our
ability to penetrate emerging markets. There can be no assurance that we will be
able to compete successfully against current or future competitors or that
competitive pressures faced by us will not have a material adverse effect on our
business, operating results and financial condition. We expect that both direct
and indirect competition will increase in the future. Additional competition
could adversely affect our business, operating results and financial condition
through price reductions or loss of market share.
Risks Associated With International Operations and Sales.
Our customers are located throughout the world. In addition, we have
significant offshore operations, including manufacturing facilities, sales
personnel and customer support operations. Our offshore operations include
facilities in Australia, Canada, China, France, Germany, Great Britain, Japan,
Mexico, New Zealand, Sweden, Russia, Singapore and others. Our international
presence exposes us to risks not faced by wholly-domestic companies.
Specifically, we face the following risks, among others, unexpected changes in
regulatory requirements; tariffs and other trade barriers; political, legal and
economic instability in foreign markets, particularly in those markets in which
we maintain manufacturing and research facilities; difficulties in staffing and
management; language and cultural barriers; seasonal reductions in business
activities in the summer months in Europe and some other countries; integration
of foreign operations; longer payment cycles; greater difficulty in accounts
receivable collection; currency fluctuations; and potentially adverse tax
consequences. Although we implemented a program to manage foreign exchange risks
through hedging and other strategies, there can be no assurance that this
program will be successful and that currency exchange rate fluctuations will not
have a material adverse effect on our results of operations. In addition, in
certain foreign markets, there may be reluctance to purchase products based on
GPS technology, given the control of GPS by the U.S. Government.
Volatility of Stock Price.
Our common stock has experienced and can be expected to experience
substantial price volatility in response to actual or anticipated quarterly
variations in results of operations, announcements of technological innovations
or new products by us or our competitors, developments related to patents or
other intellectual property rights, developments in our relationship with
customers, suppliers, or strategic partners and other events or factors. In
addition, any short fall or changes in revenue, gross margins, earnings, or
other financial results from analysts' expectations could cause the price of our
common stock to fluctuate significantly. Additionally, certain macro-economic
factors such as changes in interest rates could also have an impact on the
trading price of our stock.
Dependence on Proprietary Technology; Risk of Patent Infringement Claims.
Trimble's future success and competitive position is dependent upon its
proprietary technology, and we rely on patent, trade secret, trademark and
copyright law to protect our intellectual property. There can be no assurance
that the patents owned or licensed by us will not be invalidated, circumvented,
challenged or licensed to others, that the rights granted thereunder will
provide competitive advantages to us or that any of our pending or future patent
applications will be issued within the scope of the claims sought by Trimble, if
at all. Furthermore, there can be no assurance that others will not develop
27
<PAGE>
technologies that are similar or superior to our technology, duplicate our
technology or design around the patents owned by Trimble. In addition, effective
copyright, patent and trade secret protection may be unavailable, limited or not
applied for in certain foreign countries. There can be no assurance that the
steps taken by Trimble to protect its technology will prevent the
misappropriation of such technology.
The value of our products relies substantially on our technical
innovation in fields in which there are many current patent filings. Trimble
recognizes that as new patents are issued or are brought to our attention by the
holders of such patents, it may be necessary for us to withdraw products from
the market, take a license from such patent holders, or redesign our products.
We do not believe any of our products currently infringe patents or other
proprietary rights of third parties, but we cannot be certain they do not do so.
In addition, the legal costs and engineering time required to safeguard
intellectual property or to defend against litigation could become a significant
expense of operations. Such events could have a material adverse effect on our
revenues or profitability. (See also Note 15 to the Condensed Consolidated
Financial Statements.)
Dependence on New Products.
Trimble's future revenue stream depends to a large degree on our
ability to bring new products to market on a timely basis. We must continue to
make significant investments in research and development in order to continue to
develop new products, enhance existing products and achieve market acceptance of
such products. However, there can be no assurance that development stage
products will be successfully completed or, if developed, will achieve
significant customer acceptance. If we were unable to successfully define,
develop and introduce competitive new products, and enhance existing products,
our future results of operations would be adversely affected. Development and
manufacturing schedules for technology products are difficult to predict, and
there can be no assurance that we will achieve timely initial customer shipments
of new products. The timely availability of these products in volume and their
acceptance by customers are important to the future success of Trimble. In some
of our markets -- for example, Engineering & Construction where we currently
have a market leadership position, a delay in new product introductions could
have a significant impact on our results of operations. No assurance can be
given that we will not incur problems in the future in innovating and
introducing new products.
Strategic Alliances and External Investments.
We are continuously evaluating alliances and external investments in
technologies related to our business, and have entered into many strategic
alliances including making relatively small strategic equity investments in a
number of GPS related technology companies. Acquisitions of companies, divisions
of companies, or products and alliances and strategic investments entail
numerous risks, including (i) the potential inability to successfully integrate
acquired operations and products or to realize anticipated synergies, economies
of scale, or other value; (ii) diversion of management's attention; (iii) loss
of key employees of acquired operations; and (iv) inability to recover strategic
investments in development stage entities. Any such problems could have a
material adverse effect on our business, financial condition, and results of
operations. No assurances can be given that we will not incur problems from
current or future alliances, acquisitions, or investments. Furthermore, there
can be no assurance that we will realize value from any such strategic
alliances, acquisitions, or investments.
Dependence on Key Customers.
We currently enjoy strong relationships with a few key customers. An
increasing amount of our revenue is generated from large OEMs such as Philips
VDO, Nortel, Caterpillar, CNH Global (formerly Case Corporation), Bosch, and
others. A reduction or loss of business with these customers could have a
material adverse effect on our financial condition and results of operations.
There can be no assurance that we will be able to continue to realize value from
these relationships in the future.
Dependence on Key Markets and Successful Identification of New Markets.
Trimble's current products serve many applications in Engineering &
Construction, Agriculture, Fleet & Asset Management, GPS Component Technologies,
and Portfolio Technologies market segments. No assurances can be given that
these market segments will continue to generate significant or consistent demand
for our products. Existing market segments could be significantly diminished by
new technologies or products that replace or render obsolete our technologies
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and products. Trimble is dependent on successfully identifying new markets for
its products. There can be no assurance that the Company will be able to
successfully identify new high-growth markets in the future. Moreover, there can
be no assurance that new markets will develop for Trimble or its customers'
products, or that our technology or pricing will enable such markets to develop.
Dependence on Retaining and Attracting Highly Skilled Development and Managerial
Personnel.
The ability of Trimble to maintain its competitive technological
position will depend, in a large part, on its ability to attract, motivate, and
retain highly qualified development and managerial personnel. Competition for
qualified employees in our industry and location is intense, and there can be no
assurance that we will be able to attract, motivate and retain enough qualified
employees necessary for the future continued development of our business and
products.
Potential Adverse Impact of Governmental and Other Similar Certifications.
Trimble has certain products that are subject to governmental and
similar certifications before they can be sold. For example, FAA certification
is required for all aviation products. Also, our products that use integrated
radio communication technology require an end-user to obtain licensing from the
Federal Communications Commission (FCC) for frequency-band usage. During the
fourth quarter of 1998, the FCC temporarily suspended the issuance of licenses
for certain of our Real-time Kinematic products because of interference with
certain other users of similar radio frequencies. An inability or delay in
obtaining such certifications or delays of the FCC could have an adverse effect
on our operating results.
Dependence on Radio Frequency Spectrum.
Trimble's GPS technology is dependent on the use of the Standard
Positioning Service (SPS) provided by the U.S. Government's Global Positioning
System (GPS). The GPS SPS operates in radio frequency bands that are globally
allocated for radio navigation satellite services. International allocations of
radio frequency are made by the International Telecommunications Union (ITU), a
specialized technical agency of the United Nations. These allocations are
further governed by Radio Regulations which have treaty status and which may be
subject to modification every two-three years by the World Radio communication
Conference. Any ITU reallocation of radio frequency bands, including frequency
band segmentation or sharing of spectrum, may materially and adversely affect
the utility and reliability of our products, which would, in turn, cause a
material adverse effect on our operating results. In addition, unwanted
emissions from mobile satellite services and other equipment operating in
adjacent frequency bands or inband from licensed and unlicensed devices may
materially and adversely affect the utility and reliability of our products,
which could result in a material adverse effect on our operating results. The
Federal Communications Commission (FCC) continually receives proposals for novel
technologies and services which may seek to operate in, or across, the radio
frequency bands currently used by the GPS SPS and other public safety services.
Adverse decisions by the FCC that result in harmful interference to the delivery
of the GPS SPS may materially and adversely affect the utility and reliability
of our products, which could result in a material adverse effect on our
operating results.
Reliance on GPS Satellite Network.
NAVSTAR satellites and their ground support systems are complex
electronic systems subject to electronic and mechanical failures and possible
sabotage. The satellites were originally designed to have lives of 7.5 years and
are subject to damage by the hostile space environment in which they operate.
However, of the current deployment of 27 satellites in place, some have already
been in place for 11 years and have an average age of 6 years. To repair damaged
or malfunctioning satellites is currently not economically feasible. If a
significant number of satellites were to become inoperable, there could be a
substantial delay before they are replaced with new satellites. A reduction in
the number of operating satellites would impair the current utility of the GPS
system and the growth of current and additional market opportunities. In
addition, there can be no assurance that the U.S. government will remain
committed to the operation and maintenance of GPS satellites over a long period,
or that the policies of the U.S. Government for the use of GPS without charge
will remain unchanged. However, a 1996 Presidential Decision Directive marks the
first time in the evolution of GPS that access for civilian use free of direct
user fees is specifically recognized and supported by Presidential policy. In
addition, Presidential policy has been complemented by corresponding
legislation, signed into law. Because of ever-increasing commercial applications
of GPS, other U.S. Government agencies may become involved in the administration
or the regulation of the use of GPS signals. Any of the foregoing factors could
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affect the willingness of buyers of the Company's products to select GPS-based
systems instead of products based on competing technologies. Any resulting
change in market demand for GPS products could have a material adverse effect on
Trimble's financial results. For example, European governments have expressed
interest in building an independent satellite navigation system, known as
Galileo. Depending on the as yet undetermined design and operation of this
system, there may be interference to the delivery of the GPS SPS and may
materially and adversely affect the utility and reliability of our products,
which could result in a material adverse effect on our operating results.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The following is a discussion of Trimble's exposure to market risk as
of September 29, 2000 related to changes in interest rates and foreign currency
exchange rates. Trimble uses certain derivative financial instruments to manage
these risks. Trimble does not use derivative financial instruments for
speculative or trading purposes. All financial instruments are used in
accordance with policies approved by Trimble's board of directors.
Market Interest Rate Risk
Short-term Investments Owned by the Company. As of September 29, 2000,
Trimble had short-term investments of $9.1 million. These short-term investments
consisted of $8 million of highly liquid investments, with original maturities
at the date of purchase between three and twelve months and a $1.1 million
liquid investment with an original maturity at the date of purchase of eighteen
months. (See Note 4 to the Condensed Consolidated Financial Statements.) 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 September 29, 2000 would cause the fair value of
these short-term investments to decline by an immaterial amount. Because Trimble
has the ability to hold these investments until maturity, we 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 our interest income.
Outstanding Debt of the Company. The Company is exposed to market risk
due to the possibility of changing interest rates under the new senior secured
credit facilities. The new credit facilities are comprised of a 3-year US dollar
only revolver, a 3-year Multi-Currency revolver, and a 5-year term loan. (See
Note 2 to the Condensed Consolidated Financial Statements under Acquisition
Financing.) The entire credit facility has interest payments based on a floating
rate of LIBOR plus 275 basis points for the first 6 months and thereafter tied
to a formula based on the Company's leverage ratio. The US dollar and the
Multi-Currency revolvers run through July 2003 and have outstanding principle
balances at September 29, 2000 of $50,000,000 and $12,000,000, respectively. As
of September 29, 2000 the Company has borrowed in US currency only. The term
loan runs through July 2005 and has an outstanding principle balance of
$100,000,000 at September 29, 2000. The 3-month LIBOR rate at September 29, 2000
was 6.66%. A 10% increase in 3-month LIBOR rates could result in a $1.1million
annual increase in interest expense on the existing principal balances. The
Company may consider utilizing interest rate swap agreements to alter interest
rate exposures. There were no interest rate swap agreements outstanding as of
September 29, 2000.
The company also has $4.6 million of Euro-denominated debt. At
September 29, 2000, $4.6 million of this obligation was outstanding, of which
$3.7 million was current. This debt is payable in eight quarterly installments,
and bears interest at a fixed rate of six percent. The interest rate of this
instrument is fixed. However, a hypothetical 10 percent decrease in interest
rates would not have a material impact on the Company as related to this debt.
* The hypothetical changes and assumptions made above will be different
from what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by Trimble's management, should the
hypothetical market changes actually occur over time. As a result, actual
earnings effects in the future will differ from those quantified above.
Foreign Currency Exchange Rate Risk
The following described hedging activities are representative of only
the Trimble operations and do not include any hedging activities of the Spectra
Precision Group as there currently are no hedging of intercompany transactions
within the Spectra Precision Group. Trimble hedges risks associated with foreign
currency transactions in order to minimize the impact of changes in foreign
currency exchange rates on earnings. Trimble utilizes forward contracts to hedge
trade and intercompany receivables and payables. These contracts reduce the
exposure to fluctuations in exchange rate movements, as the gains and losses
associated with foreign currency balances are generally offset with the gains
and losses on the hedge contracts. All hedge instruments are marked to market
through earnings every period.
* Trimble does not anticipate any material adverse effect on its
consolidated financial position utilizing our current hedging strategy.
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All contracts have a maturity of less than one year, and we do not
defer any gains and losses, as they are all accounted for through earnings every
period.
The following table provides information about Trimble's foreign
exchange forward contracts outstanding as of September 29, 2000:
<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>
YEN Sell 131,000 $ 1,241 $ 1,219
NZD Buy 4,800 $ 2,079 $ 1,956
EUR Sell 2,040 $ 1,798 $ 1,820
GBP Buy 1,605 $ 2,356 $ 2,369
</TABLE>
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PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
10.72 Stock and Asset Purchase Agreement, dated as of May 11, 2000, between
Trimble Acquisition Corp., and Spectra Physics Holdings USA, INC.,
Spectra Precision AB, and Spectra Precision Europe Holdings, BV. (1)
10.73 Asset Purchase Agreement dated May 11, 2000 between Trimble Acquisition
Corp. and Spectra Precision AB. (1).
10.74 $200.0 million Credit Agreement dated July 14, 2000 between Trimble
Navigation Limited and ABN AMRO Bank N.V., Fleet National Bank, and
The Bank of Nova Scotia. (1)
10.75 Subordinated Seller Note dated July 14, 2000, for the principal amount
of $80,000,000 issued by Trimble Navigation Limited to Spectra Precision
Holdings, Inc. (1)
10.76 Spectra Precision Supplement to the Trimble Navigation 1988 Employee
Stock Purchase Plan
27.1 Financial Data Schedule for the quarters ended September 29, 2000 and
October 1, 1999.
--------------------------
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 7(c), "Exhibits" of the registrant's Current Report on
Form 8-K filed on July 28, 2000.
B. Reports on Form 8-K
On July 28, 2000, the Company filed a report on Form 8-K reporting the
completion of the acquisition of the Spectra Precision Group effective as
of July 14, 2000 for an aggregate purchase price of approximately $294
million, which is subject to a final adjustment in the purchase price as
provided for in the acquisition agreements. The acquisition includes 100%
of the stock of Spectra Precision Inc., a Delaware corporation, Spectra
Precision SRL, an Italian corporation, Spectra Physics Holdings GmbH, a
German corporation, and Spectra Precision BV, a Netherlands corporation.
The acquisition also consists of certain assets and liabilities of Spectra
Precision AB, a Swedish corporation, including 100% of the shares of
Spectra Precision SA, a French corporation, Spectra Precision Scandinavia
AB, a Swedish corporation, Spectra Precision of Canada Ltd., a Canadian
corporation, and Spectra Precision Handelsges mbH, an Austrian corporation.
On September 22, 2000 the Company filed an amendment to the Form 8-K
filed on July 28, 2000. The amendment contained the financial statements
and pro forma financial statements required by the Report on Form 8-K filed
on July 28, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
(Registrant)
By: /s/Mary Ellen Genovese
----------------------------
Mary Ellen Genovese
(Chief Financial Officer)
DATE: November 9, 2000
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