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 June 30, 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 incorporation (I.R.S. Employer
or organization) Identification No.)
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 June 30, 2000, there were 23,362,535 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 -
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statements of Operations -
Three and Six Months ended June 30, 2000 and July 2, 1999 4
Condensed Consolidated Statements of Cash Flows -
Three and Six Months ended June 30, 2000 and July 2, 1999 5
Notes to Condensed Consolidated Financial Statement 6-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-27
Item 3. Quantitative and Qualitative Disclosure of Market Risk 28-29
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 30
Item 6. Exhibits and Reports on Form 8-K 31
SIGNATURES 32
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------------------------------------------------------------------------------
(In thousands) (Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 94,438 $ 49,264
Short term investments 24,900 52,728
Accounts and other receivable, net 45,651 36,005
Inventories 19,042 16,435
Other current assets 3,881 4,510
---------------- -----------------
Total current assets 187,912 158,942
Net property and equipment 11,660 12,333
Intangible assets 1,135 1,238
Deferred income taxes 350 387
Other assets 8,541 8,851
---------------- -----------------
Total assets $ 209,598 $ 181,751
================ =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ - $ 1,388
Accounts payable 12,438 11,710
Accrued compensation and benefits 8,295 7,011
Accrued liabilities 14,520 14,091
Accrued liabilities related to disposal of
General Aviation 1,389 2,212
Accrued warranty expense 5,989 5,786
Income taxes payable 2,343 2,983
Deferred gain on sale of assets 1,953 1,953
---------------- -----------------
Total current liabilities 46,927 47,134
---------------- -----------------
Noncurrent portion of long-term debt and other liabilities 30,724 30,566
Noncurrent portion of deferred gain on sale of assets 2,279 3,255
---------------- -----------------
Total liabilities 79,930 80,955
---------------- -----------------
Shareholders' equity:
Common stock 135,419 126,962
Accumulated deficit (4,056) (25,125)
Accumulated other comprehensive loss (1,695) (1,041)
---------------- -----------------
Total shareholders' equity 129,668 100,796
---------------- -----------------
Total liabilities and shareholders' equity $ 209,598 $ 181,751
================ =================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
------------------------------------------------------------------------------------ -----------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Total revenue $ 71,264 $ 70,839 $ 136,404 $ 139,609
-------------------- ----------------- ------------------ --------------------
Operating expenses:
Cost of sales 29,379 33,228 57,474 66,431
Research and development 9,182 9,444 18,059 17,951
Sales and marketing 14,033 13,972 26,679 27,276
General and administrative 6,647 8,630 12,947 18,653
-------------------- ----------------- ------------------ --------------------
Total operating expenses 59,241 65,274 115,159 130,311
-------------------- ----------------- ------------------ --------------------
Operating income 12,023 5,565 21,245 9,298
-------------------- ----------------- ------------------ --------------------
Nonoperating income (expense):
Interest income 1,725 694 3,206 1,385
Interest expense (858) (845) (1,709) (1,701)
Other income (expenses), net 840 64 668 42
-------------------- ----------------- ------------------ --------------------
1,707 (87) 2,165 (274)
-------------------- ----------------- ------------------ --------------------
Income before income taxes 13,730 5,478 23,410 9,024
Income tax provision 1,373 822 2,341 1,354
-------------------- ----------------- ------------------ --------------------
Net income $ 12,357 $ 4,656 $ 21,069 $ 7,670
==================== ================= ================== ====================
-------------------- ----------------- ------------------ --------------------
Basic net income per share $ 0.53 $ 0.21 $ 0.92 $ 0.34
==================== ================= ================== ====================
Shares used in calculating basic
income per share 23,157 22,319 23,003 22,290
==================== ================= ================== ====================
-------------------- ----------------- ------------------ --------------------
Diluted net income per share $ 0.48 $ 0.20 $ 0.83 $ 0.34
==================== ================= ================== ====================
Shares used in calculating diluted
income per share 25,839 22,769 25,491 22,437
==================== ================= ================== ====================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, July 2,
2000 1999
-------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Net cash provided by operating activities $ 11,665 $ 9,465
------------------ ------------------
Cash flow from investing activities:
Purchase of short term investments (6,320) (7,374)
Maturities of short term investments 24,898 752
Sales of short term investments 9,250 -
(Purchase)/sale of equity investments/loans, net 475 -
Acquisition of property and equipment (2,497) (3,105)
Capitalized patent expenditures (401) (523)
------------------ ------------------
Net cash provided by (used) in investing activities 25,405 (10,250)
------------------ ------------------
Cash flow from financing activities:
Issuance of common stock 8,457 1,948
Collections of notes receivable 973 484
(Payment)/proceeds from long-term debt and revolving
credit facilities, net (1,326) (1,332)
------------------ ------------------
Net cash provided by financing activities 8,104 1,100
------------------ ------------------
Net increase in cash and cash equivalents 45,174 315
Cash and cash equivalents -- beginning of period 49,264 40,865
------------------ ------------------
Cash and cash equivalents -- end of period $ 94,438 $ 41,180
================== ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 795 $ 751
Income taxes, net of refunds $ 2,835 $ 41
</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 six
months ended June 30, 2000, and July 2, 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.
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 six months ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 29, 2000.
NOTE 2 - 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 June 30, 2000, investments with scheduled maturities within one year
were $23.8 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.
6
<PAGE>
NOTE 3 - Inventories:
Inventories consist of the following:
June 30, December 31,
2000 1999
----------------------------------------------------------------------------
(In thousands)
Raw materials $ 5,345 $ 2,582
Work-in-process 1,867 2,232
Finished goods 11,830 11,621
-------------- -------------------
$ 19,042 $ 16,435
-------------- -------------------
NOTE 4 - 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 later 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.
As of June 30, 2000, Trimble has a remaining provision of $1.4 million,
which includes $600,000 for the estimated remaining operating losses for service
and warranty support and remaining severance costs, and $800,000 for facility
and certain other contractual costs.
NOTE 5 - 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.
7
<PAGE>
The activity in fiscal 2000, 1999 and 1998 related to the restructuring
charges and the amounts remaining at June 30, 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 liabilites
fiscal 1998 in fiscal 1998 in fiscal 1999 in fiscal 2000 as of June 30, 2000
------------- ------------------- ----------------- ------------------ --------------------------
<S> <C> <C> <C> <C> <C>
Employee termination benefits $ 2,864 $ (1,200) $ (371) $ - $ 1,293
Facility space reductions 1,061 - (1,053) (8) -
ERP system abandonment 6,360 (4,895) (1,465) - -
------------- ------------------- ----------------- ------------------ --------------------------
Subtotal $ 10,285 $ (6,095) $ (2,889) $ (8) $ 1,293
============= =================== ================= ================== ==========================
</TABLE>
NOTE 6 - Segment Information:
Trimble operates in a single industry segment as a leader in designing and
developing innovative products enabled by GPS technology. We provide end-user
and Original Equipment Manufacture solutions for diverse applications in our
target markets. These applications include:
o Architecture/Engineering/Construction - surveying, mapping, and
construction machine guidance control;
o Asset Management and Tracking - fixed asset mapping and fleet management
using mobile positioning;
o Agriculture - mapping, yield monitoring, variable rate applications, and
machine guidance/control; and
o GPS Component Technologies - automotive navigation, timing systems,
commercial avionics, and military systems.
To achieve distribution, marketing, production, and technology advantages
for our targeted markets we manage our industry segment within two Business
Units: the Precision Positioning Group (PPG) and the Mobile and Timing
Technologies (MTT) Group.
The Precision Positioning Group derives its revenue from precision
positioning solutions for the architecture, engineering, construction, asset
management, and agriculture markets. These markets require sub-centimeter to
meter 3D positioning accuracy for surveying, mapping, and machine
guidance/control applications. The Mobile and Timing Technologies Group derives
its revenues from automotive, timing, fleet management, commercial aviation,
military systems and from development of software licenses and other rights for
the use of our GPS technology to third parties. Trimble evaluates these Business
Units' performance and allocates resources based on profit and loss from
operations before income taxes.
The accounting policies applied by each of the markets are the same as
those used by Trimble in general.
The table on the following page presents revenues, operating income, and
identifiable assets by Trimble's two Business Units. There is no recognition of
inter-Business Unit sales or transfers. Operating income 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 industry market are accounts receivable
and inventory. Trimble does not report depreciation and amortization or capital
expenditures by industry markets to the CODM.
8
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------- -----------------------------------------
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
---------------------------------------- -----------------------------------------
(in thousands) (in thousands)
---------------------------------------- -----------------------------------------
PPG MTT Total PPG MTT Total
---------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
External net revenue $ 45,457 $ 25,807 $ 71,264 $ 86,005 $ 50,399 $ 136,404
Operating profit before corporate
allocations 15,443 4,282 19,725 29,333 8,947 38,280
Corporate allocations (1) (5,808) (2,580) (8,388) (11,616) (5,159) (16,775)
---------------------------------------- -----------------------------------------
Operating profit $ 9,635 $ 1,702 $ 11,337 $ 17,717 $ 3,788 $ 21,505
-----------------------------------------
As of
June 30, 2000
-----------------------------------------
(in thousands)
-----------------------------------------
Assets: PPG MTT Total
-----------------------------------------
Accounts recievable (2) $ 35,326 $ 21,200 $ 56,526
Inventory 5,664 8,514 14,178
---------------------------------------- -----------------------------------------
Three Months Ended Six Months Ended
July 2, 1999 July 2, 1999
---------------------------------------- -----------------------------------------
(in thousands) (in thousands)
---------------------------------------- -----------------------------------------
PPG MTT Total PPG MTT Total
---------------------------------------- -----------------------------------------
External net revenue $ 41,581 $ 29,258 $ 70,839 $ 84,147 $ 55,462 $ 139,609
Operating profit before corporate
allocations 13,510 4,347 17,857 27,895 7,672 35,567
Corporate allocations (1) (6,165) (2,872) (9,037) (12,351) (5,363) (17,714)
---------------------------------------- -----------------------------------------
Operating profit $ 7,345 $ 1,475 $ 8,820 $ 15,544 $ 2,309 $ 17,853
-----------------------------------------
As of
December 31, 1999
-----------------------------------------
(in thousands)
-----------------------------------------
Assets: PPG MTT Total
-----------------------------------------
Accounts recievable (2) $ 29,205 $ 20,204 $ 49,409
Inventory 6,720 9,715 16,435
-----------------------------------------------------------------------------------------------
<FN>
(1) For the three and six months ended June 30, 2000 and July 2, 1999, the Company determined
the amount of corporate allocations charged to each of its Business Units
based on a percentage of the Business Units' monthly revenue, gross profit, and
controllable spending (research and development, marketing, and general and
administrative).
(2) As presented, the accounts receivable number excludes cash in advance
and reserves, which are not allocated between Business Unit segments.
</FN>
</TABLE>
9
<PAGE>
The following are reconciliations corresponding to totals in the
accompanying consolidated financial statements (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
Revenues: 2000 1999 2000 1999
--------------------------------------------------------------------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Total for reportable markets $ 71,264 $ 70,839 $ 136,404 $ 139,609
================ ================== ============== =================
Operating profit:
--------------------------------------------------------
Total for reportable markets $ 11,337 $ 8,820 $ 21,505 $ 17,853
Unallocated corporate expenses 686 (3,255) (260) (8,555)
---------------- ------------------ -------------- -----------------
Income before income taxes $ 12,023 $ 5,565 $ 21,245 $ 9,298
================ ================== ============== =================
As of
---------------------------------
June 30, December 31,
Assets: 2000 1999
-------------------------------------------------------- -------------- -----------------
Accounts receivable total for reportable markets $ 56,526 $ 49,409
Unallocated (1) (10,875) (13,404)
-------------- -----------------
Total $ 45,651 $ 36,005
============== =================
Inventory total for reportable markets $ 14,178 $ 16,435
Common inventory (2) 4,864 -
-------------- -----------------
Net inventory $ 19,042 $ 16,435
============== =================
</TABLE>
--------------------------------------------------------------------------
(1) Includes cash in advance and reserves that are not allocated by segment.
(2) Consists of inventory that is common between the Business Unit segments.
Parts can be used by either segment.
NOTE 7 - Comprehensive Income (Loss):
The components of other comprehensive income (loss), net of related tax
include:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
------------------------------------------------------------------------------------------ ----------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Net unrealized gain (loss) on short-term investments 22 (45) 86 (52)
Cummulative foreign currency translation adjustments (434) (90) (740) (203)
-------------- ------------------- -------------- ------------------
Other comprehensive loss $ (412) $ (135) $ (654) $ (255)
============== =================== ============== ==================
</TABLE>
10
<PAGE>
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:
June 30, December 31,
2000 1999
-------------------------------------------------------------- ---------------
(In thousands)
Net unrealized gains on short-term investments $ (37) $ (123)
Cummulative foreign currency translation
adjustments (1,658) (918)
-------------- ---------------
Accumulated other comprehensive loss $ (1,695) $ (1,041)
============== ===============
NOTE 8 - 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 Company is
currently in the process of evaluating the impact, if any, SAB 101 will have on
its financial position or results of operations.
In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an interpretation of APB Opinion No.
25" (FIN 44). FIN 44 clarifies the application of APB Opinion No. 25, and, among
other issues, clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether a
plan qualifies as a noncompensatory plan; the accounting consequence of various
modifications to the terms of previously fixed stock options or awards; and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective beginning July 1, 2000, and certain conclusions
in FIN 44 cover specific events occurring after either December 15, 1998 or
January 12, 2000. The adoption of FIN 44 is not expected to have a material
impact on the Company's consolidated financial statements.
11
<PAGE>
NOTE 9 - Earnings Per Share:
The following table sets forth the computation of Trimble's basic and
diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
2000 1999 2000 1999
------------------------------------------------------------------------------------------ ------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Numerator:
Income available to common shareholders used in
basic and diluted income per share $ 12,357 $ 4,656 $ 21,069 $ 7,670
============== ============= ============== ==============
Denominator:
Weighted-average number of common
shares used in calculating basic income per share 23,157 22,319 23,003 22,290
Effect of dilutive securities:
Common stock options 2,382 413 2,213 147
Common stock warrants 300 37 275 -
-------------- ------------- -------------- --------------
Weighted-average number of common
shares and dilutive potential common shares
used in calculating diluted income per share 25,839 22,769 25,491 22,437
============== ============= ============== ==============
Basic income per share $ 0.53 $ 0.21 $ 0.92 $ 0.34
============== ============= ============== ==============
Diluted income per share $ 0.48 $ 0.20 $ 0.83 $ 0.34
============== ============= ============== ==============
</TABLE>
12
<PAGE>
NOTE 10 - Contingencies:
Pending 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 and SiRF are in
the process of finalizing the details of a negotiated settlement, which includes
cross licensing of technology.
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 thoroughly to
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, which was
issued February 21, 1989, would be required by the Company because of a joint
venture that the Company had previously entered into with Caterpillar
Corporation concerning the use of Trimble GPS products in combination with
earth-moving equipment. To date, no infringement action has been initiated on
behalf of Mr. Clegg. The Company believes that there will be no adverse
consequences to the Company as a result of this inquiry. The Company is also a
party to other disputes incidental to its business.
The Company believes that the ultimate liability of the Company as a result
of all such disputes, if any, would not be material to its overall financial
position, results of operations, or liquidity.
NOTE 11 - Subsequent Event:
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 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 will be accounted for as a purchase for accounting
purposes; accordingly, Trimble's consolidated results of operations will include
the operating results of the Spectra Precision Group subsequent to the effective
acquisition date. 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 and expects to record approximately $81 million of
goodwill due to the acquisition which will be amortized over 20 years. The
Company also expects to incur $7 to $8 million of costs and expenses in
connection with the acquisition.
Revenues for the Spectra Precision Group for the last six months ended
June 30, 2000, were approximately $117 million. The operations of Spectra
Precision after integration will be combined with current Trimble revenues.
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
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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. In addition, Trimble is restricted from paying dividends under the
terms of the New Credit Facilities.
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.
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.
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"). The
existing Credit Agreement enabled Trimble to borrow up to $50,000,000,
provided that certain financial and other covenants were met. In October
1999, Trimble and the lenders agreed to change and amend certain covenants
for the life of the loan, which was set to expire in August of 2000. The
Credit Agreement was also subsequently modified to include Trimble's prior
separate $5,000,000 line of credit and to simplify the entire arrangement.
The Credit Agreement required the payment of a commitment fee of 0.25% of
the available amount and any
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borrowings under such Credit Agreement bore interest at the following
rates: 1% over LIBOR if the total funded debt to EBITDA were less than or
equal to 1.0x, or 0.3%; 1.25% over LIBOR if such ratio were greater than
1.0x and less than or equal to 2.0x, or 0.4%; and 1.75% over LIBOR if such
ratio were greater than 2.0x. In addition to borrowing at the specified
LIBOR rate, Trimble also had the additional right to borrow under the
Credit Agreement with interest at the higher of (i) one of the bank's
annual prime rate and (ii) the federal funds rate plus 0.5%. 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. 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.
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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, 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 is subject to a
final adjustment in the purchase price as provided for in the acquisition
agreements. The increase of $14 million from the previously announced estimated
purchase price is a result of adjustments to net working capital and net debt
from a reference balance sheet, made pursuant to the terms of the original
Agreement and Plan of Acquisition signed on May 11, 2000 by and among Trimble,
the Spectra Precision Group and Thermo Electron. 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 the "Liquidity and Capital
Resources" section of this Item 2 for a description of how this acquisition was
financed.)
Spectra Precision 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 Spectra Precision Group develops instruments and systems that provide
positioning solutions for four major customer applications:
1. Surveying -- Spectra Precision AB is a leading supplier of surveying and
positioning systems based on both optical measurement and GPS technology.
Products are used in highway construction, site development and other
infrastructure development projects.
2. Construction Site Positioning -- The Spectra Precision Group is a leading
supplier of laser-based positioning instruments which permit the accurate
alignment of foundations, sewers, walls, floors and ceilings.
3. Construction and Agricultural Machine Control -- The Spectra Precision
Group is a leading supplier of laser systems which correctly position and
control heavy construction equipment in construction site preparation,
highway construction and agricultural land leveling.
4. Software -- Spectra Precision Software Inc., a subsidiary of Spectra
Precision, Inc., is a leading developer of three-dimensional land modeling
software for the civil engineering, surveying, construction, GIS and
photogrammetry industries.
* 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 Spectra Precision Group, should allow the
combined Company to become a leader in the Architecture/Engineering/Construction
(A/E/C), Agriculture, and Asset Management market segments of the positioning
solution industry. There is very little overlap between each of the companies
product
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offerings. 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 around the alignment of distribution channels,
definition of basic corporate organization, reporting and structure, branding
and imaging of the company and products. At the present time, there are no
immediate plans to integrate the manufacturing of Trimble with those of the
Spectra Precision Group.
* As part of the acquisition, Trimble has identified approximately $15 to
$20 million of potential cost reductions which could be achieved over the next
two to three years; however, the Company is still in the early stages of
combining Trimble and 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.
* With the acquisition of Spectra Precision Group Trimble continues to
target a number of specific markets, based on end-user applications. The markets
that we currently target are Architecture/Engineering/Construction, Asset
Management and Tracking, Agriculture, and GPS Component Technology. We believe
that by adding application-specific features and functionality to our core GPS,
optical, and laser technology we can deliver value-added products and enhance
productivity in our targeted markets. In the
Architecture/Engineering/Construction market, we focus on centimeter
positioning, data collection management, wireless communication, and machine
guidance and control. In the Asset Management and Tracking market 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 Agriculture market we focus on precise machine
guidance, yield monitoring, and variable rate application of fertilizer and
chemicals. In the GPS Component market segment we integrate our GPS technology
into various applications (automotive navigation, timing systems, commercial
avionics, and military systems) for various OEMs. 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
markets 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.
RESULTS OF OPERATIONS
Revenues
Revenue from Trimble's operations for the three and six months ended June
30, 2000 were $71,264,000 and $136,404,000 respectively, compared with
$70,839,000 and $139,609,000 in the corresponding periods in fiscal 1999. The
table below breaks out Trimble's revenues by business unit:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------------- --------------------------------------------
June 30, July 2, Increase/ June 30, July 2, Increase/
2000 1999 (Decrease) 2000 1999 (Decrease)
------------------------------------------------------------------------------- --------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Precision Positioning Group $ 45,457 $ 41,581 9% $ 86,005 $ 84,147 2%
Mobile and Timing Technologies 25,807 29,258 (12%) 50,399 55,462 (9%)
-------------- -------------- ------------- ------------- ------------- -------------
Total $ 71,264 $ 70,839 1% $ 136,404 $ 139,609 (2%)
-------------- -------------- ------------- ------------- ------------- -------------
</TABLE>
17
<PAGE>
Precision Positioning Group
The Precision Positioning Group revenues increased by 9% for the three
months ended June 30, 2000, as compared with corresponding period in fiscal
1999. The increase is due to the following:
o An increase in agricultural market revenues, a result of maturing
distribution channel and geographical expansion.
o Growth in demand for Mapping products, especially our new GEO Explorer
III used for GIS data collection and data maintenance.
o Strong growth in Asia for Surveying products.
The Precision Positioning Group revenues increased by 2% for the six months
ended June 30, 2000, as compared with corresponding period in fiscal 1999. The
increase is due to the following:
o Growth in demand for Agriculture and Mapping products, particularly in
Asia and Europe.
Mobile and Timing Technologies
Mobile and Timing Technologies revenues for the three and six months ended
June 30, 2000 decreased 12% and 9% respectively, as compared with corresponding
period in 1999. The decrease is due to the following:
o Asset management and tracking revenues were down due to the continued
delivery problems related to critical part shortages in our supply chain.
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.
o These decreases were partially offset by increased demand in our timing
and military markets.
Revenues outside the U.S.
* Sales to unaffiliated customers in locations outside the U.S. comprised
approximately 54% and 49% of the Company's revenues in the first six months of
fiscal 2000 and 1999, respectively. During the first six months of 2000, Trimble
experienced strong demand in Asia, 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. 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 -- there may be a reluctance in
certain foreign markets to purchase products based on GPS technology, given the
control of GPS by the U.S. Government. Trimble's results of operations could be
adversely affected if we were unable to continue to generate significant sales
in locations outside the U.S.
Gross Margin
* Gross margin varies on a quarterly basis due to a number of factors,
including product mix, domestic versus international sales, customer type, the
effects of production volumes and fixed manufacturing costs on unit product
costs, and new product start-up costs. Gross margin as a percentage of total
product revenues was 59% and 58% for the three and six month periods ending June
30, 2000 as compared with 53% and 52% in the corresponding 1999 periods. The
increase in gross margin percentages is primarily due to favorable product mix
for the quarter of Precision Positioning Group products, which yield higher
margins due to integration of software and wireless communications. In addition,
gross margins for the first six months of fiscal 2000 were favorably impacted by
the cost benefits of outsourcing our manufacturing. 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.
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<PAGE>
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 Six Months Ended
---------------------------------------------- -----------------------------------------------
June 30, July 2, Increase/ June 30, July 2, Increase/
2000 1999 (Decrease) 2000 1999 (Decrease)
------------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Research and development $ 9,182 $ 9,444 (3)% $ 18,059 $ 17,951 1%
Sales and marketing 14,033 13,972 0% 26,679 27,276 (2)%
General and administrative 6,647 8,630 (23)% 12,947 18,653 (31)%
--------------- --------------- ----------- --------------- --------------- -------------
Total $ 29,862 $ 32,046 (7)% $ 57,685 $ 63,880 (10)%
--------------- --------------- ----------- --------------- --------------- -------------
</TABLE>
Research and Development
Research and development expenses decreased in the three months ended June
30, 2000, as compared with the corresponding period in fiscal 1999 due to the
following:
o Decreases in our expenses of approximately $740,000 related to personnel,
temporary help, and consulting.
o Decreases in our depreciation expense of approximately $160,000.
o Trimble's receipt of approximately $340,000 less from cost reimbursement
funds for projects in 2000 as compared to 1999 partially offset decreases
mentioned above.
o The above decreases were also partially offset by increases of
approximately $290,000 related to facility costs and other expenses.
Research and Development expenses increased slightly in the six months
ended June 30, 2000, as compared with the corresponding period in fiscal 1999
due to the following:
o Trimble's receipt of approximately $1.2 million less from cost
reimbursement funds for projects in 2000 as compared to 1999.
oIncreases in our expenses of approximately $1.0 million related to
facility, electronic parts, tooling, and other expenses.
o The above increases were partially offset by decreases of
approximately $1.7 million related to personnel, temporary help, and
consulting.
o Also partially offsetting the increases was a decrease in our
depreciation expense of approximately $400,000.
The Company plans to continue its aggressive development of future
products.
Sales and Marketing
Sales and marketing expenses increased slightly for three months ended June
30, 2000, as compared with the corresponding period in fiscal 1999. The primary
reason for the dollar increase in expenses from 1999 to 2000 is as follows:
oIncreases in our expenses of approximately $360,000 related to
personnel.
o Increases in our expenses of approximately $160,000 related to
facility and other expenses.
o The above increases were partially offset by a decrease in sales
commissions of approximately $370,000. 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 was a decrease in our
depreciation expense of approximately $90,000.
Sales and marketing expenses decreased for the six months ended June 30,
2000, as compared with the corresponding period in fiscal 1999 due to the
following:
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o Decreases in sales commissions of approximately $1.1 million. 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 Decreases in our depreciation expense of approximately $200,000.
o The above decreases were partially offset by increases in our
expenses of approximately $380,000 related to temporary help and
consulting.
o The above decreases were also partially offset by increases of
approximately $320,000 related to facility costs and other expenses.
* 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 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 GPS-based products, which could
adversely affect Trimble's revenues and profitability.
General and Administrative
General and administrative expenses decreased for the three and six months
ended June 30, 2000, as compared with the corresponding periods for fiscal 1999.
The primary reasons for the decreases are as follows:
o Increases ofApproximately $1.3 million in the allowance for doubtful
accounts in the first six months of fiscal 1999 related to customers
in South America, which was not repeated in the first six months of
fiscal 2000.
o Trimble had decreases of approximately $1.6 million and $3.8 million
respectively, in expenses for personnel, legal, equipment rental,
facilities and other office supplies in the first three and six months
of fiscal 2000 as compared to the first three and six months of fiscal
1999.
o Trimble's receipt of $480,000 and $700,000 respectively of funds
from subleases.
Nonoperating income(expense), net
Nonoperating income (expense), net, includes interest income and expense,
gains and losses on foreign currency transactions and also included during the
quarter ended June 30, 2000, the Company recognized a gain of approximately $1.0
million on the sale of minority interest. This investment was accounted for
under the cost method. The gain is included in other income for the three and
six months ended June 30, 2000.
Income Taxes
The Company's effective income tax rate from continuing operations for the
three months ended June 30, 2000 and the six months ended June 30, 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 reserved deferred tax assets.
Inflation
The effects of inflation on the Company's financial results have not been
significant to date.
Liquidity and Capital Resources
* At June 30, 2000, Trimble had cash and cash equivalents of $94.4 million
and $24.9 million in short-term investments. Trimble's cash and cash equivalents
and short-term investments increased from the prior year, due to an increase in
net income. Trimble's long-term debt consisted primarily of a $30.0 million note
obligation to John Hancock due in 2001. We had no debt outstanding under our $50
million unsecured line of credit but had issued certain letters of credit as of
June 30, 2000, amounting to approximately $1.2 million. 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-
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<PAGE>
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 six months ended June 30, 2000, the cash provided by operating
activities was $11.7 million, as compared to cash provided of $9.5 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 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 Solectron
manufacturing relationship.
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 $8.5 million for the six
months ended June 30, 2000.
Effective as of July 14, 2000, Trimble completed the acquisition of the
Spectra Precision wholly owned businesses formerly owned by Thermo Electron,
collectively known as the "Spectra Precision Group" 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 will be accounted for as a purchase for accounting
purposes; accordingly, Trimble's consolidated results of operations will include
the operating results of the Spectra Precision Group subsequent to the effective
acquisition date. 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. 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 and expects to record approximately $81 million of
goodwill due to the acquisition which will be amortized over 20 years. The
Company also expects to incur $7 to $8 million of costs and expenses in
connection with the acquisition.
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. In addition, Trimble is restricted from paying dividends
under the terms of the New Credit Facilities.
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
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<PAGE>
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.
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.
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"). The existing Credit Agreement enabled Trimble to
borrow up to $50,000,000, provided that certain financial and other
covenants were met. In October 1999, Trimble and the lenders agreed to
change and amend certain covenants for the life of the loan, which was
set to expire in August of 2000. The Credit Agreement was also
subsequently modified to include Trimble's prior separate $5,000,000
line of credit and to simplify the entire arrangement. The Credit
Agreement required the payment of a commitment fee of 0.25% of the
available amount and any borrowings under such Credit Agreement bore
interest at the following rates: 1% over LIBOR if the total funded
debt to EBITDA were less than or equal to 1.0x, or 0.3%; 1.25% over
LIBOR if such ratio were greater than 1.0x and less than or equal to
2.0x, or 0.4%; and 1.75% over LIBOR if such ratio were greater than
2.0x. In addition to borrowing at the specified LIBOR rate, Trimble
also had the additional right to borrow under the Credit Agreement
with interest at the higher of (i) one of the bank's annual prime rate
and (ii) the federal funds rate plus 0.5%. 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. 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.
The subordinated promissory notes issued to John Hancock (as described
above) in June 1994 also included the issuance of warrants entitling the holders
to purchase 400,000 shares of the Company's common stock at a price of $10.95
per share at any time through June 15, 2001. The net proceeds of the notes were
$29,348,000. The notes had been recorded as noncurrent liabilities, net of
appraised fair value attributed to the warrants. The value of the warrants and
the issuance costs were being amortized to interest expense, using the interest
rate method over the term of the subordinated promissory notes. The effective
annual interest rate on the notes was 11.5%.
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 six months of fiscal 2000, no shares
were repurchased under the discretionary program.
* 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
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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
Risks Associated with Sole Suppliers and Limited Sources
With the selection of Solectron as an exclusive manufacturing partner,
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 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 Precision Positioning Group products
generally have higher gross margins than Mobile Timing and Technologies
products, absent other factors, a shift in sales toward Precision Positioning
Group products would lead to a gross margin improvement for Trimble. On the
other hand, if market conditions in the highly competitive Precision Positioning
market 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.
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<PAGE>
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.
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. See description above in New Business Developments in this Item
2. The acquisition presents unique product, marketing, research and development,
facilities, information systems, accounting, personnel and other integration
challenges. This transition is 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.
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
24
<PAGE>
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
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 10 to the Condensed Consolidated
Financial Statements).
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<PAGE>
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, Architecture/Engineering/Construction and Mapping
and GIS 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), 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
Architecture/Engineering/Construction, Asset Management and Tracking,
Agriculture, and GPS Component Technologies markets. No assurances can be given
that these markets will continue to generate significant or consistent demand
for our products. Existing markets could be significantly diminished by new
technologies or products that replace or render obsolete our technologies and
products. Trimble is dependent on successfully identifying new markets for its
products. There can be no assurance that the Company will be able to
successfully identify new high-growth markets in the future. Moreover, there can
be no assurance that new markets will develop for Trimble or its customers'
products, or that our technology or pricing will enable such markets to develop.
Dependence on Retaining and Attracting Highly Skilled Development and Managerial
Personnel.
The ability of Trimble Navigation 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.
26
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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
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 may materially
and adversely affect the utility and reliability of our products, which could
result in a material adverse effect on our operating results.
27
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The following is a discussion of Trimble's exposure to market risk as of
June 30, 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 polices
approved by Trimble's board of directors.
Market Interest Rate Risk
Short-term Investments Owned by the Company. As of June 30, 2000, Trimble
had short-term investments of $24.9 million. These short-term investments
consisted of $23.8 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 2 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 June 30, 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. As of June 30, 2000, Trimble had
outstanding long-term debt of approximately $30.0 million of subordinated
promissory notes at a fixed interest rate of 10 percent. The interest rate of
these instruments is fixed. A hypothetical 10 percent decrease in the interest
rates would not have a material impact on Trimble. Increases in interest rates
could, however, increase interest expense associated with future borrowings of
Trimble, if any. We do not currently hedge against interest rate increases.
In July, 2000 Trimble prepaid the long-term $30.0 million subordinated note
obligation for a total of $31,069,108, which consisted of $30 million in
principal, $183,333 in accrued interest, and an additional $885,775. The
prepayment was made using funds from short-term investments and will be covered
under the pending $200.0 million credit line. (See Liquidity and Capital
Resources section of Item 2 in Management Discussion and Analysis)
Foreign Currency Exchange Rate Risk
Trimble hedges risks associated with foreign currency transactions in order
to minimize the impact of changes in foreign currency exchange rates on
earnings. Trimble utilizes forward contracts to hedge trade and intercompany
receivables and payables. These contracts reduce the exposure to fluctuations in
exchange rate movements, as the gains and losses associated with foreign
currency balances are generally offset with the gains and losses on the hedge
contracts. All hedge instruments are marked to market through earnings every
period.
* Trimble does not anticipate any material adverse effect on its
consolidated financial position utilizing our current hedging strategy.
All contracts have a maturity of less than one year, and we do not defer
any gains and losses, as they are all accounted for through earnings every
period.
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The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of June 30, 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> <C>
YEN Sell 203,000 $ 1,933 $ 1,935
NZD Buy 5,280 $ 2,505 $ 2,473
EURO Sell 2,005 $ 1,856 $ 1,913
STERLING Buy 1,530 $ 2,314 $ 2,322
</TABLE>
* The hypothetical changes and assumptions made above will be different
from what actually occurs in the future. Furthermore, the computations do not
anticipate actions that may be taken by 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.
29
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's 2000 annual meeting of shareholders was held at the Westin
Hotel in Santa Clara, located at 5101 Great America Parkway, Santa Clara,
California 95054 in the Magnolia Room, on Thursday, May 11, 2000, at 1:00 p.m.
local time.
At the annual shareholder meeting, an election of directors was held with
the following individuals being elected to the Company's Board of Directors.
VOTE
FOR WITHHELD
--------------------------------------
Steven W. Berglund 19,971,539 525,376
Robert S. Cooper 19,064,430 1,432,485
John B. Goodrich 19,002,587 1,494,328
William Hart 19,969,923 526,992
Ulf J. Johansson 20,026,847 470,068
Norman Y. Mineta 19,871,449 625,466
Bradford W. Parkinson 19,092,259 1,404,656
Other matters voted upon at the annual meeting and the results of the
voting with respect to each such matter were as follows:
1. To approve an increase of 925,000 shares in the number of shares of
Common Stock reserved for issuance under the Company's 1993 Stock
Option Plan from 5,000,000 shares to an aggregate of 5,925,000 shares.
(7,708,323 in favor; 4,864,297 opposed; 110,327 abstentions; 7,813,968
broker non-votes)
2. To approve an increase of 200,000 shares in the number of shares of
Common Stock available for purchase by eligible employees under the
Company's 1988 Employee Stock Purchase Plan from 2,950,000 shares to
an aggregate of 3,150,00 shares. (11,782,990 in favor; 827,038
opposed; 72,919 abstentions; 7,813,968 broker non-votes)
3. To approve an amendment of the Company's 1990 Director Stock Option
Plan to extend the term of such plan by three years. (10,421,612 in
favor; 1,808,327 opposed; 453,008 abstentions; 7,813,968 broker
non-votes)
4. To approve an amendment of the Company's bylaws to change the
authorized number of board of directors to a variable range between
five and nine members. (12,131,249 in favor; 423,895 opposed; 127,803
abstentions; 7,813,968 broker non-votes)
5. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the current fiscal year ending December
29, 2000. (20,338,898 in favor; 100,062 opposed; 57,955 abstentions; 0
broker non-votes)
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Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
3.8 Bylaws of the Company, as amended May 11 2000
10.59 1993 Stock Option Plan, as amended May 11, 2000 (1)
10.60 1988 Employee Stock Purchase Plan, as amended May 11, 2000 (1)
10.7 2Stock 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. (2)
10.73 Asset Purchase Agreement dated May 11, 2000 between Trimble
Acquisition Corp. and Spectra Precision AB. (2) .
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. (2)
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. (2)
27.1 Financial Data Schedule for the quarters ended June 30, 2000 and
July 2, 1999.
--------------------------
(1) Incorporated by reference to identically numbered exhibits
filed in response to Item 8, "Exhibits" of the
registrant's registration statement on Form S-8 filed on
June 1, 2000.
(2) 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 May 11, 2000, the Company filed a report on Form 8-K relating
to entering into a definitive agreement to acquire the Spectra
Precision wholly owned businesses formerly owned by Thermo Electron
Corporation, collectively known as the "Spectra Precision Group".
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.
The financial statements and pro forma financial statements
required by the Report on Form 8-K filed on July 28, 2000 will be
subsequently filed by an amendment no later than 60 days from the
effective date of the closing of the acquisition.
31
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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
(Vice President Finance, and Chief Financial Officer and
Corporate Controller)
DATE: August 4, 2000
32
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