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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
-----------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ___________
Commission File Number: 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact name of Registrant as specified in its charter)
California 94-2802192
-------------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
645 North Mary Avenue, Sunnyvale, CA 94088
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 481-8000
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
Preferred Share Purchase Rights
(Title of Class)
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 period 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant was approximately $673,572,000 as of March 13,
2000, based on the closing sale price of the common stock on the Nasdaq Stock
Market for that date.
There were 22,930,113 shares of the registrant's Common Stock issued and
outstanding as of March 13, 2000.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III incorporate information by reference
from the registrant's Proxy Statement for its 2000 Annual Meeting of
Shareholders to be held on May 11, 2000. Except with respect to information
specifically incorporated by reference into this Form 10-K, the Proxy Statement
is not deemed to be filed as a part hereof.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
indicated in the forward-looking statements as a result of the risk factors set
forth in, or incorporated by reference into, this report and other reports and
documents that the Company files 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.
PART I
Item 1. Business
General
Trimble Navigation Limited, a California corporation ("Trimble" or the
"Company"), develops, markets, and distributes innovative products and systems
enabled by Global Positioning System ("GPS") technology. We provide end-user and
original equipment manufacturer (OEM) solutions for diverse applications
including Architecture/Engineering/Construction, Asset Management and Tracking,
Agriculture, and GPS Component Technologies. Trimble designs and markets
electronic products that determine precise geographic location. Our principal
products, which utilize proprietary software and firmware, are integrated
systems for collecting, analyzing and displaying position data in forms
optimized for specific end-user applications.
Background
Precise determination of locations both on and above the earth's surface is
a fundamental requirement in many applications. For example, position data is
used for navigation on land, sea and air, and to conduct surveys and draw maps.
Previous technologies have limited users to simultaneous determination of only
two dimensions--latitude and longitude--while altitude and time required
separate measurements with different equipment. GPS technology provides users
with all of these measurements, using a single instrument. GPS is a system of 27
orbiting Navstar satellites established and funded by the U.S. Government. On
April 27, 1995, GPS was declared by the U.S. Air Force Space Command to have
achieved Full Operational Capability. GPS can complement or replace many other
forms of electronic navigation and position data systems. GPS offers major
advantages over prior technologies in terms of ease of use, precision, and
accuracy, with worldwide coverage in three dimensions, and does so in addition
to providing time and velocity measurement capabilities.
GPS positioning is based on a triangulation technique that precisely
measures distances from three or more Navstar satellites. The satellites
continuously transmit precisely timed radio signals using extremely accurate
atomic clocks. A GPS receiver calculates distances from the satellites in view
by determining the travel time of a signal from the satellite to the receiver.
The receiver then triangulates its position using its known distance from
various satellites, and calculates latitude, longitude and altitude. Under
normal circumstances, a current stand-alone GPS receiver is able to calculate
its position at any point on earth, in the earth's atmosphere, or in lower earth
orbit, to within 100 meters, 24 hours a day. When a GPS receiver is coupled with
a reference receiver with known precise position, accuracies of less than ten
centimeters are possible. In addition, GPS provides highly accurate time
measurement.
* The usefulness of GPS is dependent upon the locations of the receiver and
the GPS satellites that are above the horizon at any given time. The current
deployment of 27 satellites permits three-dimensional worldwide coverage 24
hours a day. However, reception of GPS signals requires line-of-sight visibility
between the Navstar satellites and the receiver, which can be blocked by
buildings, hills and dense foliage. For the receiver to collect a sufficient
signal, each satellite must be above the horizon, and the receiver must have a
line of sight to at least three satellites in order to determine its location in
two dimensions--latitude and longitude--and at least four satellites to
determine its location in three dimensions-latitude, longitude, and altitude.
The accuracy of GPS may also be limited by distortion of GPS signals from
ionospheric and other atmospheric conditions, and intentional or inadvertent
signal interference or Selective Availability (SA). Selective Availability,
which is the largest component of GPS distortion, is controlled by the U.S.
Department of Defense and is a currently activated, intentional system-wide
degradation of stand-alone GPS accuracy from approximately twenty-five to one
hundred meters. Selective Availability may be implemented by the U.S. Department
of Defense in order to deny hostile forces the highly accurate position, time
and velocity information supplied by GPS. In certain military applications,
classified devices are utilized to decode the SA degradation and return
accuracies to their original levels.
2
By using a technique called "differential GPS" involving two or more GPS
receivers, accuracies can currently be improved to approximately one to three
meters for navigation, sub-meter for precision positioning, and less than ten
centimeters for survey and machine guidance applications, even with SA
activated. This technique compensates for a number of potential measurement
distortions, including distortions caused by ionospheric and other atmospheric
conditions, as well as distortions intentionally introduced into the satellite
data itself, such as SA. Differential GPS involves placing one receiver at a
known location and continuously comparing its calculated location with its known
location to measure distortions in the signal transmission and errors in the
satellite data. At any one time, such distortions and errors are reasonably
constant over large areas, so that one or more remote GPS receivers can use
these measurements to correct their own position calculations. Measurement
corrections can be transmitted either in-real time over a suitable communication
link such as radio or telephone, or integrated later with accumulated data, as
is frequently the practice in survey applications.
Each of Trimble's GPS products is based on proprietary GPS receiver
technology. Trimble's GPS receivers are capable of tracking all satellites in
view and automatically selecting the optimum combination of satellites necessary
to provide the most accurate set of measurements possible. Communications and
computational modules, such as databases, database management systems, radio and
other communication equipment, and various user interfaces, are added to these
receivers to create fully integrated application-specific solutions.
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 has a solid
foundation in law. Because of ever-increasing commercial applications of GPS,
other U.S. Government agencies may become involved in the administration or the
regulation of the use of GPS signals. 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. In 1995, certain European government organizations expressed
concern regarding the susceptibility of GPS equipment to intentional or
inadvertent signal interference. Such concern could translate into reduced
demand for GPS products in certain geographic regions in the future.
Business Strategy
Trimble sees GPS as an information utility. In order to exploit the wide
range of applications made possible by this information utility, we are
implementing the following strategies:
* Targeted Markets. Trimble targets 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 technology we
can deliver value-added products and enhance productivity in our targeted
markets. In the Architecture/Engineering/Construction market, Trimble focuses on
the centimeter positioning, data collection management, wireless communication,
and machine guidance and control. In the Asset Management and Tracking market
Trimble focuses on asset tracking, fleet management, intelligent transportation
systems, and public safety through integration of GPS, 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. We intend to continue to leverage our GPS component technology
directly to Original Equipment Manufacturers (OEMs) for integration into various
applications.
Differentiated Product Solutions. Trimble seeks to establish and sustain
leadership in its targeted 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 our targeted markets. We believe that a substantial portion
of the value of our products is derived from the firmware that is embedded in
the product or software provided to enable superior performance. In addition,
Trimble incorporates
3
other technologies into many of its products, such as wireless
communications, information technologies and non-GPS positioning technologies in
order to optimize product features for our end-users.
Multichannel Distribution and Strategic Alliances. Trimble seeks direct
communication with its customers in order to develop and modify its product
designs as necessary to maximize utility and payback to the user. We have built
a worldwide sales and service organization made up of Company employees,
distributors and dealers. In addition, we intend to continue to develop new
alliances and to strengthen existing alliances and OEM relationships to increase
our leverage of GPS component technologies. Trimble has pursued such alliances
with several companies, including VDO Car Communication (a division of the
Mannesmann Group), Pioneer Electronics Corporation, Seiko Epson, Blaupunkt (a
wholly owned subsidiary of Robert Bosch GmbH), NortelNetworks, British Telecom,
E-systems, Honeywell, and Intel in the Mobile and Timing Technology segment; and
Caterpillar, Inc., Topcon, and CNH Global (formerly Case Corporation) in the
Precision Positioning segment.
INDUSTRY SEGMENTS
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, 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.
We design, market, and distribute electronic products that determine
precise geographic location combined with data communications and applications
software. We sell our products through a direct-sales force located in fifteen
countries, as well as through a worldwide network of dealers, distributors and
authorized representatives.
Research and development activities are conducted at Trimble's facilities
in Sunnyvale, California, and Christchurch, New Zealand. Solectron currently
manufactures most of Trimble's products. In addition, we have a manufacturing
facility in Austin, Texas, focused primarily on FAA-certified products for
commercial aviation 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 Group (MTT). Each Business Unit is managed by a senior vice
president who is responsible for strategy, marketing, product development and
financial performance.
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, and
military systems, as well as from development of software licenses and other
rights for the use of our GPS technology to third parties.
Although we believe that these Business Units have growth potential for
sales of GPS products, there can be no assurance that such Business Units will
continue to develop, particularly given that GPS-based systems are still in an
early stage of adoption in some of these markets. Our future growth will depend
on the timely development of the industry markets in which Trimble currently
competes, and on our ability to continue to identify and exploit new markets for
our products.
Precision Positioning Group
The Precision Positioning Group focuses its efforts in markets where the
distribution chain uses independent distributors or a direct sales force to sell
directly to the end-users. The products are typically system solutions in
high-end, value-added markets.
4
A key business strategy of PPG is interoperability, which involves the
focus on, and development of systems that integrate sensors utilizing a wide
variety of technologies and communications with GPS. We believe this
interoperability developed by Trimble is an extremely important advantage over
any of the competition. The emphasis is on providing solutions for applications,
which combine GPS and other technologies, and results in a higher real value to
the customer. The concept of interoperability applies to electronic and
mechanical accommodations of other technologies, together with GPS, to solve a
problem. Probably the most important area of interoperability, and often the
least recognizable until the integrated solution is put into use, is in the area
of data interchange.
Products
The following is a table of some of the Precision Positioning Group products.
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PRODUCT BRIEF DESCRIPTION
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- ----------------------------------- --------------------------------------------
4000 Series GPS receiver and associated antennas
that provide position information for
surveying.
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- ----------------------------------- --------------------------------------------
4600 LS(TM) Low-cost single-frequency survey system.
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- ----------------------------------- --------------------------------------------
4700/4800 GPS Total Station Real time surveying system that incorporates
dual frequency receiver and antenna
with a radio modem and antenna.
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- ----------------------------------- --------------------------------------------
4000 MSGR P/Y Survey System Turnkey solution for military land survey
applications.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
TTS(TM)300/500 Total Station Optical extension of the GPS Total Station
utilizing, reflectorless technology for
surveying in areas where GPS signals are
obstructed.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Trimble Geomatics Office(TM) Application software for GPS
and Survey Controller postprocessing, survey project management,
and field data collection.
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- ----------------------------------- --------------------------------------------
TRIMTALK(TM), TRIMMARK(TM), Radio modems used for
and TRIMCOMM(TM) Radios real-time GPS applications that
provide broadcast and receive
functions for VHF, UHF, and 900
MHz spread spectrum data
transmissions.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
MS750(TM) Real-time Kinematic GPS technology
that provides precise positioning
to hydrographic survey, marine
construction, and machine
guidance/control applications.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
4000RSi(TM)/ DSi Uses advanced GPS technology
to create high-precision
Differential GPS (DGPS) system for
marine survey, navigation, and
positioning.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
DSM(TM) Sub-meter marine survey sensor.
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- ----------------------------------- --------------------------------------------
Beacon Control System A complete solution for establishing a
network of remote stations for the broadcast
of differential GPS correction data.
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- ----------------------------------- --------------------------------------------
GeoExplorer(R)3 Rugged handheld GIS data collection and
maintenance system.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Pathfinder Pro Family GIS data collection and maintenance systems
that provide real-time sub-meter accuracy.
The systems are used in a wide range off
applications, such as utility asset
management, environmental monitoring
and scientific research, hazardous waste
cleanup, and natural resource and land
management.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Pathfinder Office Microsoft Windows-based application provides fast,
simple data processing and export from
data collected, including planning,
data dictionary creation, batch
processing, and sophisticated editing and
output of collected data.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Pathfinder Card Easy-to-use mobile GIS data collection and
maintenance system that works with a
standard pen and notebook PCs.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Pathfinder Tools(TM) Software Powerful software development kit (SDK)
Development Kit designed to integrate Trimble GPS
receivers with custom mapping and GIS
applications.
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- ----------------------------------- --------------------------------------------
BenchGuide(TM) Provides mining machine operators with
precision GPS-based guidance in locating
correct bench or terrain elevations
without using survey stakes.
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- ----------------------------------- --------------------------------------------
CAES Machine guidance system for mining
applications.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
TrimFlight GPS(TM) An advanced aerial guidance and mapping
tool that provides highly accurate guidance
suitable for many precise airborne
operations.
- ----------------------------------- --------------------------------------------
5
- ----------------------------------- --------------------------------------------
AgGPS(R)132 High-performance GPS receiver used
to calculate sub-meter positions
in real time. Used by farmers to
tag soil type, insect infestation,
or crop yield.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
AgGPS(R)170 Field Computer Rugged mobile computing platform that
adds data logging and field mapping to
AgGPS receivers and enhanced guidance to
the AgGPS Parallel Swathing Option. The
AgGPS 170 Field Computer is a tool for
custom applicators who desire top-of-the-
line field guidance with data storage for
environmental reporting, and customer
billing.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
SiteVision(TM)GPS Earthmoving grade control system that
enables machine operators to view the
site plan in the cab.
- ----------------------------------- --------------------------------------------
Mobile and Timing Technologies
The Mobile and Timing Technologies Group focuses its efforts in markets
where the majority of its products are sold directly to OEMs or system
integrators. The products are designed to support system solutions in
high-volume applications. In some instances the Business Unit's products are in
the form of software and chipset licenses and other rights for the use of our
GPS technology by third parties.
This Business Unit focuses on product lines that address the fleet
management market, and leverage GPS component technologies for use in automotive
navigation, timing for telecommunications, commercial aviation and military
systems. The product lines in these markets involve full-function,
high-performance embedded GPS engines that are frequently utilized in some
markets with integrated communication systems such as cellular, satellite, and
special mobile radio systems. The GPS equipment provides accurate position,
velocity, and timing information for use in such diverse applications as car
navigation, airborne navigation, munitions guidance, vehicle and high-value
cargo tracking.
Trimble supplies GPS boards and chipsets, and licenses technology to some
of the leading automotive electronics suppliers, including Pioneer Electronics,
Magneti Marelli, VDO Car Communication (a division of the Mannesmann Group), and
Blaupunkt (a wholly owned subsidiary of Robert Bosch GmbH). Trimble is also part
of the reference design for Intel's initiative to develop in-car Pentium
processor-based computing, and Microsoft's Auto PC platform. Trimble airborne
navigation products are flown by more than 100 of the world's major airlines.
Trimble supplies timing products to major telecommunications infrastructure
suppliers, including NortelNetworks, AT&T Wireless, Qualcomm, and Glenayre.
These products include frequency synthesis hardware, which is timed by precision
GPS receiver and is used to control most of the time and frequency functions
within wireless base stations. Cellular telephones, paging networks, and
wireless local loop telephony use these base stations. Precision timing is
expected to become even more important as wireless traffic migrates from voice
centric to data centric applications.
Products
The following is a table of some of the Mobile and Timing Technologies Group
products.
- ----------------------------------- --------------------------------------------
PRODUCT BRIEF DESCRIPTION
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
ACE II GPS(TM) Module Powerful miniature 8-channel GPS board
designed for applications requiring
high performance at low cost.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Lassen(TM)-SKII Miniature 8-channel GPS receiver ideal for
in-car navigation and telemetric systems.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
SveeEight Plus GPS Module 8-channel GPS technology in a convenient
plug-and play-form factor.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
CrossCheck(TM) Family Integrates GPS, wireless cellular, and
computing technologies into a single
low-cost mobile positioning and
communications system for
commercial fleet management.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Placer(TM)Family and Mobile positioning and communication system
Placer(TM)GPS 450/455 with various communications interfaces.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Galaxy Immarsat-C/GPS(TM) The first commercial product which
integrates two-way wireless satellite
communications with GPS location data for
long-haul trucking and marine applications.
- ----------------------------------- --------------------------------------------
6
- ----------------------------------- --------------------------------------------
Trimble GPS/AVL Subsystem A system which combines radio communications
and GPS technologies to enable public safety
agencies to decrease emergency response call
times and improve operational efficiency.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
FleetVision(R)3.2 Microsoft Windows-based application which
provides fleet operators with cost-effective
and easy-to-use solution for tracking mobile
assets.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Palisade(TM) NTP High-performance, cost-effective reference
Synchronization Kit time source that uses GPS technology to
synchronize computers, servers, and internet
applications.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
ThunderBolt(TM) GPS Disciplined GPS clock designed specifically for
Clock precision timing and synchronization of
wireless networks. Variations of this
basic design are used by major
telecommunication infrastructure providers
such as NortelNetworks, AT&T Wireless,
and Qualcomm.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
ACE UTC GPS A unit that integrates GPS timing technology
into the ACE form factor, which is
slightly bigger than a business card.
Ideal for precision timing applications.
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- ----------------------------------- --------------------------------------------
Bullet(TM) II/Bullet(TM)II HE Rugged GPS antenna for timing systems
installed outdoors.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Trimble 8100 An IFR-certified C129-A1 aviation navigation
system that provides GPS position, velocity,
and course data, plus flight management
information for the business, commercial and
air transport markets.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
HT9100(TM) A product created from the Trimble/
Honeywell partnership combines Trimble's GPS
technology with Honeywell's flight
management technology to create a complete
system for Communications, Navigation, and
Surveillance/Air Traffic Management for air
transport operations.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Trimble 2101 Approach Plus and Is a Dzus rail-mount, GPS-based flight
I/O Approach Plus management and navigation system for
corporate, helicopter and regional commuter
aviation.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Force(TM) TM GPS Module Series A GPS module that has been developed
for embedded integration into
high-performance land, sea, aircraft and
missile applications.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
TA-12 High-performance, all-in-view, PPS GPS
receiver for military aircraft operating
within the US National Airspace System.
The TA-12 receiver is FAA TSO-C129A
certified and designed for integration
with Flight Management Systems (FMS) that
require Instrument Flight Rules (IFR) -
certified operations.
- ----------------------------------- --------------------------------------------
- ----------------------------------- --------------------------------------------
Cargo Utility GPS Receiver (CUGR) A complete GPS-based navigation system
for military aircraft operations.
- ----------------------------------- --------------------------------------------
Sales and Marketing
Trimble currently has nine regional sales offices in the United States and
six in Europe, as well as offices in Australia, Canada, China, Japan, Mexico,
New Zealand, Russia, and Singapore. We have substantial variation in the needs
of our sales and distribution channels, which are rapidly changing.
Domestic. Trimble sells its products in the United States primarily through
dealers, distributors, and authorized representatives, supplemented and
supported by our direct salesforce. We have also pursued alliances and OEM
relationships with established foreign and domestic companies to assist us in
penetrating certain markets.
International. Trimble markets to end-users through a network of more than
100 dealers and distributors in more than 85 countries. Distributors carry one
or more product lines and are generally limited to selling either in one country
or in a portion of a country. Trimble occasionally grants exclusive rights to
market certain products within specified countries.
Sales to unaffiliated customers in foreign locations represented
approximately 52%, 46%, and 46% of Trimble's total revenue in fiscal years 1999,
1998 and 1997, respectively. Sales to unaffiliated customers in Europe
represented 25%, 25%, and 22% of net revenue in such periods, and sales to
unaffiliated customers in the Far East represented 14%, 13%, and 15% of total
revenue in such periods, respectively.
7
Support. Trimble's general terms and conditions for sales of its products
include a one-year warranty. Commercial Aviation products, however, are
generally sold with a basic three-year warranty period with an additional
two-year warranty sold with some units; select military programs may require
extended warranty periods. We support our products on a board replacement level
from locations in the United Kingdom, Singapore, Japan, and New Zealand, as well
as Sunnyvale, California. Trimble's dealers and distributors also provide
factory-trained third-party maintenance, including warranty and non warranty
repairs. We reimburse dealers and distributors for all authorized warranty
repairs they perform. Trimble does not derive a significant portion of its
revenues from support activities.
Competition
* In the segments currently being addressed by Trimble, competition is
intense. Within each of its segments, Trimble has encountered direct competition
from both foreign and domestic suppliers, and expects that competition will
continue to intensify. Indirect competition is also beginning to emerge,
particularly from semiconductor and consumer electronic manufacturers that are
anticipating the emergence of high-volume, customer-oriented GPS applications.
The PPG segment faces competition from Leica AG, Spectra Precision (Thermo
Electron), Topcon, Sokkia, Ashtech Precision Products (part of Magellan Corp.
via Orbital Sciences Corp.), Novatel (Canadian Marconi), Allen Osborne, Javad
Positioning Systems, Communications Systems International, Corvallis
Microtechnology, Inc., and Tripod Data Systems.
The MTT segment faces ongoing competition from Motorola, Inc.; Japan Radio
Corporation, Rockwell International Corporation, Symmetricom, Datum, Odetics,
Rockwell Collins, Universal Navigation Corporation, Canadian Marconi Company (a
subsidiary of the General Electric Company plc), Northstar Avionics (a
subsidiary of Canadian Marconi), and UPS Aviation Technologies (a division of
United Parcel Service of America, Inc.), The New Honeywell Incorporated (Merged
Allied Signal and Honeywell), Smiths Industries, ARNAV, Interstate Electronics
(subsidiary of Figgie International), Raytheon, and Litton Industries, Orbital
Sciences Corp., and Wireless Link.
A number of Trimble's markets are also served primarily by non-GPS
technologies, many of which are currently more accepted and less expensive than
GPS-based systems. The success of GPS-based systems against these competing
technologies depends in part on whether GPS systems can offer significant
improvements in productivity, accuracy, and reliability in a cost-effective
manner, as well as continued market education about such products.
The principal competitive factors in the markets that Trimble addresses
include ease of use, physical characteristics (including size, weight, and power
consumption), product features (including differential GPS), product
performance, product reliability, price, size of installed base, vendor
reputation, and financial resources. We believe that our products currently
compete favorably with other products on most of the foregoing factors, though
we may be at a competitive disadvantage against other companies having greater
financial, marketing, and service and support resources.
* Trimble believes that its ability to compete successfully in the future
against existing and additional competitors will depend largely on its ability
to provide systems products and services that have significantly differentiated
features with improved cost/benefit ratios to our end-users. There can be no
assurances that we will be able to implement this strategy successfully, or that
our competitors, many of whom have substantially greater resources than Trimble,
will not apply those resources to compete successfully against us on the basis
of system features and end-user cost/benefit ratios.
Research and Development
Trimble's leadership position in its targeted markets is the result, in
large part, of its strong commitment to research and development. Trimble
invests heavily in developing positioning and information technologies and
wireless communications, including the design of proprietary software and
integrated circuits for GPS receivers. Moreover, Trimble develops substantial
systems expertise and user interfaces for a variety of applications. Below is a
table of Trimble's expenditures on research and development over the last three
fiscal years.
8
Fiscal Years ended
----------------------------------------------------
December 31, January 1, January 2,
1999 1999 1998
- --------------------------------------------------------------------------------
(In thousands)
Research and development $ 36,493 $ 45,763 $ 38,242
Often a new product is developed initially for an individual customer who
is willing to purchase development-stage products. We have used feedback from
such initial customers as a primary source of information in designing and
refining our products and in defining, with greater precision, customer needs in
emerging market areas. During 1996, Trimble established an advanced technology
laboratory where we devote a portion of our corporate research and development
expenditures to advance core GPS technology and its integration into synergistic
technologies such as communications, sensors, and information technologies.
These technological advances are sometimes supported financially through
strategic alliances and partnerships.
* Trimble expects that a significant portion of future revenues will be
derived from sales of newly introduced products. Consequently, our future
success depends in part on our ability to continue to develop new competitive
products with timely market introduction. Advances in product technology will
require continued substantial investment in research and development in order to
maintain and enhance our market position. Development and manufacturing
schedules for technology products are difficult to predict, and there can be no
assurance that we will achieve timely initial customer sales of new products.
The timely availability of these products in volume, and their acceptance by
customers, are important to Trimble's future success. In addition, some of our
products are subject to governmental and similar certifications before they can
be sold. For example, CE certification for radiated emissions is required for
most GPS receiver products sold in the European Union. An inability to obtain
such certifications in a timely manner could have an adverse effect on our
operating results.
Manufacturing
Trimble seeks to be a low-cost provider and to serve the growth in demand
for GPS-based products and systems through the outsourcing of manufacturing, and
the design of products around a common core of receivers.
On August 10, 1999, Trimble signed an Asset Purchase Agreement with
Solectron Corporation and Solectron Federal Systems, Inc. (collectively,
"Solectron"). The closing of the transaction occurred on August 13, 1999. At the
closing of the Asset Purchase Agreement, Trimble transferred to Solectron
substantially all of our tangible manufacturing assets located at the Company's
Sunnyvale, California, campus. These assets include but are not limited to
equipment, fixtures and work in progress, as well as certain contract and other
intangible assets and rights, together with certain related obligations,
including but not limited to real property subleases covering Trimble's
manufacturing floor space, and outstanding purchase order commitments. The Asset
Purchase Agreement also provided for Solectron's subsequent purchase, on August
30, 1999, of Trimble's entire component inventory on hand as of August 13, 1999.
Concurrent with the closing of the Asset Purchase Agreement, Trimble and
Solectron also entered into a Supply Agreement. The Supply Agreement provides
for the exclusive manufacture by Solectron of almost all Trimble products for a
period of three years. In addition, Trimble maintains a manufacturing facility
in Austin, Texas, primarily focused on FAA certified products for commercial
aviation and military systems.
Solectron offered employment to approximately 230 Trimble manufacturing,
engineering and related support personnel, and Trimble understands that
substantially all such employees initially accepted such employment with
Solectron.
* The utilization of Electronic Manufacturing Services (EMS) provided by
Solectron will enable the management of Trimble to focus on the true core
competencies of Trimble's business, while still deriving the benefits from a
world-class manufacturing organization. Benefits which Trimble hopes to receive
from this outsourcing of manufacturing include:
o The purchasing power of a company with a multibillion-dollar procurement
budget.
o Supply chain management and order fulfillment models developed to support
the stringent demands of current customers.
9
o Flexibility and ability to respond to upside/market opportunities due to
the large scale of Solectron's manufacturing capacity.
o Manufacturing, service and distribution capabilities on a worldwide
scale, enabling Trimble to provide more cost-effective supply solutions,
closer to its customers.
o Manufacturing practices yielding stable processes and providing better
quality output.
o Availability of the latest and most cost-effective product assembly
technologies.
o Provision of latest design services to participate in the product
development cycle with a fresh and unbiased focus on design
for manufacturability, lower cost, higher quality and higher reliability.
Trimble will continue to provide state-of-the art Computer Aided Design and
Computer Integrated Manufacturing service capabilities to the development
community relating to PCB layout, assembly drawing and schematic development. We
intend to remain self-sufficient in this field to ensure that the development
entities can have the maximum benefit from the utilization of their time,
contributing to faster and more effective product release cycles.
Trimble maintains quality control procedures for its products, including
testing during design, prototype, and pilot stages of production, and inspection
and testing of finished products using automated test equipment.
Trimble takes a modular and upgradable approach to its products, building
around a common core of GPS receivers with customized software and hardware
systems to analyze and present position data. Our core receiver technology has
evolved since the development of our first GPS receiver product in 1984, as we
have worked to reduce the size, weight, power consumption and cost of the basic
GPS receiver. In this process, we have designed our own semi-custom, single-chip
GPS processor.
Backlog
Trimble believes that due to the volume of products delivered from shelf
inventories and the shortening of product delivery schedules, backlog is not a
meaningful indicator of future business prospects. Therefore, we believe that
backlog information is not material to an understanding of our business.
Patents, Trademarks, and Licenses
Trimble currently holds approximately 280 U.S. patents and 18 related
foreign patents that expire at various dates no earlier than 2005. It also has
more than 180 U.S. and foreign patent applications pending. We currently license
certain peripheral aspects of our technology from Spectrum Information
Technologies and GeoResearch.
Although we believe that our patents and trademarks have value, there can
be no assurance that those patents and trademarks, or any additional patents and
trademarks that may be obtained in the future, will provide meaningful
protection from competition. We actively develop and protect our intellectual
property through a program of patenting, enforcement, and licensing.
We do not believe that any of our products infringe patent or other
proprietary rights of third parties, but we cannot be certain that they do not
do so. (See Note 17 to Consolidated Financial Statements.) If infringement is
alleged, legal defense costs could be material, and there can be no assurance
that the necessary licenses could be obtained on terms or conditions that would
not have a material adverse effect on our profitability.
In the second quarter of 1997, Trimble expanded a prior license agreement
with Pioneer Electronic Corporation for certain of the technology contained in
our TANS product for inclusion in in-vehicle navigation products sold in Japan.
We received a one-time $2.2 million licensing fee in consideration for the
expansion of this license.
* Trimble expects that we will enter into other licensing arrangements
relating to its technologies.
"Trimble" with the sextant logo, "Trimble Navigation," "GeoExplorer,"
"Flightmate," "GPS Total Station," "Scout GPS," and "Aspen" are trademarks of
Trimble Navigation Limited, registered in the United States and other countries.
Additional trademarks are pending. Trimble Navigation Limited acknowledges the
trademarks of other organizations for their respective products or services
mentioned in this document.
10
Employees
As of December 31, 1999, Trimble employed 978 persons: 317 in research and
product development, 400 in sales and marketing, 118 in manufacturing, and 143
in administration and finance. Of these, 75 were located in Europe, 175 in New
Zealand, 16 in Japan, 6 in Singapore, 5 in Australia, and 701 in the United
States. We also employ temporary and contract personnel. Use of such personnel
has decreased over the last year and is not included in the above headcount
numbers. Competition in recruiting personnel is intense. We believe that our
continued ability to attract and retain highly skilled management, marketing,
and technical personnel is essential to our future growth and success. Our
employees are not represented by a labor union, and we have not experienced work
stoppages.
Trimble's success depends in part on the continued contribution and
long-term effectiveness of our executive officers and key technical, sales,
marketing, support, research and development, manufacturing, and administrative
personnel, many of whom would be difficult to replace.
11
Executive Officers of the Company
The names, ages, and positions of the Company's executive officers as of
March 27, 2000 are as follows:
Name Age Position
- --------------------------------------------------------------------------------
Steven W. Berglund........... 48 President, Chief Executive Officer
Mary Ellen Genovese.......... 40 Vice President, Finance, Chief Financial
Officer and Corporate Controller
Charles E. Armiger, Jr....... 45 Vice President, Worldwide Sales
David M. Hall................ 51 Group Vice President, Mobile and Timing
Technologies
Patrick J. Hehir............. 38 Senior Vice President, Chief Manufacturing
Officer
John E. Huey................. 50 Treasurer
Ron C. Hyatt................. 60 Group Vice President, Precision Positioning
Michael W. Lesyna............ 39 Vice President, Strategic Marketing
Bruce E. Peetz............... 48 Vice President, Advanced Technology and
Systems
All officers serve at the discretion of the Board of Directors. There are
no family relationships between any of the directors or executive officers of
the Company.
Steven W. Berglund joined Trimble as President and Chief Executive Officer
in March 1999. Mr. Berglund has a diverse background with experience in
engineering, manufacturing, finance and global operations. Most recently, Mr.
Berglund was president of Spectra Precision, Inc., with global sales of
approximately $200 million, develops and manufactures surveying instruments,
laser-based construction alignment instruments, and construction machine control
systems. During his fourteen years with Spectra-Physics, Mr. Berglund held a
variety of positions that included four years based in Europe. Prior to Spectra
Precision, Mr. Berglund spent a number of years in the early 1980s at Varian
Associates in Palo Alto where he held a number of planning and manufacturing
roles. Varian is a technology company specializing in microwave communications,
semiconductor manufacturing equipment, analytical instruments, and medical
diagnostic equipment. Mr. Berglund began his career as a process engineer at
Eastman Kodak in Rochester, New York. He attended the University of Oslo and
University of Minnesota where he received a B.S. in chemical engineering in
1974. He received his MBA from the University of Rochester in 1977.
Mary Ellen Genovese joined Trimble in December 1992 as controller of
manufacturing operations. From 1994 to 1997 she served as business unit
controller for software and component technologies, and for the tracking and
communications business unit. She was appointed corporate controller in
October1997 and vice president of finance and corporate controller in February
1998. Currently, she is Trimble's interim chief financial officer. Prior to
joining Trimble, Mrs. Genovese was chief financial officer and president for
Minton Co., a distributing company to the commercial building market, from 1991
to 1992. In her position as chief financial officer, she was responsible for the
accounting, management reporting and bank and investor financing for the
company. In March of 1992, the board of directors asked her to assume the role
of president of Minton to reorganize the company, including the divestiture of
the manufacturing operations. Prior to 1991, she worked for 10 years with
General Signal Corporation. She was appointed European financial controller in
July 1990, and was responsible for the company's three European operations --
Germany, France and the United Kingdom. From 1988 to 1990 she served as unit
financial officer -- for General Signal's Semiconductor Systems Division. She
held several other management positions, including materials manager, and
controller of manufacturing operation and international projects controller for
General Signal's Ultratech Stepper Division from 1984 to 1988. Mrs. Genovese is
a Certified Public Accountant and received her B.S. in accounting from Fairfield
University in Connecticut in 1981.
Charles E. Armiger, Jr. joined Trimble in January 1989 as Sales and
Marketing Manager for aviation products. From January 1991 to December 1993, he
served as Director of U.S. Domestic Sales. Mr. Armiger held the post of Director
of Sales for North American West from January 1993 to November 1994. In December
1994 he moved to Trimble's European office in Hook, England, to serve as
Director of Sales for Europe, the Middle East and Africa. In September 1996, he
was appointed to serve as Vice President for Commercial Systems Sales. In
September 1998, Mr. Armiger was appointed Vice President of Worldwide Sales.
Prior to joining Trimble, he was Director of Sales and Marketing for ARNAV
Systems, Inc. He received a B.S. degree in Business from the University of the
State of New York, Regents College, in 1996.
12
David M. Hall joined Trimble in February 1994 as Managing Director, OEM
products. In November 1996 he was appointed Vice President and General Manager
of the Software and Component Technologies business unit, focusing on
application and operating system software, component board level, and chipset
volume aspects of the GPS business. In November 1998 he was appointed Group Vice
President of the Mobile and Timing Technologies business unit, managing mobile
positioning and communications, timing, automotive, military, and commercial
aviation businesses. Previously, he worked for Raychem Corporation for
twenty-one years in a variety of positions and divisions. He served as Director
of Sales and Marketing for the Automotive Division, National Distribution
Manager for the Electronics Sector, and Director of Marketing and Product
Management for the Interconnect Systems Division, as well as District Sales
Manager, Area Sales Manager, and Operations Manager. Mr. Hall received his B.S.
degree in Industrial Technology in 1971 and his MBA in Marketing and Finance
in1973 from the California Polytechnic State University in San Luis Obispo,
California.
Patrick J. Hehir joined Trimble in February 1999 as Senior Vice President
and Chief Manufacturing Officer. Prior to Trimble, Mr. Hehir worked for Dovatron
International, where he held several positions during his eight-year tenure,
including quality/program manager, director of operations, executive director of
operations and vice president of worldwide business development. Dovatron, a $1
billion international manufacturing company with offices in Ireland, Mexico,
Asia, Eastern Europe and the U.S., serves clients such as Hewlett-Packard,
Hughes Corporation, I.B.M., and Lucent Technologies. Prior to Dovatron, he
worked for Western Digital in several positions, including process/quality
engineer, quality improvement process coordinator, senior quality engineer and
quality manager. Mr. Hehir also held process engineering, production and quality
positions at Pulse Engineering in Ireland. He has a broad range of educational
qualifications from technical colleges and universities in Ireland and the
United Kingdom. He graduated from Galway's Institute of Technology with an
electronic engineering certificate in 1981. He received a quality-assurance
post-graduate diploma from the Galway's University College in 1984. In 1987, Mr.
Hehir received a production and operations management certificate from the
United Kingdom's Institute of Industrial Engineering, and a post-graduate
diploma in health, safety and social welfare from Cork's University College in
1993. Mr. Hehir also served on Ireland's technical committee for the development
of the environmental system standard, ISO 14000, published by the International
Standards Organization.
John E. Huey joined Trimble in 1993 as Director, Corporate Credit and
Collections. He was promoted to Assistant Treasurer in 1995 and Treasurer in
1996. As Treasurer, Mr. Huey has responsibility for the Company's banking
relationships including syndicated credit facilities, domestic and international
cash management, credit/collection/DSO management and worldwide risk management,
including setting and execution of the Company's hedging policy and stock
administration. Past business experience includes two years with ENTEX
Information Services, five years with National Refractories & Minerals
Corporation (formerly Kaiser Refractories), and thirteen years with Kaiser
Aluminum & Chemical Sales, Inc. He has held positions in Credit Management,
Market Research, Inventory Control, Sales, and as an Assistant Controller. Mr.
Huey received his B.A. degree in Business Administration in 1971 from Thiel
College in Greenville, Pennsylvania, and an MBA in 1972 from West Virginia
University in Morgantown, West Virginia.
Ron C. Hyatt joined Trimble in August 1983 as Director of
Instrumentation Products. In 1985, he was appointed Vice President for Surveying
and Mapping Products, managing the marketing and application software
development aspects of the business until February 1993. In January 1997 he
returned to the Company as Senior Vice President of Trimble Labs, focusing on
next-generation ASIC developments. In November 1998, Mr. Hyatt was promoted to
Group Vice President of Precision Positioning Group. He is responsible for
managing surveying, mapping/GIS, and machine guidance/control product lines.
Prior to joining Trimble, Mr. Hyatt worked for Hewlett-Packard from 1964 to 1983
in various engineering and management positions, focusing on precision frequency
and time instrumentation. Mr. Hyatt received his B.S. degree in electrical
engineering from Texas Tech University in 1962 and his M.S. degree in electrical
engineering from Stanford University in 1963.
Michael W. Lesyna joined Trimble as Vice President of Strategic Marketing
in September 1999. Mr. Lesyna brings broad experience in developing business and
marketing strategies for high-technology companies. Mr. Lesyna joins Trimble
from Booz Allen & Hamilton, where he spent six years, most recently serving as a
principal in the operations management group. While at Booz Allen & Hamilton, he
was responsible for advising companies on a wide range of strategic issues.
Prior to Booz Allen & Hamilton, Mr. Lesyna held a variety of engineering
positions at Allied Signal Aerospace. He served as a project engineer for Allied
Signal's European consortium in Germany, was a development and test engineer for
the altitude chamber, and was a design engineer for the company's first jet
fighter engine afterburner. Mr. Lesyna received an MBA from Stanford University.
He also received an MS in mechanical engineering and a B.S. in mechanical
engineering from Stanford.
13
Bruce E. Peetz joined Trimble in June 1988 as Program Manager for GPS
Systems. From January 1990 to January 1994 he served as Development Manager for
commercial dual-frequency products, and from January 1993 to December 1995 he
served as Engineering Manager for Surveying and Core Engineering. In 1996 he was
appointed General Manager of the Land Surveying unit, and from February 1998
started the Advanced Systems division as General Manager. In October 1998 he was
named Vice President of Advanced Technology and Systems, consolidating Systems
and Trimble Laboratories. Prior to joining Trimble, Mr. Peetz served in a
variety of engineering and management positions during eleven years at Hewlett
Packard and four years at Hughes Aircraft Company. Mr. Peetz received his B.S.
degree in Electrical Engineering from the Massachusetts Institute of Technology
in 1973, and did graduate work in computer science at UCLA.
Item 2. Properties
Trimble currently leases an aggregate of 396,500 square feet in fifteen
buildings in Sunnyvale, California. Trimble uses approximately 221,000 square
feet; and the balance is subleased to others. The leases and subleases on these
buildings expire at various dates through 2004. In addition, we lease three
buildings in Austin, Texas, totaling approximately 50,600 square feet. Trimble
uses approximately 25,000 square feet to manufacture GPS-based aviation
products. The balance is subleased; the leases and subleases expire at various
dates through 2004. We also lease 65,000 square feet in two buildings in
Christchurch, New Zealand, for software development. These leases expire in 2005
and 2010. Trimble's two largest international sales offices are those in the
United Kingdom (15,465 square feet) and Japan (5,640 square feet). In addition,
our sales offices in Australia, China, France, Germany, Hungary, Italy, Mexico,
Spain, Singapore, Russia, and in various cities throughout the United States are
leased. Trimble currently does not own any real estate or buildings. Trimble's
international office leases expire at various dates through 2005. Certain of the
leases have renewal options. We believe that our facilities are adequate to
support our current and anticipated near-term future operations.
Item 3. Legal Proceedings
The information with respect to legal proceedings required by this item is
included in Part II, Item 8, Note 17 to the Consolidated Financial Statements,
hereof under the caption "Pending Matters."
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Trimble's Common Stock is traded on the Nasdaq Stock Market(R) under the
symbol TRMB. The following table sets forth, for the quarters indicated, the
range of high and low closing sales prices for Trimble's Common Stock on the
Nasdaq Stock Market(R):
High Low
1999:
Fourth 23 1/8 10 1/2
Third 13 1/4 9
Second 13 3/4 9 3/8
First 10 1/2 7 1/4
1998:
Fourth 10 1/4 7
Third 16 3/8 9 1/4
Second 19 13/16 13 7/8
First 24 3/8 17 1/4
Trimble had 1,357 registered shareholders of record as of March 13, 2000.
Trimble's stock price is subject to significant volatility. If revenues or
earnings fail to meet the expectations of the investment community, there could
be an immediate and significant impact on the trading price for the Company's
stock. Due to stock market forces that are beyond our control, and due also to
the nature of our business, such short falls can be sudden.
Trimble has never paid cash dividends on its Common Stock. Trimble
presently intends to retain its earnings to finance the development of its
business, and does not presently intend to declare any cash dividends in the
foreseeable future. Under our current $50,000,000 revolving line of credit
agreement, Trimble is restricted from paying dividends without the lender's
consent. Under Trimble's Note Purchase Agreement, pursuant to which the Company
issued $30,000,000 of its subordinated promissory notes in June 1994, Trimble is
also restricted from paying dividends. See Notes 7 and 9 to the Consolidated
Financial Statements contained in Item 8.
15
Item 6. Selected Financial Data
HISTORICAL FINANCIAL REVIEW
Summary Consolidated Statements of Operations Data
December 31, January 1, January 2, December 31, December 31,
Fiscal Years ended 1999 1999 1998 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Revenue $ 271,364 $ 268,323 $ 266,442 $ 226,784 $ 227,859
-------------------------------------------------------------
Operating expenses
Cost of sales 127,117 141,075 124,411 107,744 96,792
Research and development 36,493 45,763 38,242 27,833 30,518
Sales and marketing 53,543 61,874 57,661 61,112 60,321
General and administrative 33,750 33,245 27,424 35,136 23,395
Restructuring charges - 10,280 - 2,134 -
-------------------------------------------------------------
Total operating expenses 250,903 292,237 247,738 233,959 211,026
-------------------------------------------------------------
Operating income (loss) from continuing operations 20,461 (23,914) 18,704 (7,175) 16,833
Nonoperating income (expense), net 274 (2,041) 1,172 706 773
-------------------------------------------------------------
Income (loss) before income taxes from continuing operations 20,735 (25,955) 19,876 (6,469) 17,606
Income tax provision (benefit) 2,073 1,400 2,496 (300) 3,121
-------------------------------------------------------------
Net income (loss) from continuing operations $ 18,662 $ (27,355) $ 17,380 $ (6,169) $ 14,485
-------------------------------------------------------------
Loss from discontinued operations (net of tax) - (5,760) (8,101) (5,134) (3,224)
Estimated gain (loss) on disposal of discontiued operations
(net of tax) 2,931 (20,279) - - -
-------------------------------------------------------------
Net income (loss) $ 21,593 $ (53,394) $ 9,279 $ (11,303) $ 11,261
=============================================================
Basic net income(loss) per share from continuing operations $ 0.83 $ (1.22) $ 0.78 $ (0.28) $ 0.73
Basic net income(loss) per share from discontinued operations $ 0.13 $ (1.16) $ (0.36) $ (0.23) $ (0.16)
-------------------------------------------------------------
Basic net income(loss) per share $ 0.96 $ (2.38) $ 0.42 $ (0.51) $ 0.56
=============================================================
Shares used in calculating basic
earnings per share 22,424 22,470 22,293 22,005 19,949
=============================================================
Diluted net income(loss) per share from continuing operations $ 0.82 $ (1.22) $ 0.75 $ (0.28) $ 0.68
Diluted net income(loss) per share from discontinued operations $ 0.13 $ (1.16) $ (0.35) $ (0.23) $ (0.15)
-------------------------------------------------------------
Diluted net income(loss) per share $ 0.95 $ (2.38) $ 0.40 $ (0.51) $ 0.53
=============================================================
Shares used in calculating diluted
earnings per share 22,852 22,470 22,947 22,005 21,318
=============================================================
Cash dividends per share $ - $ - $ - $ - $ -
=============================================================
Other Operating Data: December 31, January 1, January 2, December 31, December 31,
Fiscal Years ended 1999 1999 1998 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands, except percentages)
Gross margin percentage 53% 47% 53% 52% 58%
Operating income (loss) percentage 8% (9%) 7% (3%) 7%
EBITDA (1) $ 29,534 $ (11,404) $ 30,911 $ 2,965 $ 24,875
Depreciation and amortization 9,073 12,510 12,207 10,140 8,042
EBITDA percentage 11% (4%) 12% 1% 11%
Selected Consolidated Balance Sheet: December 31, January 1, January 2, December 31, December 31,
As of 1999 1999 1998 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
Working capital $ 111,808 $ 81,956 $ 133,434 $ 122,409 $ 135,097
Total assets 181,751 156,279 207,663 189,841 196,763
Noncurrent portion of long-term debt 33,821 31,640 30,697 30,938 31,316
Shareholders' equity $ 100,796 $ 74,691 $ 139,483 $ 124,045 $ 129,937
(1) EBITDA consists of earnings from continuing operations before interest income, interest expense, other
nonoperating income and expense, income taxes, depreciation and amortization. EBITDA is not a measure of
financial performance under generally accepted accounting principles and should not be considered in isolation or
as an alternative to net income as an indicator of a company's performance or to cash flows from operating
activities as a measure of liquidity.
16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF CONTINUING OPERATIONS
In fiscal 1999, Trimble's annual revenues from continuing operations
increased to $271.4 million from $268.3 million in fiscal 1998. In fiscal 1999,
Trimble had net income from continuing operations of $18.7 million, or $0.82 per
share, diluted, compared to a net loss from continuing operations of $27.4
million, or ($1.22) per share, diluted, in fiscal 1998. The total net income for
fiscal 1999, including discontinued operations, was $21.6 million, or $0.95 per
share, diluted, compared to a total net loss for fiscal 1998, including
discontinued operations, of $53.4 million, or ($2.38) per share, diluted.
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenue:
December 31, January 1, January 2,
Fiscal Years ended 1999 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
Revenue 100% 100% 100%
---------------- ----------------- -----------------
Operating expenses:
Cost of sales 47% 53% 47%
Research and development 13% 17% 14%
Sales and marketing 20% 23% 22%
General and administrative 12% 12% 10%
Restructuring charges 0% 4% 0%
---------------- ----------------- -----------------
Total operating expenses 92% 109% 93%
---------------- ----------------- -----------------
Operating income (loss) from Continuing Operations 8% (9%) 7%
Nonoperating income (expense), net 0% (1%) 0%
---------------- ----------------- -----------------
Income (loss) before income taxes from Continuing Operations 8% (10%) 7%
Income tax provision 1% 1% 1%
---------------- ----------------- -----------------
Net income (loss) from Continuing Operations 7% (10%) 7%
---------------- ----------------- -----------------
Loss from Discontinued Operations (net of tax) 0% (2%) (3%)
Estimated gain (loss) on disposal of Discontiued Operations
(net of tax) 1% (8%) 0%
---------------- ----------------- -----------------
Net Income (loss) 8% (20%) 3%
================ ================= =================
Revenue. In fiscal 1999, total revenue increased to $271.4 million from
$268.3 million in fiscal 1998, which represents a percentage increase of 1%.
Total revenue increased in fiscal 1998 to $268.3 million from $266.4 million in
fiscal 1997, which represents a percentage increase of less than 1%. The
following table breaks out Trimble's revenues by industry segment:
---------------------------------------------------------------------------
December 31, % Total January 1, % Total January 2, % Total
1999 Revenue 1999 Revenue 1998 Revenue
- -------------------------------------------------------------------------------------------------------------
(In thousands)
Precision Positioning Group $ 161,294 59% $165,951 62% $ 142,449 53%
Mobile and Timing Technologies 110,070 41% 102,372 38% 123,993 47%
-------------- -------- -------------- ------- ------------- --------
Total revenue $ 271,364 100% $268,323 100% $ 266,442 100%
-------------- -------- -------------- ------- ------------- --------
Precision Positioning Group
The Precision Positioning Group revenues decreased by 3% in fiscal 1999
over fiscal 1998. The 1999 revenue decrease compared to 1998 is due to the
following:
o Sales were impacted from the change in commission structure for some of
our products from commission dealers to buy/sell dealers in fiscal 1999.
Under the buy/sell arrangement, the product is discounted to the dealer,
as opposed to end-user pricing with commissions recorded under sales and
marketing expense.
o Sales to Original Equipment Manufacturers such as CNH Global and
Caterpillar decreased as compared to 1998 sales due to an economic
slowdown in the United States for mining and agriculture related
products.
17
o In the fourth quarter of 1999, delivery problems due to critical part
shortages in our supply chain, and transitional issues with outsourcing
our manufacturing, had a negative impact on revenue for the fiscal year
ended 1999.
Precision Positioning Group revenues had a growth rate of 16% in fiscal
1998 over fiscal 1997. The 1998 increase compared to 1997 was primarily due to
increases in revenues in the land surveying, marine surveying, mapping, and GIS
systems, and mining, construction, and agriculture markets. The increase in land
surveying was due to the continued strong customer acceptance of Trimble's GPS
Total Station 4800 and 4700 products. Also, the increase in marine survey,
mapping, and GIS, as well as mining, construction and agriculture reflects
increased demand for these products.
Mobile and Timing Technologies
Mobile and Timing Technologies revenues increased 8% in fiscal 1999 over
fiscal 1998. The increase is attributable to strong growth in our automotive and
timing markets which was partially offset by decreases in commercial marine,
commercial air transport, and military systems, due to the following:
o Trimble decided to exit the commercial marine business in the fourth
quarter of 1998 and sold the last of such products in the second
quarter of 1999.
o Commercial air transport was down, due to decreases in market demand and
the successful conclusion of shipments in fiscal 1998 to American
Airlines and Continental Airlines through our Honeywell alliance, which
were not repeated in fiscal 1999.
o Military systems declined due to the completion of our CUGR contract in
the first quarter of 1998 which sales were not repeated in 1999.
The Mobile and Timing Technologies revenues decreased 17% in fiscal 1998
from fiscal 1997. The 1998 decrease was primarily in automotive, commercial air
transport and military aerospace systems. The softness in the automotive market
was due to the financial difficulties of a major customer and a delay in our new
product introductions. The commercial air transport decrease was due to
less-than-anticipated demand from Honeywell, and the military aerospace system
decrease was due to the large dollar shipment on the CUGR contract in the fourth
quarter of 1997, which was not repeated in 1998. In addition, Mobile and Timing
Technologies revenues in 1997, included $1.8 million in revenues from a
development agreement in connection with an irrevocable nonrefundable,
nonrecurring engineering fee and a nonrecurring one-time $2.2 million technology
license from Pioneer Electronic Corporation in connection with expansion of its
prior license for in-car navigation.
* Military sales are highly dependent on contracts that are subject to
government approval and are, therefore, expected to continue to fluctuate from
period to period. Trimble believes that opportunities in this market have been
substantially reduced by cutbacks in U.S. and foreign military spending.
Export Sales
* Export sales from domestic operations, as a percentage of total revenue,
were 38% in 1999, 34% in 1998, and 28% in 1997. Sales to unaffiliated customers
in foreign locations, as a percentage of total revenue, were 52% in 1999, and
46% in both 1998 and 1997. 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 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, as well as eliminate 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.
No single customer, including the U.S. Government and its agencies,
accounted for 10% or more of Trimble's total revenues in fiscal 1999, 1998 or
1997. It is possible; however, that in future periods the failure of one or more
large customers to purchase products in quantities anticipated by the Company
may adversely affect the results of operations.
* Gross Margin. Gross margin varies 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
18
costs, and new product start-up costs. In fiscal 1999, the gross margin
percentage on product sales was 53%, compared with 47% in 1998 and 53% in 1997.
The increase in gross margin percentages primarily reflect improved
manufacturing cost controls achieved through the consolidation of the
manufacturing organization, resulting in improved efficiencies and reduced
inventory. In addition, gross margins in the second half of fiscal 1999 were
favorably impacted by the cost benefits of outsourcing our manufacturing to
Solectron. The 1997 margins were enhanced by the positive impact of nonproduct
revenues of $2.2 million recognized from Pioneer Electronic Corporation and from
a development agreement in connection with an irrevocable, nonrefundable,
nonrecurring engineering fee of $1.8 million; however, there can be no assurance
that similar items will recur in the future. In addition, because of product mix
changes within and among the industry markets, market pressures on unit selling
prices, fluctuations in unit manufacturing costs, and other factors, positive
future gross margins cannot be assured.
* Trimble expects that in the future a higher percentage of its business
will be conducted through alliances with strategic partners. As a result of
volume pricing and the assumption of certain operating costs by the partner,
margins on this business are likely to be lower than sales directly to
end-users.
Operating Expenses. The following table shows operating expenses for the
periods indicated. It should be read in conjunction with the narrative
descriptions of those operating expenses below:
Fiscal Years Ended
----------------------------------------------------
December 31, January 1, January 2,
1999 1999 1998
- -------------------------------------------------------------------------------
(In thousands)
Research and development $ 36,493 $ 45,763 $ 38,242
Sales and marketing 53,543 61,874 57,661
General and administrative 33,750 33,245 27,424
Restructuring charges - 10,280 -
--------------- --------------- -------------
Total $ 123,786 $ 151,162 $ 123,327
--------------- --------------- -------------
Research and Development. Research and development spending decreased in
absolute dollars during fiscal 1999, representing 13% of revenues as compared
with 17% in 1998 and 14% in 1997. The lower research and development expenses in
1999 are due primarily to Trimble's receiving approximately $4.2 million more
funds from cost reimbursement projects in 1999 as compared to 1998. Also, there
were decreases in our expenses of approximately $5.0 million related to
electronic parts, depreciation, travel, personnel, and other supplies as part of
the Company's restructuring plans which were implemented in the last half of
fiscal 1998.
The dollar increase from 1997 to 1998 is due primarily to Trimble's
receiving approximately$3.5 million fewer funds from cost reimbursement projects
in 1998 as compared with 1997.
Trimble plans to continue its aggressive development of future products.
* Sales and Marketing. Sales and marketing expenses decreased during fiscal
1999, representing 20% of revenues, as compared with 23% in 1998 and 22% in
1997. The primary reason for the dollar and percentage decrease in expenses from
1998 to 1999 is decreases of approximately $7.7 million in personnel,
consultants, travel, advertising, trade shows, expensed demo equipment, and
other office supplies as part of the Company's restructuring plan, which was
implemented in the last half of fiscal 1998. In addition, sales 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.
The primary reason for the dollar and percentage increases in expenses from
1997 to 1998 was an increase of approximately $2.1 million in personnel and
related expenses that accompany an increase in the number of employees. In
addition, Trimble experienced increases in expenses of approximately $1.1
million related to trade shows, advertising, and demo equipment 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
19
are major corporations with substantially greater financial, technical, and
marketing resources. Increased competition may result in reduced market share
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 increased
in absolute dollars during fiscal 1999, representing 12% of revenues, as
compared with 12% in 1998 and 10% in 1997. The increase in fiscal 1999 as
compared to 1998 is due to an increase in the allowance for doubtful accounts
related to customers in South America for 1999; and an increase in building
rental costs due to the renewal of many of our building leases. This increase
was partially offset by space consolidations as part of our restructuring
efforts in the fourth quarter of 1998.
The increase from 1997 to 1998 was due primarily to an increase of
approximately $1.7 million in personnel and the related expenses that accompany
an increase in the number of employees and consultants, as well as an increase
of approximately $1.7 million in outside services related to legal fees
associated with certain litigation matters during 1998.
Restructuring Charges. As noted in Note 8 to the Consolidated Financial
Statements during the year ended January 1, 1999, Trimble recorded a
restructuring charge of $10.3 million classified in operating expenses. These
charges were a result of Trimble's reorganization to improve business processes
and to decrease organizational redundancies, to improve management
accountability and to improve our focus on profitable operations. As a result of
the reorganization, Trimble downsized its operations, including reducing
headcount and facilities space usage, and canceled its enterprisewide
information system project and certain research and development projects. The
impact of these decisions was that significant amounts of our fixed assets,
prepaid expenses, and purchased technology had been impaired and certain
liabilities incurred. Trimble wrote down the related assets to their net
realizable values and made provisions for the estimated liabilities.
The elements of the charges incurred in fiscal 1998 and the amounts
remaining at December 31, 1999, on the balance sheet are as follows (in
thousands):
Total
charged to Amounts paid/ Amounts paid/ Remaining in
expense in written off written off accrued liabilites
fiscal 1998 in fiscal 1998 in fiscal 1999 as of December 31, 1999
--------------- ------------------------ ----------------------- --------------------------
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) $ 1,301
============ ============================ ======================= ==========================
The cash expenditures associated with the remaining obligations will occur
primarily in fiscal 2000.
Nonoperating income (expense), net.Nonoperating income (expense), net,
includes interest income and expense, as well as gains and losses on foreign
currency transactions.
Foreign exchange gains were $28,000 in fiscal 1999, compared with gains of
$234,000 in 1998 and 1997. Trimble's policy is to hedge its exposure to foreign
currency transactions in order to minimize the effect of changes in foreign
currency exchange rates on consolidated results of operations. Gains and losses
arising from foreign currency forward contracts offset gains and losses
resulting from the underlying hedged transactions.
Interest income increased in 1999 from 1998 and decreased in 1998 from
1997. The higher interest income in 1999 is due primarily to the increased
interest income received on cash and short-term investments because of higher
average balance for fiscal 1999 over fiscal 1998.
The decrease in 1998 from 1997 was because of lower interest income
received on cash and short-term investments due to lower average balances for
the year, over the prior year.
Interest expense decreased slightly in 1999 due to lower fees in foreign
locations. Interest expense includes interest on a $30.0 million note issued in
August 1995, and fees on unused lines of credit. (See Notes 7 and 9 to the
Consolidated Financial Statements for details of long-term debt and lines of
credit.)
Income Tax Provision. Trimble's effective tax rates from continuing
operations for fiscal years 1999, 1998 and 1997 are 10%, (6%), and 12%,
respectively. The 1999 and 1997 income tax rates are less than the federal
20
statutory rate of 35%, due primarily to the realization of the benefits from
prior net operating losses and previously reserved deferred tax assets. The 1998
income tax rate differs from the federal statutory rate, due primarily to
foreign taxes and the inability to realize the benefit of net operating losses.
Inflation. The effects of inflation on Trimble's financial results have not
been significant to date.
LITIGATION
* Trimble is involved in a number of legal matters as discussed in Note 17
to the Consolidated Financial Statements. While Trimble does not expect to
suffer significant adverse effects from these litigation matters or from
unasserted claims, the nature of litigation is unpredictable and there can be no
assurance that it will not do so.
LIQUIDITY AND CAPITAL RESOURCES
* At December 31, 1999, Trimble had cash and cash equivalents of $49.3
million and $52.7 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 and the receipt of $26.9 million in cash as part of an
agreement with Solectron for the outsourcing of Trimble's manufacturing
operations located in Sunnyvale, California (See Note 4 to the consolidated
financial statements). Trimble's long-term debt consisted primarily of a $30.0
million note obligation due in 2001. We had no debt outstanding under our
$50,000,000 unsecured line of credit but had issued certain letters of credit as
of December 31, 1999, amounting to approximately $283,000. Trimble has relied
primarily on cash provided by operating and financing activities and net sales
of short-term investments to fund capital expenditures, the repurchase of the
Company's common stock, and other investing activities. Management believes that
its cash, cash equivalents, and short-term investment balances, together with
its existing credit line, will be sufficient to meet its anticipated operating
cash needs for at least the next twelve months.
* In fiscal 1999, the cash provided by operating activities was $23.6
million, as compared to cash provided of $7.0 million in the corresponding
period in 1998. Cash provided by operating activities in 1999 arose from the
Company's net income, plus depreciation and amortization and decreases in
inventories and offset partially by increases in accounts receivable and
decreases in accrued liabilities. Inventory from continuing operations as of
December 31, 1999 decreased by $20.6 million from the 1998 year-end levels
primarily, due to the transition of certain manufacturing operations to
Solectron as well as a focused effort by Trimble to reduce inventory by supply
chain synchronization, reducing lead and cycle times, simplifying product lines,
and implementing tighter control over its material forecasting process (See Note
4 to the consolidated financial statements.) 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 1999 represents the proceeds from
purchases made by employees pursuant to Trimble's stock option plan and employee
stock purchase plan, and totaled $4.5 million for the year ended December 13,
1999.
* In August 1997, Trimble entered into a three-year, $50,000,000 unsecured
revolving credit facility with four banks (the "Credit Agreement"). The Credit
Agreement enables Trimble to borrow up to $50,000,000, provided that certain
financial and other covenants are met. As of October 20, 1999, Trimble, the
Agent, and the Lenders agreed to change and amend certain covenants for the life
of the loan, which expires in August of 2000. The $50,000,000 revolving credit
facility was modified to include Trimble's prior separate $5,000,000 line of
credit and to simplify the entire arrangement. The Credit Agreement provides for
payment of a commitment fee of 0.25% and borrowings to bear interest at 1% over
LIBOR if the total funded debt to EBITDA is less than or equal to 1.00 times,
0.3% and borrowings to bear interest at 1.25% over LIBOR if the ratio is greater
than 1.00 times and less than or equal to 2.00 times, or 0.4%, and borrowings to
bear interest at 1.75% over LIBOR if the ratio is greater than 2.00 times. In
addition to borrowing at the specified LIBOR rate, Trimble has the right to
borrow with interest at the higher of (i) one of the bank's annual prime rate
and (ii) the federal funds rate plus 0.5%. To date, Trimble has not made any
borrowings under the $50,000,00 unsecured revolving credit facility, but has
issued certain letters of credit as of December 31, 1999, amounting to
approximately $283,000. In addition, Trimble is restricted from paying dividends
under the terms of the Credit Agreement.
In June 1994, Trimble issued $30.0 million of subordinated promissory notes
bearing interest at an annual rate of 10%, with principal due on June 15, 2001.
Interest payments are due monthly in arrears. The notes are subordinated to the
Company's senior debt, which is defined as all pre-existing indebtedness for
borrowed money
21
and certain future indebtedness for borrowed money (including, subject to
certain restrictions, secured bank borrowings and borrowed money for the
acquisition of property and capital equipment) and trade debt incurred in the
ordinary course of business. If Trimble prepays any portion of the principal, it
is required to pay additional amounts if U.S. Treasury obligations of a similar
maturity exceed a specified yield. Under the agreement, Trimble is also
restricted from paying dividends.
The issuance of the subordinated promissory notes also included the
issuance of warrants entitling holders to purchase 400,000 shares of common
stock at a price of $10.95 per share at any time through June 15, 2001. The net
proceeds of the notes were $29,348,000. The notes are recorded as noncurrent
liabilities, net of appraised fair value attributed to the warrants. The value
of the warrants and the issuance costs are being amortized to interest expense,
using the interest rate method over the term of the subordinated promissory
notes. The effective annual interest rate on the notes is 11.5%. Under the terms
of the note, Trimble is required to meet a minimum consolidated net worth
requirement. If Trimble falls below the minimum consolidated net worth
requirement we could be in default of our loan covenants. Such events could have
a material adverse effect on Trimble's operations and liquidity.
Trimble announced in February 1996 that it had approved a discretionary
program whereby up to 600,000 shares of its common stock could be repurchased on
the open market by the Company to offset the potential dilutive effects to
earnings (loss) per share from the issuance of additional stock options. In
1998, Trimble approved the repurchase of an additional 1.6 million shares under
the discretionary program. During 1997, Trimble purchased 139,500 shares at a
cost of $1.8 million. During 1998, Trimble purchased 1.08 million shares at a
cost of $16.1 million. During fiscal 1999, no shares were repurchased under the
discretionary program.
* Trimble presently expects capital expenditures in fiscal 2000 to be
approximately $5.4 million, primarily for computer equipment, software, and
leasehold improvements associated with business expansion.
Trimble is continually evaluating potential external investments in
technologies related to its business and, to date, has made relatively small
strategic investments in a number of GPS related technology companies. There can
be no assurance that any such outside investments made to date nor any potential
future investments will be successful.
* Trimble has evaluated the issues raised by the introduction of the Single
European Currency (Euro) for initial implementation as of January 1, 1999, and
during the transition period through January 1, 2002. Trimble does not currently
believe that the introduction of the Euro will have a material effect on its
foreign exchange and hedging activities. Trimble has also assessed the potential
impact the Euro conversion will have in regard to its internal systems
accommodating Euro-denominated transactions. Trimble will continue to evaluate
the impact of the Euro introduction over time, based on currently available
information. Trimble does not currently anticipate any adverse impact of the
Euro conversion on the Company.
YEAR 2000 IMPACT
Year 2000 Issues
Computers and software, as well as other equipment that relied on only two
digits to identify or represent a year may be unable to accurately process or
display certain information at or after the Year 2000. This is commonly referred
to as the "Year 2000 issue." Trimble is not aware of any year 2000 issues that
have affected its business. In preparation for the year 2000, we incurred
internal staff costs as well as consulting and other expenses. The year 2000
expenses for external services totaled less than $1.0 million. During 1999,
Trimble updated a significant portion of its computer software to be year 2000
compliant.
* Trimble is also not aware of any material problems with customers or
suppliers. Accordingly, Trimble does not anticipate incurring material expenses
or experiencing any material operational disruption as a result of any year 2000
issues.
CERTAIN OTHER RISK FACTORS
Trimble's revenues have historically tended to fluctuate on a quarterly
basis due to the timing of shipments of products under contracts and the sale of
licensing rights. A significant portion of Trimble's quarterly revenues occurs
from orders received and immediately shipped to customers in the last few weeks
and days of a quarter. If
22
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.
Due to competitive pressure, prices of certain of Trimble's products have
declined substantially since their introduction, and increased competition is
likely to result in further price reduction and loss of market share, which
could adversely affect our net revenue.
With the selection of Solectron as an exclusive manufacturing partner,
Trimble is substantially dependent upon a sole supplier for the manufacture of
its precision positioning and mobile and timing technologies products. In
addition, we rely on sole suppliers for a number of our critical ASICS. The
dependence upon these sole suppliers subjects Trimble to risks associated with
an interruption of supply if we are not able to find alternative sources on a
timely basis. There can be no assurance that any delay, disruptions, or quality
problems resulting from the use of a sole supplier will not have a material
adverse effect on Trimble's business and results of operations.
Trimble's stock price is subject to significant volatility. If revenues
and/or earnings fail to meet the expectations of the investment community, there
could be an immediate and significant impact on the trading price of Trimble's
stock. Additionally, certain macro-economic factors such as changes in interest
rates could also have an impact on the trading price of Trimble stock.
The value of Trimble's 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.
Trimble does not believe any of its 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
Trimble's revenues or profitability. (See Note 17 to the Condensed Consolidated
Financial Statements.)
Trimble's future revenue stream depends to a large degree on our ability to
bring new products to market on a timely basis. In some of our markets -- for
example, Land Survey and GIS where we 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.
Trimble is continuously evaluating alliances and external investments in
technologies related to its business, and has already entered into certain
strategic alliances and has made relatively small strategic investments in a
number of GPS related technology companies. Acquisitions of companies, divisions
of companies, or products and alliances and strategic investments entail
numerous risks, including (i) the potential inability to successfully integrate
acquired operations and products or to realize anticipated synergies, economies
of scale, or other value; (ii) diversion of management's attention; (iii) loss
of key employees of acquired operations; and (iv) inability to recover strategic
investments in development stage entities. Any such problems could have a
material adverse effect on Trimble's 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.
Trimble currently enjoys 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 Trimble will realize value from these relationships in the
future.
The ability of Trimble to maintain its competitive technological position
will depend, in a large part, on its ability to attract, motivate, and retain
highly qualified development and managerial personnel. Competition for qualified
employees in our industry and location is intense, and there can be no assurance
that we will be able to attract, motivate and retain enough qualified employees
necessary for the future continued development of our business and products.
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, Trimble's products that use
23
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 FCC's delays could have an adverse
effect on our operating results.
Trimble's GPS technology is dependent on the use of radio frequency
spectrum. The assignment of spectrum is controlled by an international
organization known as the International Telecommunications Union (ITU). Any ITU
reallocation of radio frequency spectrum, including frequency band segmentation
or sharing of spectrum, may materially and adversely affect the utility and
reliability of our products, which would, in turn, cause a material adverse
effect on our operating results. In addition, emissions from mobile satellite
service and other equipment operating in adjacent frequency bands or inband may
materially and adversely affect the utility and reliability of our products,
which could result in a material adverse effect on our operating results.
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 issued staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Trimble is currently assessing the impact
of SAB 101, but does not expect that it will have a material adverse effect on
Trimble's financial position or results of operations.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk
The following is a discussion of Trimble's exposure to market risk 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 December 31, 1999,
Trimble had short-term investments of $52.7 million. These short-term
investments consisted of $50.2 million of highly liquid investments, with
original maturities at the date of purchase between three and twelve months and
a $2.5 million liquid investment with an original maturity at the date of
purchase of 15 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 December 31, 1999, 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.
As of January 1, 1999, Trimble had short-term investments of $16.3 million.
These short-term investments consisted of highly liquid investments, with
original maturities at the date of purchase between three and twelve 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 January 1, 1999, would cause the fair value of
these short-term investments to decline by
24
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 December 31, 1999 and January 1,
1999, 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 this instrument 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.
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.
The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of December 31, 1999:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
- ----------------------- ----------- ------------------------ ------------------------ --------------------
YEN Buy 67,000 $ 657 $ 656
YEN Sell 261,000 $ 2,517 $ 2,568
NZD Buy 4,400 $ 2,257 $ 2,289
EURO Sell 2,955 $ 3,097 $ 3,014
Sterling Buy 1,230 $ 2,002 $ 1,996
The following table provides information about Trimble's foreign exchange
forward contracts outstanding as of January 1, 1999:
Foreign Contract Value Fair Value
Buy/ Currency Amount USD in USD
Currency Sell (in thousands) (in thousands) (in thousands)
- ----------------------- ----------- ------------------------ ------------------------ --------------------
YEN Buy 30,000 $ 251 $ 265
YEN Sell 415,900 $ 3,394 $ 3,707
NZD Buy 3,200 $ 1,705 $ 1,686
ECU Sell 1,565 $ 1,838 $ 1,833
Sterling Buy 650 $ 1,096 $ 1,078
DEM Sell 750 $ 444 $ 450
* 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.
25
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
December 31, January 1,
1999 1999
- ------------------------------------------------------------------------------------------------------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 49,264 $ 40,865
Short-term investments 52,728 16,269
Accounts receivable, less allowance for doubtful
accounts of $2,949 and $2,220, respectively 36,005 33,431
Inventories 16,435 37,166
Other current assets 4,510 4,173
----------------- ------------------
Total current assets of continuing operations 158,942 131,904
Property and equipment, at cost less accumulated
depreciation 12,333 15,104
Intangible assets less accumulated amortization 1,238 1,320
Deferred income taxes 387 405
Other assets 8,851 7,546
----------------- ------------------
Total assets of continuing operations 22,809 156,279
----------------- ------------------
Total assets $181,751 $156,279
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,388 $ 1,388
Accounts payable 11,710 13,000
Accrued compensation and benefits 7,011 4,696
Customer advances - 808
Accrued liabilities 14,091 15,474
Accrued liabilities related to disposal of General Aviation 2,212 6,743
Accrued warranty expense 5,786 5,681
Income taxes payable 2,983 2,158
Deferred gain on sale of assets 1,953 -
----------------- ------------------
Total current liabilities 47,134 49,948
Noncurrent portion of long-term debt and other liabilities 30,566 31,640
Noncurrent portion of gain on sale of assets 3,255 -
---------------- ------------------
Total liabilities 80,955 81,588
---------------- ------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 3,000 shares
authorized; none outstanding - -
Common stock, no par value; 40,000 shares
authorized; 22,742 and 22,247 shares outstanding, respectively 125,969 121,501
Common stock warrants 993 700
Accumulated deficit (25,125) (46,718)
Accumulated other comprehensive loss (1,041) (792)
---------------- ------------------
Total shareholders' equity 100,796 74,691
---------------- ------------------
Total liabilities and shareholders' equity $181,751 $156,279
================ ==================
See accompanying notes to consolidated financial statements.
26
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, Janaury 1, January 2,
Fiscal Years ended 1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
Revenue $ 271,364 $ 268,323 $ 266,442
--------------------- ----------------- ------------------
Operating expenses:
Cost of sales 127,117 141,075 124,411
Research and development 36,493 45,763 38,242
Sales and marketing 53,543 61,874 57,661
General and administrative 33,750 33,245 27,424
Restructuring charges - 10,280 -
--------------------- ----------------- ------------------
Total operating expenses 250,903 292,237 247,738
--------------------- ----------------- ------------------
Operating income (loss) from continuing operations 20,461 (23,914) 18,704
Nonoperating income (expense):
Interest and investment income 3,857 3,588 4,462
Interest and other expense (3,611) (5,863) (3,524)
Foreign exchange gain 28 234 234
--------------------- ----------------- ------------------
Total nonoperating income (expense) 274 (2,041) 1,172
--------------------- ----------------- ------------------
Income (loss) before income taxes from continuing operations 20,735 (25,955) 19,876
Income tax provision 2,073 1,400 2,496
--------------------- ----------------- ------------------
Net income (loss) from continuing operations $ 18,662 $ (27,355) $ 17,380
--------------------- ----------------- ------------------
Discontinued Operations:
Loss from discontinued operations (net of income tax
benefit of $0 in 1999, $0 in 1998, and $176 in 1997) $ - $ (5,760) $ (8,101)
Estimated gain (loss) on disposal of discontinued operations
(net of tax) $ 2,931 $ (20,279) $ -
--------------------- ------------------ ------------------
Loss on discontinued operations $ 2,931 $ (26,039) $ (8,101)
---------------------- ------------------ ------------------
Net income (loss) $ 21,593 $ (53,394) $ 9,279
====================== ================== ==================
Basic net income (loss) per share from continuing operations $ 0.83 $ (1.22) $ 0.78
Basic net income (loss) per share from discontinued operations $ 0.13 $ (1.16) $ (0.36)
---------------------- ------------------ ------------------
Basic net income (loss) per share $ 0.96 $ (2.38) $ 0.42
====================== ================== ==================
Shares used in calculating basic
net income (loss) per share 22,424 22,470 22,293
====================== ================== ==================
Diluted net income (loss) per share from continuing operations $ 0.82 $ (1.22) $ 0.75
Diluted net income (loss) per share from discontinued operations $ 0.13 $ (1.16) $ (0.35)
---------------------- ------------------ ------------------
Diluted net income (loss) per share $ 0.95 $ (2.38) $ 0.40
====================== ================== ==================
Shares used in calculating diluted
net income (loss) per share 22,852 22,470 22,947
====================== ================== ==================
See accompanying notes to consolidated financial statements.
27
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Common stock Accumulative
and warrants Retained other Total
--------------------------- earnings comprehensive shareholders'
Shares Amount (deficit) income/(loss) equity
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Balance at December 31, 1996 22,063 $ 126,235 $ (2,603) $ 413 $ 124,045
Components of comprehensive income:
Net income 9,279 9,279
Unrealized loss on short-term investments (12) (12)
Currency translation adjustments (949) (949)
---------------
Total comprehensive income 8,318
---------------
Subtotal 132,363
---------------
Issuances of stock under employee plans 890 8,954 - - 8,954
Repurchases of common stock (140) (1,834) - - (1,834)
----------------------------------------------------------------------------
Balance at January 2, 1998 22,813 133,355 6,676 (548) 139,483
Components of comprehensive income:
Net loss (53,394) (53,394)
Unrealized gain on short-term investments 11 11
Currency translation adjustments (255) (255)
---------------
Total comprehensive income (53,638)
---------------
Subtotal 85,845
---------------
Issuances of stock under employee plans 514 4,977 - - 4,977
Repurchases of common stock (1,080) (16,131) - - (16,131)
----------------------------------------------------------------------------
Balance at January 1, 1999 22,247 122,201 (46,718) (792) 74,691
Components of comprehensive income:
Net income 21,593 21,593
Unrealized loss on short-term investments (142) (142)
Currency translation adjustments (107) (107)
---------------
Total comprehensive income 21,344
---------------
Subtotal 96,035
---------------
Issuances of stock under employee plans 495 4,468 - - 4,468
Issuance of warrants - 293 - - 293
----------------------------------------------------------------------------
Balance at December 31, 1999 22,742 $ 126,962 $ (25,125) $ (1,041) $ 100,796
============================================================================
See accompanying notes to consolidated financial statements.
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
December 31, January 1, January 2,
Fiscal Years ended 1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Cash flow from operating activities of continuing operations:
Net income (loss) from continuing operations $ 18,662 $ (27,355) $ 17,380
Adjustments to reconcile net income (loss) from continuing
operations to cash flows provided by operating activities of
continuing operations:
Depreciation and amortization expense 9,073 12,510 12,208
Writedown of fixed assets due to restructure - 5,343 -
Other (702) (835) (980)
Decrease (increase) in assets:
Accounts receivable, net (2,574) 15,475 (15,042)
Inventories 6,653 5,219 (7,767)
Other current and noncurrent assets (354) 1,622 (1,535)
Deferred income taxes 18 (49) 27
Increase (decrease) in liabilities:
Accounts payable (1,290) (5,724) 4,961
Accrued compensation and benefits 2,315 (1,134) (722)
Customer advances (808) (22) (2,170)
Accrued liabilities (8,193) 10,482 (967)
Income taxes payable 825 (506) 1,795
-------------------- ---------------- ------------
Net cash provided by operating activities of continuing operations 23,625 15,026 7,188
Net cash used by operating activities of discontinued operations - (8,058) (9,239)
-------------------- ---------------- ------------
Net cash provided (used) by operating activities 23,625 6,968 (2,051)
-------------------- ---------------- ------------
Cash flow from investing activities:
Equity investments (748) (1,548) (1,889)
Acquisition of property and equipment (6,411) (11,539) (10,393)
Proceeds from sale of assets 26,863 - -
Costs of capitalized patents (1,127) (992) (910)
Purchase of short-term investments (54,809) (53,854) (63,854)
Maturities/Sales of short-term investments 18,350 90,756 70,538
-------------------- ---------------- ------------
Net cash provided (used) by investing activities of continuing
operations (17,882) 22,823 (6,508)
Net cash used by investing activities of discontinued operations - (339) (598)
-------------------- ---------------- ------------
Net cash provided (used) by investing activities (17,882) 22,484 (7,106)
-------------------- ---------------- ------------
Cash flow from financing activities:
Issuance of common stock 4,468 4,977 8,954
Repurchase of common stock - (16,131) (1,834)
Payment of notes receivable (540) (219) (504)
(Payments)/proceeds on long-term debt and
revolving credit facilities (1,272) 2,835 (179)
-------------------- ---------------- ------------
Net cash provided (used) by financing activities of continuing
operations 2,656 (8,538) 6,437
Net cash provided by financing activities of discontinued operations - - -
-------------------- ---------------- ------------
Net cash provided (used) by financing activities 2,656 (8,538) 6,437
-------------------- ---------------- ------------
Increase (decrease) in cash and cash equivalents 8,399 20,914 (2,720)
Cash and cash equivalents, beginning of period 40,865 19,951 22,671
-------------------- ---------------- ------------
Cash and cash equivalents, end of period $ 49,264 $ 40,865 $ 19,951
==================== ================ =============
See accompanying notes to consolidated financial statements.
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies:
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Due to the inherent nature of those
estimates, actual results could differ from expectations.
Basis of presentation. Trimble Navigation Limited ("Trimble" or the
"Company") fiscal year is an annual period that varies from 52 to 53 weeks and
always ends on the Friday nearest to December 31, which for fiscal 1999 was
December 31, 1999.
Trimble's fiscal year will normally consist of four equal quarters of 13
weeks each, or 52 weeks; however, due to the fact that there are not exactly 52
weeks in a calendar year and that there is slightly more than one additional day
per year (not including the effects of leap year) in each calendar year as
compared to a 52-week fiscal year, Trimble will have a fiscal year comprising 53
weeks in certain fiscal years, as determined by when Friday falls closest to
December 31 in consecutive calendar years.
In those resulting fiscal years that have 53 weeks, Trimble 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 adopting a 52-53 week fiscal year, Trimble, 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 the standard 52 weeks.
Fiscal 1999, 1998, and 1997 were all comprised of 52 weeks.
Principles of consolidation. The consolidated financial statements include
the accounts of Trimble Navigation Limited (the Company) and its wholly owned
subsidiaries after elimination of all material intercompany balances and
transactions.
Foreign currency translation. Assets and liabilities of Trimble's foreign
subsidiaries are translated into U.S. dollars at year-end exchange rates, and
revenues and expenses are translated at average rates prevailing during the
year. Local currencies are considered to be the functional currencies for the
Company's non-U.S. subsidiaries. Translation adjustments are deferred in a
separate component of shareholders' equity. Foreign currency transaction gains
and losses are included in results of operations as incurred.
Forward foreign currency exchange contracts. Trimble's policy is to hedge
its known exposure to foreign currency transactions to minimize the effect of
changes in foreign currency exchange rates on consolidated results of
operations. Trimble enters into simple forward foreign exchange contracts to
either buy or sell currency if the net position exceeds $400,000. The forward
foreign exchange contract obligates Trimble to exchange predetermined amounts of
specified foreign currencies at specified exchange rates on specified dates, or
to make an equivalent U.S. dollar payment equal to the value of such exchange.
For contracts that are designated and effective as hedges, discounts, or
premiums (the difference between the spot exchange rate and the forward exchange
rate at inception of the contract) are accreted or amortized to other operating
expenses over the contract lives, using the straight-line method, while realized
and unrealized gains and losses resulting from changes in the spot exchange rate
(including those from open, matured, and terminated contracts) are included in
results of operations. The related amounts due to or from counterparties are
included in other assets or other liabilities. Contract amounts are marked to
market, with changes in market value recorded in earnings as foreign exchange
gains or losses. To date, Trimble has entered into simple forward foreign
currency exchange contracts to offset the effects of changes in exchange rates
on foreign-denominated intercompany receivables. At December 31, 1999, Trimble
had forward foreign currency exchange contracts to sell $2,517,000 of Japanese
yen, and $3,097,000 of European Currency units and to buy $2,257,000 of New
Zealand dollars, $2,002,000 of British pound sterling, and $657,000 of Japanese
yen, at contracted rates that mature over the next six months.
Cash and cash equivalents. Cash and cash equivalents include all cash and
highly liquid investments with original maturities of three months or less. The
carrying amount of cash and cash equivalents approximates fair value because of
the short maturity of those instruments.
30
Short term/Marketable securities. 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. (See Note 2
to the Consolidated Financial Statements.)
Concentration of credit risk. In entering into forward foreign exchange
contracts, Trimble has assumed the risk that might arise from the possible
inability of counterparties to meet the terms of their contracts. The
counterparties to these contracts are major multinational commercial banks, and
Trimble does not expect any losses as a result of counterparty defaults. Trimble
is also exposed to credit risk in its accounts receivable and performs ongoing
credit evaluations of its customers and generally does not require collateral.
The expenses recorded for doubtful accounts receivable were $1,875,000 in 1999,
$195,000 in 1998, and $315,000 in 1997.
Inventories. Inventories are stated at the lower of standard cost or
market. Standard costs approximate average actual costs.
Revenue recognition. Trimble recognizes revenue from product sales when the
products are shipped to the customer, title has transferred, and no significant
obligations remain. Trimble also requires the following: (i) execution of a
written customer order, (ii) delivery of the product, (iii) fee is fixed and
determinable, and (iv) collectibility of the proceeds is probable. In
circumstances where the customer has delayed their acceptance of our product, we
defer recognition of revenue until acceptance. Revenues from purchased extended
warranty and support agreements is deferred and recognized ratably over the term
of the warranty/support period. Substantially all technology licenses and
research revenue have consisted of initial license fees and royalties, which
were recognized when earned, when Trimble had no remaining obligations.
In fiscal 1999, Trimble adopted Statement of Position 97-2 (SOP 97-2) as
set forth by FASB, "Software Revenue Recognition," which requires that revenue
recognized from software arrangements be allocated to each element of the
arrangement based on the relative fair values of the elements, such as software
products, upgrades, enhancements, post-contract customer support, installation,
or training. Revenue from post-contract customer support (PCS) is recognized
ratably over the period of the PCS agreement. However, PCS revenue is recognized
immediately upon the sale of the software when the PCS arrangement is for one
year or less. The implementation of SOP 97-2 did not have a material impact on
the recognized revenue of the Company.
In December 1998, the AICPA issued SOP 98-9, Modifications of SOP 97-2,
Software Revenue Recognition, with respect to Certain Transactions. SOP 98-9
amends SOP 97-2 Software Revenue Recognition to require recognition of revenue
using the "residual method" when certain criteria are met. Trimble will be
required to implement these provisions of SOP 98-9 for its fiscal year ending
December 31, 2000. SOP 98-9 also amends SOP 98-4, an earlier amendment to SOP
97-2, which extended the deferral of the application of certain passages of SOP
97-2. Trimble does not believe the impact of SOP 98-9 will be material to its
financial position, results of operations and cash flows.
Trimble accounts for long-term contracts on the percentage of completion
method, and income is recognized as work on contracts progress, but estimated
losses on contracts in progress are immediately charged to operations.
In December 1999, the Securities and Exchange Commission issued staff
Accounting Bulletin No. 101 (SAB 101). SAB 101 summarizes certain areas of the
staff's views in applying generally accepted accounting principles to revenue
recognition in financial statements. Trimble is currently assessing the impact
of SAB 101, but does not expect that it will have a material adverse effect on
Trimble's financial position or results of operations.
Product warranty. Trimble provides for estimated warranty costs at the time
of sale. The warranty period is generally for one year from date of shipment,
except for air transport products, for which the period is generally a basic
three-year warranty period with an additional two-year warranty sold with some
units. In addition, select military programs may require extended warranty
periods.
31
Advertising costs. Trimble expenses the production costs of advertising as
incurred. Advertising expenses were $4,229,000, $6,490,000, and $6,328,000 in
fiscal 1999, 1998, and 1997, respectively.
Research and Development and Engineering Costs. Research, development and
engineering costs are charged to expense when incurred. The Company has received
third party funding of $7.1million $2.9 million and $6.4 million in 1999, 1998
and 1997, respectively. The Company has offset research, development and
engineering expenses by the third party funding, as the third party funding is
based upon research and development expenditures and the Company retains the
rights to any technology that is developed.
Stock compensation. In accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," Trimble applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related Interpretations
in accounting for its stock option plans and stock purchase plan. Accordingly,
it does not recognize compensation cost for stock options granted at or above
market. Note 13 to the Consolidated Financial Statements describes the plans
operated by Trimble, and contains a summary of the pro forma effects to reported
net income (loss) and earnings (loss) per share for fiscal 1999, 1998, and 1997
as if Trimble had elected to recognize compensation cost based on the fair value
of the options granted at grant date, as prescribed by SFAS No. 123.
Depreciation. Depreciation of property and equipment owned or under
capitalized leases is computed using the straight-line method over the shorter
of the estimated useful lives or the lease terms. Useful lives range from three
years for machinery and equipment to five years for furniture and fixtures.
Intangible Assets. Intangible assets consist of patents, license and
trademarks. Intangible assets are amortized on a straight-line basis over their
estimated lives, generally periods of four years or less.
Long-lived Assets. In accordance with Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of",
the carrying value of intangible assets and other long-lived assets is reviewed
on a regular basis for the existence of facts or circumstances, both internal
and external, that may suggest impairment.
Interest. All interest costs incurred have been charged to interest
expense.
Earnings (loss) per share. Basic earnings per share represents the weighted
average common shares outstanding during the period and excludes any dilutive
effects of options, warrants, and convertible securities. The dilutive effects
of options, warrants, and convertible securities are included in diluted
earnings per share.
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.
Note 2 - Short term investments:
All marketable securities are intended by management to be available for
sale and are reported at fair value with net unrealized gains or losses reported
within shareholders' equity. Realized gains and losses are recorded based on the
specific identification method. The carrying amount of Trimble's investments is
shown in the table below:
32
Fiscal Year ended
December 31, 1999
--------------------------------------------------------------------
Gross Gross
Amortized Unamortized Unamortized Estimated
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------
(In thousands)
Investments:
U.S. government
obligations $ 32,631 $ - $ (99) $ 32,532
State and municipal
securities 7,658 - (1) 7,657
Certificates of deposit 2,500 - (2) 2,498
Corporate debt securities 7,462 - (20) 7,442
Other 2,600 - (1) 2,599
- -------------------------------------------------------------------------------------------------------
Total $ 52,851 $ - $ (123) $ 52,728
====================================================================
Fiscal Year ended
January 1, 1999
--------------------------------------------------------------------
Gross Gross
Amortized Unamortized Unamortized Estimated
Cost Gains Losses Fair Value
- -------------------------------------------------------------------------------------------------------
(In thousands)
Investments:
U.S. government
obligations $ - $ - $ - $ -
State and municipal -
securities 16,250 19 - 16,269
Certificates of deposit - - - -
Corporate debt securities - - - -
Other - - - -
- -------------------------------------------------------------------------------------------------------
Total $ 16,250 $ 19 $ - $ 16,269
====================================================================
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. At January 1, 1999, investments with scheduled maturities within one
year were $16.3 million and for maturities between one to three years was $0.
33
Note 3 - Balance sheet components:
December 31, January 1,
1999 1999
- --------------------------------------------------------------------------------
(In thousands)
Inventories
Raw materials $ 2,582 $ 22,480
Work-in-process 2,232 4,033
Finished goods 11,621 10,653
------------------ ----------------
$ 16,435 $ 37,166
================== ================
Property and equipment
Machinery and equipment $ 50,831 $ 59,520
Furniture and fixtures 5,930 5,763
Leasehold improvements 5,387 6,700
------------------ ----------------
62,148 71,983
Less accumulated depreciation (49,815) (56,879)
------------------ ----------------
$ 12,333 $ 15,104
================== ================
Note 4 - Disposition of assets:
On August 10, 1999, Trimble signed an Asset Purchase Agreement with
Solectron Corporation and Solectron Federal Systems, Inc. (collectively,
"Solectron"). The closing of the transaction occurred on August 13, 1999. At the
closing of the Asset Purchase Agreement, Trimble transferred to Solectron
substantially all of Trimble's tangible manufacturing assets located at
Trimble's Sunnyvale, California campus, including but not limited to equipment,
fixtures and work in progress, and certain contract and other intangible assets
and rights, together with certain related obligations, including but not limited
to real property subleases covering Trimble's manufacturing floor space, and
outstanding purchase order commitments. In addition, the Asset Purchase
Agreement also provided for Solectron's subsequent purchase, on August 30, 1999,
of Trimble's entire component inventory, on hand as of August 13, 1999.
The final purchase price for these assets was $26.9 million. As part of
this agreement Trimble incurred some employee and facility related liabilities,
which have been accrued for and offset against the gain on the sale of these
assets. The net gain on the transaction to Trimble of $5.9 million has been
deferred and is being recognized over the three-year exclusive life of the
Supply Agreement described below.
Concurrently with the closing of the Asset Purchase Agreement, Trimble and
Solectron also entered into a Supply Agreement. The Supply Agreement provides
for the exclusive manufacture by Solectron of almost all Trimble products for a
period of three years. Solectron will initially manufacture such Trimble
products under the Supply Agreement in the same Trimble buildings in which such
products were previously manufactured by Trimble, and Trimble has sublet such
space to Solectron as part of this transaction. Solectron offered employment to
approximately 230 Trimble manufacturing, engineering and related support
personnel, and Trimble understands that substantially all such employees
accepted such employment with Solectron.
Note 5 - The Company, industry segment, geographic, and customer information:
Effective January 1, 1999, Trimble adopted Statement of Financial
Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Statement requires Trimble to report
segment financial information consistent with the presentation made to the
Company's management for decision-making purposes.
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, machine
guidance/control:
34
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.
We design, market, and distribute electronic products that determine
precise geographic location combined with data communications and applications
software. We sell our products through a direct-sales force located in fifteen
countries, as well as through a worldwide network of dealers, distributors and
authorized representatives.
Research and development activities are conducted at Trimble's facilities
in Sunnyvale, California, and Christchurch, New Zealand. Solectron currently
manufactures most of Trimble's products. In addition we have a manufacturing
facility in Austin, Texas primarily focused on FAA certified products for
commercial aviation 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. Each Business Unit is managed by a group senior vice
president who is responsible for strategy, marketing, product development and
financial performance.
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 (loss),
and identifiable assets by Trimble's Business Units. There is no recognition of
inter-Business Unit sales or transfers. Operating income (loss) is net sales
less operating expenses, excluding general corporate expenses, interest income
(expense), and income taxes. The identifiable assets that Trimble's Chief
Operating Decision Maker (CODM) views by industry market are accounts receivable
and inventory. Trimble does not report depreciation and amortization or capital
expenditures by industry markets to the CODM.
35
-------------------------------------------------
December 31, 1999
-------------------------------------------------
PPG MTT Total
-------------------------------------------------
External net revenue $ 161,294 $ 110,070 $ 271,364
Operating profit/(loss) before corporate allocations 52,900 13,864 66,764
Corporate allocations (1) (23,853) (11,209) (35,062)
-------------------------------------------------
Operating profit from continuing operations $ 29,047 $ 2,655 $ 31,702
Assets:
Accounts receivable (2) $ 29,205 $ 20,204 $ 49,409
Inventory $ 6,720 $ 9,715 $ 16,435
-------------------------------------------------
January 1 ,1999
-------------------------------------------------
PPG MTT Total
-------------------------------------------------
External net revenue $ 165,951 $ 102,372 $ 268,323
Operating profit/(loss) before corporate allocations 23,905 1,137 25,042
Corporate allocations (1) (15,093) (7,751) (22,844)
-------------------------------------------------
Operating profit/(loss) from continuing operations $ 8,812 $ (6,614) $ 2,198
Assets:
Accounts receivable (2) $ 32,197 $ 14,837 $ 47,034
Inventory $ 10,042 $ 16,251 $ 26,293
-------------------------------------------------
January 2, 1998
-------------------------------------------------
PPG MTT Total
-------------------------------------------------
External net revenue $ 142,449 $ 123,993 $ 266,442
Operating profit/(loss) before corporate allocations 11,644 18,608 30,252
Corporate allocations (1) (10,872) (6,869) (17,741)
-------------------------------------------------
Operating profit from continuing operations $ 772 $ 11,739 $ 12,511
Assets:
Accounts receivable (2) $ 31,301 $ 28,215 $ 59,516
Inventory $ 13,782 $ 17,499 $ 31,281
- -------------------------------------------------------------------------
(1) For the fiscal year ended December 31, 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). For the fiscal years ended January 1, 1999 and January 2, 1998, the
Company determined the amount of the corporate allocations charged to its
Business Units, based on a percentage of the Business Units' monthly inventory
balance and gross profit. Allocation percentages were determined at the
beginning of each of the respective fiscal years.
(2) As presented, the accounts receivable number excludes cash in advance
and reserves, which are not allocated between Business Unit segments.
36
Following are reconciliations corresponding to totals in the accompanying
consolidated financial statements (in thousands):
Fiscal Years ended
---------------------------------------------------------------
December 31, January 1, January 2,
Revenues: 1999 1999 1998
- --------------------------------------------------------------------------------------- ------------------ ----------------
Total for reportable markets $ 271,364 $ 268,323 $ 266,442
==================== ================== ================
Operating income/(loss) from continuing operations:
- ------------------------------------------------------------------
Total for reportable markets $ 31,702 $ 2,198 $ 12,511
Unallocated Corporate expenses (11,241) (26,112)(1) 6,193 (2)
-------------------- ------------------ ----------------
Income/(loss) before income taxes from continuing operations $ 20,461 $ (23,914) $ 18,704
==================== ================== ================
Assets:
- ------------------------------------------------------------------
Accounts receivable total for reportable markets $ 49,409 $ 47,034 $ 59,516
Unallocated (3) (13,404) (13,603) (10,415)
-------------------- ------------------ ----------------
Total $ 36,005 $ 33,431 $ 49,101
==================== ================== ================
Inventory total for reportable markets $ 16,435 $ 26,293 $ 31,281
Common inventory (4) - 10,873 11,104
-------------------- ------------------ ----------------
Net inventory $ 16,435 $ 37,166 $ 42,385
==================== ================== ================
- ------------------------------------------------------------------------------------------
(1) Includes approximately $10.3 million of restructuring charges.
(2) For the fiscal years ended January 1, 1999 and January 2, 1998, the Company
determined the amount of the corporate allocations charged to its Business Units
based on a percentage of the Business Units' monthly inventory balance and gross
profit which percentage was determined at the beginning of the respective fiscal
year. However, due to the lower than expected actual level of corporate expenses
and higher than expected inventory balances in the fiscal year ended January 2, 1998,
the Company overallocated corporate expenses to the Business Units. This results
in a negative unallocated corporate expense amount as shown in the
reconciliation of operating profit (loss) from continuing operations for the
reportable segments to the amounts reported in the Company's statement of
operations.
(3) Includes cash in advance and reserves that are not allocated by segment.
(4) Consists of inventory that is common between the Business Unit segments.
Parts can be used by either segment.
37
The geographic distribution of Trimble's revenues and identifiable assets
by fiscal year-end are summarized in the table below in thousands.
Geographic Area
-------------------------------------------------------------------------
Europe/ Other
U.S. Middle East Asia Foreign Countries Eliminations Total
-------------------------------------------------------------------------------------
1999
Sales to unaffiliated customers (1) $ 131,395 $ 68,301 $ 37,707 $ 33,961 $ - $ 271,364
Intergeographic transfers 56,024 - 1,480 - (57,504) -
-------------------------------------------------------------------------------------
Total revenue $ 187,419 $ 68,301 $ 39,187 $ 33,961 $ (57,504) $ 271,364
-------------------------------------------------------------------------------------
Identifiable assets $ 155,163 $ 16,119 $ 10,550 $ 92 $ (173) $ 181,751
1998
Sales to unaffiliated customers (1) $ 143,828 $ 66,446 $ 34,712 $ 23,337 $ - $ 268,323
Intergeographic transfers 79,416 - 1,153 - (80,569) -
-------------------------------------------------------------------------------------
Total revenue $ 223,244 $ 66,446 $ 35,865 $ 23,337 $ (80,569) $ 268,323
-------------------------------------------------------------------------------------
Identifiable assets $ 134,170 $ 13,384 $ 9,460 $ 28 $ (763) $ 156,279
1997
Sales to unaffiliated customers (1) $ 144,817 $ 59,071 $ 39,810 $ 22,744 $ - $ 266,442
Intergeographic transfers 29,481 2,482 1,198 - (33,161) -
-------------------------------------------------------------------------------------
Total revenue $ 174,298 $ 61,553 $ 41,008 $ 22,744 $ (33,161) $ 266,442
-------------------------------------------------------------------------------------
Identifiable assets $ 185,809 $ 11,897 $ 10,584 $ 39 $ (666) $ 207,663
- ------------------------------------------------------------------
(1) Sales attributed to countries based on the location of the customer.
Transfers between U.S. and foreign geographic areas are made at prices
based on total costs and contributions of the supplying geographic area. The
Company's subsidiaries in the Pacific Rim and Asia have derived revenue from
commissions from domestic operations in each of the periods presented. These
commission revenues and expenses are excluded from total revenue and operating
income (loss) in the preceding table. Sales to unaffiliated customers in Japan
are made by the Company's Japanese subsidiary.
No single customer accounted for 10% or more of Trimble's total revenues in
fiscal 1999, 1998 or 1997.
Note 6 - Discontinued operations:
On October 2, 1998, Trimble adopted a plan to discontinue its General
Aviation division. Accordingly, the General Aviation division is being reported
as a discontinued operation for all periods presented in these financial
statements. Net assets of the discontinued operation at October 2, 1998, were
written off and consisted primarily of inventory, property, plant and equipment,
and intangible assets.
The original estimated loss on the disposal of the discontinued operation
in fiscal 1998 was $19.9 million, but was adjusted in March 1999 for certain
product lines that were retained (see further discussion below). 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.
38
The net assets, which were written off in 1998, are summarized as follows:
January 1,
1999
- -------------------------------------------------------------------
(in thousands)
Inventory $ 7,283
Other current assets 451
Plant and equipment, net 3,241
Other noncurrent assets 1,754
Less write-offs (12,729)
------------------
Net assets of discontinued operations $ -
==================
As of December 31, 1999, in connection with the discontinued operations,
Trimble had incurred cumulative net expenses of approximately $6.1 million,
consisting of $6.6 million for operating losses for the discontinued operation
through the estimated date of disposal, including severance costs and net of
receipts of $543,000 related to the sale of particular inventory items and fixed
assets. In the third quarter of 1999 Trimble had revised its accrual for the
remaining costs now expected to be incurred, based on current status of the
related liabilities. This resulted in a reversal of approximately $2.9 million
of prior amounts accrued, related to the discontinued operations. Trimble has a
remaining provision of $2.2 million, which includes $1.1 million for the
estimated operating losses for service and warranty support, including remaining
severance costs, and $1.1 million for facility and certain other contractual
costs.
On March 31, 1999, Trimble made the decision to retain certain product
lines included within the General Aviation division which were part of the
previously planned discontinued operation. The basis of the decision was that
these products use common raw materials and labor which are necessary for
Trimble's Air Transport products and, therefore, these particular product lines
could be retained without adding additional overhead from the overhead currently
required for the Air Transport products. The revenues and costs related to the
products retained have been included in the results of operations of continuing
operations in the periods presented.
The net revenues of the discontinued operation -- revenues that have been
restated to exclude the retained product lines -- are not included in net
revenues of continuing operations in the accompanying statements of operations.
The operating results for the fiscal years ended January 1, 1999 and January 2,
1998, of the discontinued operation are summarized as follows:
January 1, January 2,
1999 1998
- -----------------------------------------------------------------------------
(in thousands)
Net revenues $ 6,807 $ 5,866
Income (loss) before tax provision (5,760) (8,277)
Income tax provision (benefit) - (176)
------------------ -----------------
Net loss $ (5,760) $ (8,101)
================== =================
Basic net loss per share $ (0.26) $ (0.36)
Diluted net income loss per share $ (0.26) $ (0.35)
Note 7 - Bank line of credit:
In August 1997, Trimble entered into a three-year, $50,000,000 unsecured
revolving credit facility with four banks (the "Credit Agreement"). The Credit
Agreement enables Trimble to borrow up to $50,000,000, provided that certain
financial and other covenants are met. As of October 20, 1999, the Company, the
Agent and the Lenders agreed to change and amend certain covenants for the
remaining life of the loan, which expires in August of 2000. The $50,000,000
revolving credit facility was modified to include the Company's prior separate
$5,000,000 line of credit and to simplify the entire arrangement. The Credit
Agreement provides for payment of a commitment fee of 0.25% and borrowings to
bear interest at 1% over LIBOR if the total funded debt to EBITDA is less than
or equal to 1.00 times, 0.3% and borrowings to bear interest at 1.25% over LIBOR
if the ratio is greater than 1.00 times and less than or equal to 2.00 times, or
0.4% and borrowings to bear interest at 1.75% over LIBOR if the ratio is greater
than 2.00 times. In addition to borrowing at the specified LIBOR rate, Trimble
has the right to borrow with interest at the
39
higher of (i) one of the bank's annual prime rate and (ii) the federal
funds rate plus 0.5%. To date, Trimble has made no borrowings under the
$50,000,000 unsecured revolving credit facility, but has issued certain letters
of credit as of December 31, 1999 amounting to approximately $283,000. In
addition, Trimble is restricted from paying dividends under the terms of the
Credit Agreement.
Note 8 - Restructuring charges:
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 has downsized its operations, including reducing headcount and
facilities space usage, and has 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 have been impaired and certain liabilities
incurred. Trimble wrote down the related assets to their net realizable values
and made provisions for the estimated liabilities.
The activity in fiscal 1999 and 1998 related to the restructuring and the
amounts remaining at December 31, 1999, on the balance sheet are as follows (in
thousands):
Total
charged to Amounts paid/ Amounts paid/ Remaining in
expense in written off written off accrued liabilites
fiscal 1998 in fiscal 1998 in fiscal 1999 as of December 31, 1999
--------------- ------------------------ ----------------------- --------------------------
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) $ 1,301
============ ============================ ======================= ==========================
The cash expenditures associated with the remaining obligations are
expected to occur primarily in fiscal 2000.
Note 9 - Long-term debt and other noncurrent liabilities:
Long-term debt consists of the following:
December 31, January 1,
1999 1999
- -------------------------------------------------------------------------
(In thousands)
Subordinated notes $ 29,819 $29,703
Installment loan obligations 1,388 2,776
Other 747 549
----------------- ----------------
31,954 33,028
Less current portion 1,388 1,388
----------------- ----------------
Noncurrent portion $ 30,566 $31,640
================= ================
In June 1994, Trimble issued $30.0 million of subordinated promissory notes
bearing interest at an annual rate of 10%, with principal due on June 15, 2001.
Interest payments are due monthly in arrears. The notes are subordinated to the
Company's senior debt, which is defined as all preexisting indebtedness for
borrowed money and certain future indebtedness for borrowed money (including,
subject to certain restrictions, secured bank borrowings and borrowed money for
the acquisition of property and capital equipment) and trade debt incurred in
the ordinary course of business. If Trimble prepays any portion of the
principal, it is required to pay additional amounts if U.S. Treasury obligations
of a similar maturity exceed a specified yield. Under the agreement, Trimble is
restricted from paying dividends.
The issuance of the subordinated promissory notes also included the
issuance of warrants entitling holders to purchase 400,000 shares of common
stock at a price of $10.95 per share at any time through June 15, 2001. The net
proceeds of the notes were $29.3 million. The notes are recorded as noncurrent
liabilities, net of appraised fair value attributed to the warrants. The value
of the warrants and the issuance costs are being amortized to interest expense,
using the interest rate method over the term of the subordinated promissory
notes. The effective annual interest rate on the notes is 11.5%. Under the terms
of the note, Trimble is required to meet a minimum
40
consolidated net worth requirement. If Trimble falls below the minimum
consolidated net worth requirement we could be in default of our loan covenants.
Such events could have a material adverse effect on Trimble's operations and
liquidity.
Other long-term debt represents deferred rent obligations, rental
inducements on certain of Trimble's leased facilities, and installment loans for
a fixed asset purchase. There are three installment loans for capitalized
software, which in total have two annual payments of $1.4 million. The first
installment loan consists of two payments of $129,500. The first payment was
made on May 30, 1999, and the second payment is due on May 30, 2000. The second
installment loan consists of two payments of $942,800. The first payment was
made on May 30, 1999, and the second payment is due on May 30, 2000. The third
installment loan consists of two payments of $315,900. The first payment was
made on May 1, 1999, and the second payment is due on May 1, 2000. The lease
agreements provide for scheduled increases in lease payments over the terms of
the leases.
Note 10 - Lease obligations and commitments:
Trimble's principal facilities in the United States are leased under
noncancelable operating leases that expire at various dates from 2000 through
2004. Trimble has options to renew certain of these leases for an additional
five years. The Company's United Kingdom subsidiary leases a facility under an
operating lease that expires in 2005.
Future minimum payments required under noncancelable operating leases
are as follows:
Operating
Lease Payments
- ------------------------------------------------------------------------------
(In thousands)
2000 $ 8,889
2001 9,724
2002 9,472
2003 9,104
2004 4,831
Thereafter 5,450
---------------------------
Total $ 47,470
===========================
Rent expense under operating leases was $8.1 million in fiscal 1999, $6.3
million in 1998, and $5.5 million in 1997.
Note 11 - Fair value of financial instruments:
Statement of Financial Accounting Standard No. 107, "Disclosures about Fair
Value of Financial Instruments" requires disclosure of the following information
about the fair value of certain financial instruments for which it is currently
practicable to estimate such value. None of the financial instruments are held
or issued for trading purposes. The carrying amounts and fair values of
Trimble's financial instruments are as follows:
Carrying Fair
Amount Value
---------------- -----------------
December 31, 1999
- ---------------------------------------------------------------------------------------------------------
(In thousands)
Assets:
Cash and cash equivalents (See Note 1) $ 49,264 $ 49,264
Short-term investments (See Note 1 & 2) $ 52,728 $ 52,728
Forward foreign exchange contracts (See Note 1) $ 58 $ 58
Liabilities:
Subordinated notes (See Note 9) $ 29,819 $ 29,194
The fair value of the subordinated notes has been estimated using an
estimate of the interest rate Trimble would have had to pay on the issuance of
notes with a similar maturity, and discounting the cash flows at that rate. The
fair values do not give an indication of the amount that Trimble would currently
have to pay to extinguish any of this debt.
41
The fair value of forward foreign exchange contracts is estimated, based on
quoted market prices of comparable contracts, and these contracts are restated
to the fair value at the end of every month.
Note 12 - Income taxes:
Trimble's income tax provision consists of the following (in thousands):
Fiscal Years Ended
-------------------------------------------------------
December, 31 January, 1 January, 2
1999 1999 1998
Federal:
Current $ 1,089 $ 233 $ 1,344
Deferred - - -
-------------------------------------------------------
1,089 233 1,344
-------------------------------------------------------
State:
Current 196 20 10
Deferred - - -
-------------------------------------------------------
196 20 10
-------------------------------------------------------
Foreign:
Current 770 1,195 1,116
Deferred 18 (48) 26
-------------------------------------------------------
788 1,147 1,142
-------------------------------------------------------
Income tax provision $ 2,073 $ 1,400 $ 2,496
-------------------------------------------------------
The domestic income (loss) from continuing operations before income taxes
(including royalty income subject to foreign withholding taxes) was
approximately $19.7 million, ($26.2 million), and $18.8 million in fiscal years
1999, 1998 and 1997, respectively.
42
The income tax provision differs from the amount computed by applying
the statutory federal income tax rate to income before taxes. The sources and
tax effects of the differences are as follows (in thousands):
Fiscal Years ended
---------------------------------------------------
December, 31 January, 1 January, 2
1999 1999 1998
Expected tax from continuing operations at 35%
in all years $ 7,258 $(8,827) $ 7,356
Tax account valuation adjustments - - (4,100)
Operating loss not utilized (utilized) (6,176) 9,178 (1,410)
Foreign withholding taxes 299 467 403
Foreign tax rate differential 109 329 (28)
Other 583 253 275
-----------------------------------------------------
Income tax provision $ 2,073 $ 1,400 $ 2,496
-----------------------------------------------------
Effective tax rate 10% (6%) 12%
=====================================================
The components of deferred taxes consist of the following (in thousands):
December, 31 January, 1
1999 1999
Deferred tax liabilities:
Other individually immaterial items $ 246 $ 178
------------------------
Total deferred tax liabilities 246 178
------------------------
Deferred tax assets:
Inventory valuation differences 9,437 10,423
Expenses not currently deductible 7,461 9,907
Federal credit carryforwards 6,108 7,252
Deferred revenue 3,243 968
State credit carryforwards 3,786 3,138
Warranty 2,352 2,090
Depreciation 1,770 3,689
Federal net operating loss (NOL) carryforward - 3,023
Other individually immaterial items 1,763 1,692
------------------------
Total deferred tax assets 35,920 42,182
Valuation allowance (35,287) (41,599)
-------------------------
Total deferred tax assets 633 583
-------------------------
Total net deferred tax assets $ 387 $ 405
-------------------------
The NOL and credit carryforwards listed above expire in 2000 through 2019.
The valuation allowance increased by $22 million in fiscal 1998.
Approximately $7.4 million of the valuation allowance at December 31, 1999,
relates to the tax benefits of stock option deductions, which will be credited
to equity when realized.
43
Note 13 - Shareholder's Equity:
1993 Stock Option Plan. In 1992, Trimble's Board of Directors adopted the
1993 Stock Option Plan (1993 Plan). The 1993 Plan, as amended to date and
approved by shareholders, provides for the granting of incentive and
nonstatutory stock options for up to 5,000,000 shares of Common Stock to
employees, consultants and directors of Trimble. At Trimble's 2000 annual
meeting of shareholders to be held on May 11, 2000, the shareholders are being
asked to approve and increase of 925,000 shares under the 1993 Plan. Incentive
stock options may be granted at exercise prices that are not less than 100% of
the fair market value of Common Stock on the date of grant. All employee stock
options granted under the 1993 Plan have 120-month terms, and vest at a rate of
20% at the first anniversary of grant, and monthly thereafter at an annual rate
of 20%, with full vesting occurring at the fifth anniversary of grant. The
exercise price of nonstatutory stock options issued under the 1993 Plan must be
at least 85% of the fair market value of Common Stock on the date of grant. As
of December 31, 1999, options to purchase 3,685,321 shares were outstanding and
631,822 shares were available for future grant under the 1993 Stock Option Plan.
1990 Director Stock Option Plan. In December 1990, Trimble adopted a
Director Stock Option Plan under which an aggregate of 380,000 shares of Common
Stock have been reserved for issuance to date to nonemployee directors as
approved by the shareholders. At December 31, 1999, options to purchase 198,333
shares were outstanding and 95,833 shares were available for future grants under
the Director Stock Option Plan.
1992 Management Discount Stock Option Plan. In 1992 Trimble's Board of
Directors approved the 1992 Management Discount Stock Option Plan ("Discount
Plan"). Under the Discount Plan, 300,000 nonstatutory stock options were
reserved for grant to management employees at exercise prices that may be
significantly discounted from the fair market value of Common Stock on the dates
of grant. Options are generally exercisable six months from the date of grant.
As of December 31, 1999, there were 4,974 shares available for future grants.
For accounting purposes, compensation cost on these grants is measured by the
excess over the discounted exercise prices of the fair market value of Common
Stock on the dates of option grant. Noncash compensation cost related to options
exercised in fiscal 1999, 1998, and 1997 amounted to $0, $0, and $275,000,
respectively. As of December 31, 1999, 125,000 shares were outstanding.
1988 Employee Stock Purchase Plan. In 1988, Trimble established an employee
stock purchase plan under which an aggregate of 2,950,000 shares of Common Stock
have been reserved for sale to eligible employees to date as approved by the
shareholders. At Trimble's 2000 annual meeting of shareholders to be held on May
11, 2000, the shareholders are being asked to approve and increase of 200,000
shares under the employee stock purchase plan. The plan permits full-time
employees to purchase Common Stock through payroll deductions at 85% of the
lower of the fair market value of the Common Stock at the beginning or at the
end of each six-month offering period. In fiscal 1999, 317,210 shares were
issued under the plan for aggregate proceeds to the Company of $2.5 million. At
December 31, 1999, the number of shares reserved for future purchases was
685,632.
As stated in Note 1 to the Consolidated Financial Statements, Trimble has
elected to follow APB 25 and related Interpretations in accounting for its
employee stock options and stock purchase plans. The alternative fair value
accounting provided for under SFAS 123 requires use of option pricing models
that were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of Trimble's employee stock options equals the market
price of the underlying stock on date of grant, no compensation expense is
recognized.
Pro forma information regarding net income and earnings per share is
required by SFAS 123 and has been determined as if Trimble had accounted for its
employee stock options and purchases under the Employee Stock Purchase Plan
using the fair value method of that Statement. The fair value for these options
was estimated at the date of grant using a Black-Scholes option-pricing model
with the following weighted-average assumptions for fiscal 1999, 1998, and 1997:
December 31, January 1, January 2,
1999 1999 1998
---------------------- ---------------------- ----------------------
Expected dividend yield - - -
Expected stock price volatility 59.58% 55.65% 58.07%
Risk-free interest rate 6.34% 5.76% 6.36%
Expected life of options after vesting 1.21 1.20 1.19
44
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because Trimble's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period, and the
estimated fair value of purchases under the Employee Stock Purchase Plan is
expensed in the year of purchase. The effects on pro forma disclosure of
applying FAS 123 are not likely to be representative of the effects on pro forma
disclosure of future years. Trimble's pro forma information (in thousands except
for per share data) is as follows:
December 31, January 1, January 2,
1999 1999 1998
---------------------- ---------------------- ----------------------
Net income (loss) - as reported $ 21,593 $ (53,394) $ 9,279
Net income (loss) - pro forma $ 16,377 $ (58,661) $ 2,899
Basic income (loss) per share - as reported $ 0.96 $ (2.38) $ 0.42
Basic income (loss) per share - pro forma $ 0.73 $ (2.61) $ 0.13
Diluted income (loss) per share - as reported $ 0.95 $ (2.38) $ 0.40
Diluted income (loss) per share - pro forma $ 0.72 $ (2.61) $ 0.13
Exercise prices for options outstanding as of December 31, 1999, ranged
from $8.00 to $29.63. The weighted average remaining contractual life of those
options is 7.81 years. In view of the wide range of exercise prices, Trimble
considers it appropriate to provide the following additional information in
respect of options outstanding:
Total Currently exercisable
Number Weighted-average Weighted-average Number Weighted-average
Range (in thousands) exercise price remaining contractul life (in thousands) exercise price
- ------------------------------------------------------------- ----------------------------------------------------------------------
$8.0000 - $8.0000 430 $8.00 8.63 30 $8.00
$8.0625 - $8.6563 401 $8.43 7.75 60 $8.57
$8.8750 - $9.9375 477 $9.83 7.53 198 $9.69
$10.0000 - $11.5625 425 $10.80 6.77 204 $10.28
$11.6250 - $11.6250 150 $11.63 9.64 - $0.00
$11.9375 - $11.9375 568 $11.94 9.59 2 $11.94
$12.0000 - $13.9375 373 $12.76 7.03 185 $12.71
$15.3750 - $15.3750 562 $15.38 6.82 328 $15.38
$16.8750 - $18.4375 424 $17.70 7.52 223 $17.69
$18.6250 - $29.6250 199 $20.09 7.54 104 $20.36
- ------------------------------------------------------------------------------------------------------------------------------------
$8.0000 - $29.6250 4,009 $12.36 7.81 1,334 $13.68
45
Activity during fiscal 1999, 1998 and 1997 under the combined plans was as
follows:
December 31, January 1, January 2,
1999 1999 1998
---------------------------------------------------------------------------------------
Weighted average Weighted average Weighted average
Options exercise price Options exercise price Options exercise price
---------------------------------------------------------------------------------------
Outstanding at beginning of year 3,026 $13.64 2,696 $15.10 2,577 $13.06
Granted 1,813 10.22 1,117 11.40 962 16.45
Exercised (135) 11.64 (132) 11.41 (635) 8.78
Canceled (695) 14.03 (655) 16.30 (208) 15.40
-------- -------------- --------------
Outstanding at end of year 4,009 $12.36 3,026 $13.64 2,696 $15.10
Exercisable at end of year 1,334 $13.68 1,110 $13.91 700 $13.20
Weighted-average fair value of options
granted during year $5.51 $5.21 $8.30
401(k) Plan. Under Trimble's 401(k) Plan, U.S. employee participants may
direct the investment of contributions to their accounts among certain mutual
funds and the Trimble Navigation Limited Common Stock Fund. The Fund purchased
47,066 shares of Common Stock for an aggregate of $504,000 in 1999. Trimble, at
its discretion, matches individual employee 401(k) Plan contributions up to $100
per month. Trimble's matching contributions to the 401(k) Plan were $1.0 million
in fiscal 1999, $1.2 million in 1998, and $1.0 million in 1997.
Profit-Sharing Plan. In 1995, Trimble introduced an employee profit-sharing
plan in which all employees, excluding executives and certain levels of
management, participate. The plan distributes to employees approximately 5% of
quarterly income before taxes. Payments under the plan during fiscal 1999, 1998,
and 1997 were $1.2 million, $138,000, and $549,000, respectively.
Warrants. On May 3, 1999 Trimble granted 30,000 warrants at an exercise
price of $9.75, which expire on March 29, 2004. As of December 31, 1999 no
warrants had been exercised.
Common shares reserved for future issuances. As of December 31, 1999,
Trimble had reserved 5,426,915 common shares for issuance upon exercise of
options outstanding and options available for grant under the 1993 Stock Option,
1990 Director Stock Option, and 1992 Management Discount Stock Option plans, and
available for issuance under the 1988 Employee Stock Purchase plan.
46
Note 14 - Earnings per share:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share." Trimble adopted
this standard, as required for its January 2, 1998, Financial Statements. For
the years presented, Trimble presents both basic and diluted earnings (loss) per
share.
The following data show the amounts used in computing earnings (loss) per
share and the effect on the weighted-average number of shares of dilutive
potential Common Stock.
December 31, January 1, January 2,
1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands except per share amounts)
Numerator:
Income available to common shareholders:
Used in basic and diluted income (loss) per share from
continuing operations $ 18,662 $ (27,355) $17,380
Used in basic and diluted income (loss) per share from
discontinued operations 2,931 (26,039) (8,101)
----------------- ------------------- ------------------
Used in basic and diluted income (loss) per share $ 21,593 $ (53,394) $ 9,279
----------------- ------------------- ------------------
Denominator:
Weighted-average number of common
shares used in basic income (loss) per share 22,424 22,470 22,293
Effect of dilutive securities:
Common stock options 382 - 530
Common stock warrants 46 - 124
----------------- ------------------- ------------------
Weighted-average number of common
shares and dilutive potential common shares
used in diluted income (loss) per share 22,852 22,470 22,947
================= =================== ==================
Basic income (loss) per share from continuing operations $ 0.83 $ (1.22) $ 0.78
Basic loss per share from discontinued operations 0.13 (1.16) (0.36)
----------------- ------------------- ------------------
Basic income (loss) per share $ 0.96 $ (2.38) $ 0.42
================= =================== ==================
Diluted income (loss) per share from continuing operations $ 0.82 $ (1.22) $ 0.75
Diluted loss per share from discontinued operations 0.13 (1.16) (0.35)
----------------- ------------------- ------------------
Diluted income (loss) per share $ 0.95 $ (2.38) $ 0.40
================= =================== ==================
If Trimble had reported net income in 1998, additional 387 common
equivalent shares related to outstanding options and warrants would have been
included in the calculation of diluted loss per share.
Note 15 - Comprehensive income (loss):
As of January 3, 1998, Trimble adopted Statement of Financial Accounting
Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130
establishes new rules for the reporting and displaying of comprehensive income.
SFAS 130 requires unrealized gains or losses on the Company's available-for-sale
securities and cumulative translation adjustments to be included in
comprehensive income. The components of accumulated other comprehensive income
(loss), net of related tax include:
December 31, Janaury 1, January 2,
Fiscal Years ended 1999 1999 1998
- -----------------------------------------------------------------------------------------------------------
(In thousands)
Cumulative translation adjustments $ (107) $ (255) $ (949)
Net unrealized gain (loss) on short-term investments (142) 11 (12)
---------------- ---------------- ---------------
Accumulated other comprehensive income (loss) $ (249) $ (244) $ (961)
================ ================ ===============
47
Note 16 - Statement of cash flow data:
December 31, January 1, January 2,
Fiscal Years ended 1999 1999 1998
- ----------------------------------------------------------------------------------------------------------
(In thousands)
Supplemental disclosure of cash flow information:
Interest paid $3,391 $3,377 $3,313
------------- -------------- --------------
Income taxes paid $ 866 $1,585 $ 167
------------- -------------- --------------
Note 17 - Litigation:
Settled Matters. On December 6, 1995, two shareholders filed a class action
lawsuit against the Company and certain directors and officers of the Company.
Subsequent to that date, additional lawsuits were filed by other shareholders.
The lawsuits were subsequently amended and consolidated into one complaint,
which was filed on April 5, 1996. The amended consolidated complaint sought to
bring an action as a class action consisting of all persons who purchased the
Common Stock of the Company during the period April 18, 1995, through December
5, 1995 (the "Class Period"). The plaintiffs alleged that the defendants sought
to induce the members of the Class to purchase the Company's Common Stock during
the Class Period at artificially inflated prices. The plaintiffs sought
recissory or compensatory damages with interest thereon, as well as reasonable
attorneys' fees and extraordinary equitable and/or injunctive relief. The
parties negotiated a definitive stipulation of settlement, which was formally
approved, by the court on September 23, 1999. The final court-approved
settlement was funded by insurance proceeds and payment by the Company of $1.8
million. The entire amount of the Company's obligation has been previously
reserved, and the final settlement did not adversely effect the Company's
financial position or results of operations.
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 have a
negotiated a settlement which includes cross licensing.
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
such disputes, if any, would not be material to its overall financial position,
results of operations, or liquidity.
48
Note 18 - Selected quarterly financial data (unaudited):
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
1999
Total revenue $ 68,770 $ 70,839 $ 69,636 $ 62,119
Gross margin 35,567 37,611 36,979 34,090
Operating income 3,733 5,565 5,812 5,351
Net income from continuing operations 3,014 4,656 5,124 5,868
Net income from discontinued operations - - 2,931 -
Net income 3,014 4,656 8,055 5,868
Basic net income per share from continuing operations 0.14 0.21 0.23 0.26
Basic net income per share from discontinued operations - - 0.13 -
-------------- -------------- ------------ -------------
Basic net income $ 0.14 $ 0.21 $ 0.36 $ 0.26
============== ============== ============ =============
Diluted net income per share from continuing operations 0.14 0.20 0.22 0.25
Diluted net income per share from discontinued operations - - 0.13 -
-------------- -------------- ------------ -------------
Diluted net income $ 0.14 $ 0.20 $ 0.35 $ 0.25
============== ============== ============ =============
1998
Total revenue $ 74,161 $ 73,536 $ 59,973 $ 60,653
Gross margin 38,326 36,259 25,528 27,135
Operating income (loss) 4,282 1,695 (13,741) (16,150)
Net income (loss) from continuing operations 4,002 1,892 (15,536) (17,713)
Net income (loss) from discontinued operations (2,087) (1,637) (21,898) (417)
Net income (loss) 1,915 255 (37,434) (18,130)
Basic net income (loss) per share from continuing operations 0.18 0.08 (0.70) (0.80)
Basic net income (loss) per share from discontinued operations (0.09) (0.07) (0.98) (0.02)
-------------- -------------- ------------ -------------
Basic net income (loss) $ 0.08 $ 0.01 $ (1.68) $ (0.82)
============== ============== ============ =============
Diluted net income (loss) per share from continuing operations 0.17 0.08 (0.70) (0.80)
Diluted net income (loss) per share from discontinued operations (0.09) (0.07) (0.98) (0.02)
--------------- -------------- -------------- -------------
Diluted net income (loss) $ 0.08 $ 0.01 $ (1.68) $ (0.82)
=============== ============== ============== =============
Significant quarterly items include the following: (i) in the third quarter
of 1998 Trimble recorded a $2.5 million restructuring charge, (ii) in the fourth
quarter of 1998 Trimble recorded a $7.8 million restructuring charge.
49
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders, Trimble Navigation Limited
We have audited the accompanying consolidated balance sheets of Trimble
Navigation Limited as of December 31, 1999, and January 1, 1999, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the index at Item 14(a)(2).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule, based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and schedule referred to above
present fairly, in all material respects, the consolidated financial position of
Trimble Navigation Limited at December 31, 1999, and January 1, 1999, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
Palo Alto, California
January 25, 2000
50
Item 9. Changes in and Disagreements with Accountants on Accounting
Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The section titled "Nominees" and the section titled "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's Proxy Statement for
its 2000 annual meeting of shareholders to be held on May 11, 2000 ("Proxy
Statement"), with respect to directors of the Company and compliance of the
directors and executive officers of the Company with Section 16(a) of the
Exchange Act required by this item are incorporated herein by reference.
The information with respect to the executive officers of the Company
required by this item is included in Part I hereof under the caption "Executive
Officers of the Company."
Item 11. Executive Compensation
The following sections of the Proxy Statement are incorporated herein by
reference: "Compensation of Executive Officers," "Compensation of Directors,"
"Compensation Committee Interlocks and Insider Participation," and "Compensation
Committee Report" and "Company Performance."
Item 12. Security Ownership of Certain Beneficial Owners and Management
The section titled "Security Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The section titled "Certain Relationships and Related Transactions" of the
Proxy Statement is incorporated herein by reference.
51
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on form 8-K
(a) 1. Financial Statements
The following consolidated financial statements required by this item are
included in Part II Item 8 hereof under the caption "Financial Statements and
Supplementary Data."
Page In This
Annual Report
On Form 10-K
Consolidated Balance Sheets at December 31, 1999, and January 1, 1999 26
Consolidated Statements of Operations for each of the three fiscal years
in the period ended December 31, 1999 27
Consolidated Statement of Shareholders' Equity for the three fiscal years
ended December 31, 1999 28
Consolidated Statements of Cash Flows for each of the three fiscal years
in the period ended December 31, 1999 29
Notes to Consolidated Financial Statements 30-49
2. Financial Statement Schedules
The following financial statement schedule is filed as part of this report:
Page In This
Annual Report
On Form 10-K
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules have been omitted as they are either not required or
not applicable, or the required information is included in the consolidated
financial statements or the notes thereto.
3. Exhibits
Exhibit
Number
3.1 Restated Articles of Incorporation of the Company filed
June 25, 1986. (17)
3.2 Certificate of Amendment of Articles of Incorporation of the Company
filed October 6, 1988. (17)
3.3 Certificate of Amendment of Articles of Incorporation of the Company
filed July 18, 1990. (17)
3.4 Certificate of Determination of the Company filed February 19, 1999.(17)
3.8 Amended and Restated Bylaws of the Company. (21)
4.1 Specimen copy of certificate for shares of Common Stock of the
Company. (1)
4.2 Preferred Shares Rights Agreement dated as of February 18, 1999. (16)
52
10.4 Form of Indemnification Agreement between the Company and its officers
and directors. (1)
10.5 Loan Agreement dated December 21, 1984, between the Company and certain
lenders. (1)
10.6 Note Purchase Agreement dated July 7, 1986, between the Company and
certain purchasers. (1)
10.7 Form of Common Stock Purchase Agreement dated March 1989 between the
Company and certain investors. (1)
10.8* Memorandum of Understanding dated March 11, 1988, and License Agreement
dated September 5, 1988, between the Company and AEG Aktiengesellschaft,
with Amendments No. 1, No. 2, and No. 3 thereto, and Letter Agreement
dated December 22, 1989, between Trimble and Telefunken Systemtechnik
GmbH. (1)
10.9 Note Purchase Agreement dated December 6, 1988, between the Company and
AEG Aktiengesellschaft. (1)
10.10 Master Equipment Lease Agreement dated April 26, 1990, between the
Company and MATSCO Financial Corporation, and schedule of
lease extensions. (1)
10.11* Agreement dated February 6, 1989, between the Company and Pioneer
Electronic Corporation. (1)
10.15 International OEM Agreement dated May 30, 1989, between the Company and
Geotronics AB. (1)
10.16 Patent License Agreement dated January 18, 1990, between the Company and
the United States Navy. (1)
10.18 Asset Purchase Agreement dated April 19, 1990, between the Company;
TR Navigation Corporation, a subsidiary of the Company;
and Tracor Aerospace, Inc. (1)
10.19 Promissory Note dated April 20, 1990, for the principal amount of
$400,000 issued by TR Navigation Corporation to DAC
International, Inc. (1)
10.20 Guarantee dated April 20, 1990, between the Company and DAC
International, Inc. (1)
10.21 Indemnification Agreement dated April 20, 1990, between the Company;
TR Navigation Corporation, a subsidiary of the Company;
DAC International, Inc.; and Banner Industries, Inc. (1)
10.22 Distributor Agreement dated April 20, 1990, between TR Navigation
Corporation, a subsidiary of the Company, and DAC
International, Inc. (1)
10.23 Distributor Agreement dated December 6, 1989, between the Company and
DAC International, Inc. (1)
10.24 Lease Agreement dated April 26, 1990, between the Company and NCNB
Texas National Bank, Trustee for the Company's offices
located at 2105 Donley Drive, Austin, Texas. (1)
10.32 1990 Director Stock Option Plan, as amended, and form of Outside
Director Non-statutory Stock Option Agreement. (8)
10.35 Sublease Agreement dated January 2, 1991, between the Company, Aetna
Insurance Company, and Poqet Computer Corporation for
property located at 650 North Mary Avenue, Sunnyvale, California. (2)
10.36 Lease Agreement dated February 20, 1991, between the Company,
John Arrillaga Separate Property Trust, and Richard T. Peery
Separate Property Trust for property located at 880 West Maude,
Sunnyvale, California. (2)
10.37 Share and Asset Purchase Agreement dated February 22, 1991, among the
Company and Datacom Group Limited and Datacom Software Research
Limited. (3)
10.38 License Agreement dated June 29, 1991, between the Company and Avion
Systems, Inc. (3)
53
10.40 Industrial Lease Agreement dated December 3, 1991, between the Company
and Aetna Life Insurance Company for property located at 585 North Mary
Avenue, Sunnyvale, California. (5)
10.41 Industrial Lease Agreement dated December 3, 1991, between the Company
and Aetna Life Insurance Company for property located at 570 Maude
Court, Sunnyvale, California. (5)
10.42 Industrial Lease Agreement dated December 3, 1991, between the Company
and Aetna Life Insurance Company for property located at 580 Maude
Court, Sunnyvale, California. (5)
10.43 Industrial Lease Agreement dated December 3, 1991, between the Company
and Aetna Life Insurance Company for property located at 490 Potrero
Avenue, Sunnyvale, California. (5)
10.44 Master Lease Agreement dated September 18, 1991, between the Company and
United States Leasing Corporation. (5)
10.45 Equipment Financing Agreement dated May 15, 1991, between the Company
and Corestates Bank, N.A. (5)
10.46+ 1992 Management Discount Stock Option and form of Nonstatutory Stock
Option Agreement (5).
10.48 Equipment Financing Agreement dated April 27, 1992, with AT&T Systems
Leasing Corporation. (7)
10.49** Memorandum of Understanding dated December 24, 1992, between the Company
and Pioneer Electronics Corporation. (7)
10.51 Revolving Credit Agreement for $15,000,000 dated January 27, 1993, with
Barclays Business Credit, Inc. (7)
10.52 $30,000,000 Note and Warrant Purchase Agreement dated June 13, 1994,
with John Hancock Life Insurance Company. (9)
10.53 Revolving Credit Agreement for $20,000,000 and $10,000,000, dated
August 4, 1995, with the First National Bank of Boston and
Mellon Bank N.A., respectively. (1)
10.54 Revolving Credit Agreement - First Amendment. (12)
10.55 Revolving Credit Agreement - Second Amendment. (12)
10.56 Revolving Credit Agreement - Third Amendment. (13)
10.58 Revolving Credit Agreement for $50,000,000 dated August 27, 1997,
with Fleet National Bank, Bank of Boston N.A., Sanwa Bank
of California, and ABN Amro Bank N.V., respectively. (15)
10.59 1993 Stock Option Plan, as amended. (18)
10.60 1988 Employee Stock Purchase Plan, as amended. (18)
10.61 Revolving Credit Agreement - Loan - Third Amendment. (17)
10.62+ Employment Agreement between the Company and Bradford W. Parkinson dated
September 1, 1998. (17)
10.63+ Employment Agreement between the Company and Robert S. Cooper dated
September 1, 1998. (17)
10.64+ Consulting Agreement between the Company and Bradford W. Parkinson dated
September 1, 1998. (17)
10.65+ Standby Consulting Agreement between the Company and Bradford W.
Parkinson dated September 1, 1998. (17)
54
10.66+ Consulting Agreement between the Company and Robert S. Cooper dated S
eptember 1, 1998. (17)
10.67+ Employment Agreement between the Company and Steven W. Berglund dated
March 17, 1999. (17)
10.68+ Nonqualified deferred Compensation Plan of the Company effective
February 10, 1994. (17)
10.69***Asset Purchase Agreement dated August 10, 1999 by and among Trimble
Navigation Limited and Solectron Corporation and Solectron Federal
Systems, Inc. (19)
10.70***Supply Agreement dated August 10, 1999 by and among Trimble
Navigation Limited and Solectron Corporation and Solectron
Federal Systems, Inc. (19)
10.71 Revolving Credit Agreement - Loan - Fourth Amendment. (20)
21.1 Subsidiaries of the Company. (21)
23.1 Consent of Ernst & Young LLP, independent auditors (see page 79).
24.1 Power of Attorney (included on page 57).
27.1 Financial Data Schedule (21).
* Confidential treatment has been previously granted for certain portions
of this exhibit pursuant to an order dated July 11, 1990.
** Confidential treatment has been previously granted for certain portions
of this exhibit pursuant to an order dated March 2, 1995.
*** Confidential treatment has been granted for certain portions of this
exhibit pursuant to an order dated effective October 5, 1999.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K pursuant to Item
14(c) thereof.
(1) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a), "Exhibits," of the registrant's Registration
Statement on Form S-1, as amended (File No. 33-35333), which became
effective July 19, 1990.
(2) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1990.
(3) Incorporated by reference to identically numbered exhibits filed in
response to Item 16, "Exhibits and Forms 8-K," of the registrant's
Report on 10-Q for the quarter ended September 30, 1991, as amended on
Form 8, filed February 11, 1992.
(4) Incorporated by reference to Exhibit No. 4.1 filed in response to
Item 8, "Exhibits," of the registrant's Registration Statement on
Form S-8 (File No. 33-45167), which became effective January 21, 1992.
(5) Incorporated by reference to identically numbered exhibits filed in
response to Item 16(a) "Exhibits," of the registrant's Registration
Statement on Form S-1 (File No. 33-45990), which was filed February 18,
1992.
(6) Incorporated by reference to Exhibits 4.1, 4.2 and 4.3 filed in
response to Item 8, "Exhibits," of the registrant's Registration
Statement on Form S-8 (File No. 33-57522), which was filed on January
28, 1993.
(7) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992.
(8) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993.
55
(9) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended June 30, 1994.
(10) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(11) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995.
(12) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended June 30, 1996.
(13) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended September 30, 1996.
(14) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended June 30, 1997.
(15) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended September 30, 1997.
(16) Incorporated by reference to Exhibit No. 1 to the registrant's
Registration Statement on Form 8-A, which was filed on
February 18,1999.
(17) Incorporated by reference to identically numbered exhibits filed in
response to Item 14(a), "Exhibits," of the registrant's Annual Report
on Form 10-K for the fiscal year ended January 1, 1999.
(18) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended July 2, 1999.
(19) Incorporated by reference to identically numbered exhibits filed in
response to Item 7(c), "Exhibits," of the registrant's Report on Form
8-K, which was filed on August 25, 1999.
(20) Incorporated by reference to identically numbered exhibits filed in
response to Item 6A, "Exhibits," of the registrant's Annual Report on
Form 10-Q for the quarter ended October 1, 1999.
(21) Filed herewith.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the registrant during the fourth
quarter ended December 31, 1999.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
By: /s/ Steven W. Berglund
--------------------------------------------
Steven W. Berglund,
President and Chief Executive Officer
March 27, 2000
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature
appears below constitutes and appoints Steven W. Berglund as his
attorney-in-fact, with the power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue hereof.
57
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated:
Signature Capacity in which Signed Date
- ----------------------------- ------------------------------ -------------------
/s/ Steven W. Berglund President, Chief Executive March 27, 2000
- ----------------------------- Officer, Director
Steven W. Berglund
/s/ Mary Ellen Genovese Vice President Finance, and March 27, 2000
- ----------------------------- Chief Financial Officer
Mary Ellen Genovese (principal financial
and principal accounting officer)
/s/ Robert S. Cooper Director March 15, 2000
- -----------------------------
Robert S. Cooper
/s/ John B. Goodrich Director March 15, 2000
- -----------------------------
John B. Goodrich
/s/ William Hart Director March 15, 2000
- -----------------------------
William Hart
/s/ Ulf J. Johansson Director March 20, 2000
- -----------------------------
Ulf J. Johansson
/s/ Norman Y. Mineta Director March 15, 2000
- -----------------------------
Norman Y. Mineta
/s/ Bradford W. Parkinson Director March 14, 2000
- -----------------------------
Bradford W. Parkinson
58
SCHEDULE II
TRIMBLE NAVIGATION LIMITED
VALUATION AND QUALIFIYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
Balance at Balance at
beginning of (Reductions) end of
Allowance for doubtful accounts: period Additions Write-offs ** period
------------------ ----------------- ----------------- -----------------
Year ended January 2, 1998 2,393 205 134 2,464
Year ended January 1, 1999 2,464 458 702 2,220
Year ended December 31, 1999 2,220 1,901 1,172 2,949
Balance at Balance at
beginning of (Reductions) end of
Inventory Reserves: period Additions Write-offs ** period
------------------ ----------------- ----------------- -----------------
Year ended January 2, 1998 9,882 2,389 2,862 9,409
Year ended January 1, 1999 9,409 7,057 2,347 14,119
Year ended December 31, 1999 14,119 1,607 1,617 14,109
- --------------------------------------
** Net of recoveries
S-1
59
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- --------------------------------------------------------------------------------
3.8 Amended and Restated Bylaws of the Company 61-77
21.1 Subsidiaries of the Company 78
23.1 Consent of Ernst & Young LLP, Independent Auditors 79
27.1 Financial Data Schedule for the years ended
December 31, 1999, and January 1, 1999 80
60