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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 28, 2002
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 Number)
incorporation or organization)
645 North Mary Avenue, Sunnyvale, CA 94088
(Address of principal executive offices) (Zip Code)
Telephone Number (408) 481-8000
(Registrant's telephone number, including area code)
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 [ ]
As of August 2, 2002, there were 28,682,499 shares of Common Stock (no par
value) outstanding.
TRIMBLE NAVIGATION LIMITED
FORM 10-Q
INDEX
Page
Number
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--
June 28, 2002 and December 28, 2001 (unaudited)................ 3
Condensed Consolidated Statements of Operations--
Three and Six Months Ended June 28, 2002 and
June 29, 2001 (unaudited).......................................4
Consolidated Statements of Cash Flows--
Six Months Ended June 28, 2002 and June 29, 2001(unaudited).... 5
Notes to Condensed Consolidated Financial Statements............... 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................20
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.........39
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings..................................................42
ITEM 2. Changes in Securities and Use of Proceeds..........................42
ITEM 4. Submission of Matters to a Vote of Security Holders................42
ITEM 6. Exhibits and Reports on Form 8-K...................................43
Signatures.................................................................45
2
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 28, December 28,
2002 2001 (1)
------------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 27,736 $ 31,078
Accounts and other receivable, net 84,139 71,680
Inventories 52,594 51,810
Other current assets 8,555 6,536
---------- -----------
Total current assets 173,024 161,104
Property and equipment, net 25,289 27,542
Goodwill, net 202,586 120,052
Intangible assets, net 24,960 100,252
Deferred income taxes 449 383
Other assets 10,811 10,062
---------- ----------
Total assets $437,119 $419,395
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank and other short-term borrowings $ 43,133 $ 40,025
Current portion of long-term debt 23,666 23,443
Accounts payable 23,766 21,494
Accrued compensation and benefits 16,243 13,786
Accrued liabilities 23,624 28,822
Accrued warranty expense 6,894 6,827
Income taxes payable 8,974 7,403
---------- ---------
Total current liabilities 146,300 141,800
---------- ---------
Noncurrent portion of long-term debt and other liabilities 92,066 127,097
Noncurrent portion of deferred gain 11,000 -
Deferred tax liabilities 2,172 7,347
Other noncurrent liabilities 4,945 4,662
----------- -----------
Total liabilities 256,483 280,906
----------- -----------
Shareholders' equity:
Common stock, no par value; 40,000 shares authorized; 28,681 and
26,862 shares outstanding, respectively 218,072 191,224
Accumulated deficit (30,206) (33,819)
Accumulated other comprehensive loss (7,230) (18,916)
---------- ---------
Total shareholders' equity 180,636 138,489
---------- ---------
Total liabilities and shareholders' equity $437,119 $419,395
========== =========
(1) Derived from the December 28, 2001 audited consolidated financial
statements included in the Annual Report on Form 10-K of Trimble Navigation
Limited for fiscal year 2001.
See accompanying notes to Condensed Consolidated Financial Statements.
3
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
------------------------------------ -----------------------------------
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
--------------------------------------------------- ----------------- ------------------ ----------------- -----------------
(In thousands, except per share data)
Revenue $ 123,256 $ 133,587 $ 227,285 $ 251,450
Cost of sales 62,305 68,056 112,001 128,419
------------- -------------- --------------- ---------------
Gross margin 60,951 65,531 115,284 123,031
Operating expenses:
Research and development 14,986 15,736 30,024 31,555
Sales and marketing 21,897 27,530 44,024 55,671
General and administrative 9,874 9,979 20,672 19,371
Restructuring charges 188 910 492 2,634
Amortization of goodwill and other purchased
intangibles 2,324 7,394 4,302 14,710
------------- --------------- --------------- ----------------
Total operating expenses 49,269 61,549 99,514 123,941
------------- --------------- --------------- ----------------
Operating income (loss) 11,682 3,982 15,770 (910)
-------------- --------------- --------------- ----------------
Nonoperating income (expense):
Interest income 133 366 220 736
Interest expense (3,548) (5,447) (7,578) (11,534)
Foreign exchange loss, net (710) (119) (769) (264)
Expense for affiliated operations, net (1,210) - (1,210) -
Other income (expense) (21) 244 178 (89)
------------- -------------- --------------- ----------------
Total nonoperating income (expense) (5,356) (4,956) (9,159) (11,151)
------------- -------------- --------------- ----------------
Income (loss) before income taxes 6,326 (974) (6,611) (12,061)
Income tax provision 2,000 1,000 3,000 1,500
------------- -------------- --------------- ----------------
Net income (loss) $ 4,326 $ (1,974) $ 3,611 $ (13,561)
============= ============== =============== ================
Basic net income (loss) per share $ 0.15 $ (0.08) $ 0.13 $ (0.56)
============= ============== =============== ================
Diluted net income (loss) per share $ 0.15 $ (0.08) $ 0.13 $ (0.56)
============= ============== =============== ================
See accompanying notes to Condensed Consolidated Financial Statements.
4
TRIMBLE NAVIGATION LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
-------------------------------------------
June 28, June 29,
2002 2001
------------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Cash flow from operating activities:
Net income (loss) $ 3,611 $(13,561)
-------------- ----------------
Adjustment to reconcile net income (loss) to net cash provided (used) by
operating activities:
Depreciation expense 5,585 5,534
Amortization expense 4,697 15,180
Provision for bad debt 1,542 2,043
Amortization of deferred gain (796) (796)
Other 892 (951)
Add decrease (increase) in assets:
Accounts receivables, net (14,001) (5,723)
Inventories (784) (7,030)
Deferred income taxes 1,044 39
Other current and noncurrent assets (1,239) 1,690
Effect of foreign currency translation adjustment 757 (5,225)
Add increase (decrease) in liabilities:
Accounts payable 2,272 (4,093)
Accrued compensation 2,457 694
Deferred tax liability - (547)
Other accrued liabilities (2,752) 7,616
Deferred gain short term 324 -
Deferred gain long term 11,000 -
Income taxes payable 1,571 240
-------------- ----------------
Net cash provided (used) by operating activities 16,180 (4,890)
-------------- ----------------
Cash flows from investing activities:
Acquisitions, net of cash acquired (2,158) (4,718)
Acquisition of property and equipment (4,213) (4,498)
Capitalized patents, software and intangibles (48) (954)
---------------- ----------------
Net cash used in investing activities (6,419) (10,170)
---------------- ----------------
Cash flow from financing activities:
Issuance of common stock 19,262 8,627
Collections of notes receivable (665) 424
Proceeds from long-term debt and revolving credit lines 13,000 20,000
Payments on long-term debt and revolving credit lines (44,700) (27,045)
---------------- ----------------
Net cash provided (used) by financing activities (13,103) 2,006
---------------- ----------------
Net decrease in cash and cash equivalents (3,342) (13,054)
Cash and cash equivalents-- beginning of period 31,078 40,876
---------------- ----------------
Cash and cash equivalents-- end of period $27,736 $27,822
================ ================
Supplemental disclosures of cash flow information: Cash paid during the
period for:
Interest $10,294 $7,174
================ ================
Income taxes, net of refunds 1,733 820
================ ================
See accompanying notes to Condensed Consolidated Financial Statements.
5
NOTE 1 -- Basis of Presentation:
Basis of Presentation
The Condensed Consolidated Financial Statements of Trimble Navigation
Limited and subsidiaries, ("Trimble" or the "Company") for the three and six
month periods ended June 28, 2002, and June 29, 2001, which are presented in
this Quarterly Report on Form 10-Q are unaudited. The balance sheet at December
28, 2001, has been derived from the audited financial statements at that date
but does not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, these statements include all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of the results for
the interim periods presented. The Condensed Consolidated Financial Statements
should be read in conjunction with the audited consolidated financial statements
and notes thereto included in Trimble's Annual Report on Form 10-K for the
fiscal year ended December 28, 2001.
The results of operations for the three and six month periods ended June
28, 2002 are not necessarily indicative of the results that may be expected for
the fiscal year ending January 3, 2003.
New Accounting Standards
Trimble adopted Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-lived Assets," at the
beginning of fiscal 2002. The effect of adopting SFAS 144 did not have a
material impact on the Company's financial position or results of operations.
Trimble adopted Statement of Financial Accounting Standards No. 141,
Business Combinations, and No. 142, Goodwill and Other Intangible Assets ("SFAS
142"), at the beginning of fiscal 2002. Application of the nonamortization
provisions of SFAS 142 significantly reduced amortization expense of purchased
intangibles to approximately $4.3 million for the six month period ended June
28, 2002 from $14.7 million in the prior year. The Company reclassified
identifiable intangible assets with indefinite lives, as defined by SFAS 142, to
goodwill at the date of adoption. The Company tested goodwill for impairment
using the two-step process prescribed in SFAS 142. The first step is a screen
for potential impairment, while the second step measures the amount of the
impairment, if any. No impairment charge resulted from the impairment tests. The
effect of adopting SFAS No. 141 and 142 did not have a material impact on the
Company's financial position or results of operations.
In July 2002, the FASB approved SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses the
financial accounting and reporting for obligations associated with an exit
activity, including restructuring, or with a disposal of long-lived assets. Exit
activities include, but are not limited to, eliminating or reducing product
lines, terminating employees and contracts and relocating plant facilities or
personnel. SFAS No. 146 specifies that a company will record a liability for a
cost associated with an exit or disposal activity only when that liability is
incurred and can be measured at fair value. Therefore, commitment to an exit
plan or a plan of disposal expresses only management's intended future actions
and, therefore, does not meet the requirement for recognizing a liability and
the related expense. SFAS No. 146 is effective prospectively for exit or
disposal activities initiated after December 31, 2002, with earlier adoption
encouraged. The Company does not anticipate that the adoption of SFAS No. 146
will have a material effect on its financial position or results of operations.
NOTE 2 -- Acquisitions:
Grid Data
On April 2, 2001, Trimble acquired certain assets of Grid Data, an Arizona
corporation, for approximately $3.5 million in cash and the assumption of
certain liabilities. In addition, the purchase agreement provided for Trimble to
make certain earn-out payments based upon the completion of certain business
milestones. In April 2002, Trimble agreed to issue 268,352 shares of Trimble's
common stock to Grid Data in settlement of all earn-out payments due under the
purchase agreement. These shares were issued in June 2002 and resulted in
additional goodwill of $4.7 million, with a final purchase price of
approximately $8.2 million.
6
Spectra Precision Group Restructuring Activities
At the time the Company acquired the Spectra Precision Group in July 2000,
the Company formulated a restructuring plan and provided approximately $9.0
million for costs to close certain duplicative office facilities, combine
operations including redundant domestic and foreign legal entities, reduce
workforce in overlapping areas, and relocate certain employees. These costs were
accrued for as part of the allocation of the purchase price. Included in the
total cost was approximately $2.7 million related to the discontinuance of
overlapping product lines, which was included in our reserve for excess and
obsolete inventory. The facility consolidation and employee relocations resulted
primarily from combining certain office facilities and duplicative functions,
including management functions, of the Spectra Precision Group. As of June 28,
2002, the Company had charged against the reserve approximately $3.6 million of
non inventory related charges, which consisted of $ 1.1 million for legal and
tax consulting expenses relating to consolidation of legal entities, $ 1.3
million for severance expenses, $0.8 million for facilities and direct sales
office closures, $ 0.3 million for an underfunded pension plan, and other costs
of $0.1 million, of which $0.7 million was paid in the first six months of 2002.
The Company revised its final estimates for costs to complete the remaining
planned activities and accordingly reduced its restructuring reserve by
approximately $1.1 million, with a corresponding adjustment to Goodwill, in the
fourth quarter of fiscal 2001. The reserve balance was approximately $1.3
million at June 28, 2002, and the Company anticipates completing the majority of
its remaining restructuring activities during fiscal 2002. These activities
consist principally of legal costs and other expenses required to combine
redundant legal entities.
The elements of the reserve at June 28, 2002, on the balance sheet
(included in accrued liabilities) are as follows:
Employee Severance and Facility Closure, Legal
Relocation and Tax Expense Total
(In thousands)
Total reserve $ 1,945 $ 4,370 $ 6,315
Amounts paid/written off (1,685) (2,296) (3,981)
Revision to estimates (260) (812) (1,072)
--------------------------------------------------------------------------
Balance as of June 28, 2002 $ - $ 1,262 $ 1,262
==========================================================================
7
NOTE 3 -- Goodwill and Intangible Assets:
Goodwill and intangible assets consisted of the following:
June 28, December 28,
2002 2001
- -------------------------------------------------------------------------- --------------------- ---------------------
(In thousands)
Intangible assets:
Intangible assets with indefinite life:
Distribution channel $ - $ 73,363
Assembled workforce - 17,773
----------------- -----------------
Total intangible assets with indefinite life - 91,136
Intangible assets with definite life:
Existing technology 25,096 23,907
Trade names, trade marks, patents, and other intellectual properties 19,466 18,394
----------------- -----------------
Total intangible assets with definite life 44,562 42,301
----------------- -----------------
Total intangible assets $ 44,562 $ 133,437
Less accumulated amortization (19,602) (33,185)
----------------- -----------------
Total net intangible assets $ 24,960 $ 100,252
================= =================
Goodwill:
Goodwill, Spectra Precision acquisition * 182,110 116,001
Goodwill, other acquisitions * 20,476 14,710
----------------- -----------------
Total goodwill $ 202,586 130,711
Less accumulated amortization * - (10,659)
----------------- -----------------
Total net goodwill $ 202,586 $ 120,052
================= =================
- --------------------------------------------------------------------------------
* Goodwill as of June 28, 2002 includes assembled workforce and distribution
channel amounts, which were reclassified to goodwill in accordance with FAS
142. Also, June 28, 2002 amounts are shown net of accumulated depreciation
from December 2001.
The Company adopted SFAS No. 142 on January 1, 2002. As a result, goodwill
is no longer amortized and intangible assets with indefinite lives were
reclassified to goodwill.
For comparative purposes, the pro forma adjusted net income per share
excluding amortization of goodwill, distribution channel, and assembled
workforce is as follows:
8
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ---------------------------------------------------------- ---------------- ----------------- ---------------- -----------------
(In thousands)
Net income (loss) $4,326 $(1,974) $3,611 $(13,561)
Add back SFAS 142 adjustments:
Amortization of Goodwill 1,954 3,909
Amortization of distribution channel 2,808 5,615
Amortization of assembled workforce 459 917
---------------- ----------------- ---------------- -----------------
Adjusted net income (loss) $4,326 $3,247 $3,611 $(3,120)
Basic and diluted net income (loss) per share $ 0.15 $(0.08) $ 0.13 $ (0.56)
Add back:
Amortization of Goodwill 0.08 0.16
Amortization of distribution channel 0.11 0.23
Amortization of assembled workforce 0.02 0.04
Pro forma adjusted basic and diluted net income (loss)
per share $ 0.15 $ 0.13 $ 0.13 $ (0.13)
====== ====== ====== ========
NOTE 4 -- Certain Balance Sheet Components:
Inventories consisted of the following:
June 28, December 28,
2002 2001
- ----------------------------------------------------------- --------------------
(In thousands)
Raw materials $ 26,654 $ 25,790
Work-in-process 8,440 7,177
Finished goods 17,501 18,843
------------- -------------
$ 52,594 $ 51,810
============= =============
Property and equipment consisted of the following:
June 28, December 28,
2002 2001
- ----------------------------------------------------------- --------------------
(In thousands)
Machinery and equipment $ 67,994 $ 66,265
Furniture and fixtures 6,498 6,367
Leasehold improvements 6,204 5,882
Buildings 4,112 3,979
Land 1,686 1,657
--------------- ----------------
86,494 84,150
Less accumulated depreciation (61,205) (56,608)
--------------- ----------------
$ 25,289 $ 27,542
=============== ================
9
Other current assets consisted of the following:
June 28, December 28,
2002 2001
- ----------------------------------------------------------- --------------------
(In thousands)
Notes receivable $ 2,795 $ 2,130
Prepaid expenses 5,280 4,150
Other 480 256
-------------- ---------------
$ 8,555 $ 6,536
============== ===============
Other noncurrent assets consisted of the following:
June 28, December 28,
2002 2001
- ----------------------------------------------------------- --------------------
(In thousands
Debt issuance costs, net $ 3,088 $ 3,046
Other investments 2,338 2,737
Deposits 1,302 1,241
Other 4,083 3,038
-------------- -----------------
$ 10,811 $ 10,062
============== =================
NOTE 5 -- Derivative Financial Instruments:
Forward foreign currency exchange contracts.
At June 28, 2002, Trimble had forward foreign currency exchange contracts
to sell approximately 101.7 million Japanese yen and approximately 2.9 million
Euros, and to buy approximately 65.7 million Japanese yen and approximately 0.9
million British pounds sterling, at contracted rates that mature over the next
two months.
NOTE 6 -- Disposition of Line of Business:
Disposition of Line of Business:
On March 6, 2001, the Company sold certain product lines of its Air
Transport Systems to Honeywell Inc. for approximately $4.5 million in cash.
Under the asset purchase agreement, Honeywell International, Inc. purchased
product lines that included the HT 1000, HT 9000, HT 9100 and Trimble's TNL
8100. As part of this sale, during the third quarter of fiscal 2001, the Company
also sold other product lines and discontinued its manufacturing operations in
Austin, Texas. The Company also incurred severance costs of approximately $1.7
million which is included in restructuring charges related to the termination of
employees associated with the product lines disposed of in fiscal 2001.
At June 28, 2002, the Company has a provision of $1.3 million for
related liabilities associated with the disposition of these product lines and
the discontinuance of its manufacturing operations.
10
NOTE 7 -- Long-Term Debt:
Trimble's long-term debt consists of the following:
June 28, December 28,
2002 2001
- --------------------------------------------------------------------------------------------------
(In thousands)
Credit Facilities:
Five Year Term Loan $ 42,600 $ 61,300
U.S. and Multi-Currency Revolving Credit Facility 43,000 40,000
Subordinated note 68,670 84,000
Promissory notes 4,563 5,189
Other 32 76
------------------- ------------------
158,865 190,565
Less current portion 66,799 63,468
------------------- ------------------
Noncurrent portion $ 92,066 $ 127,097
=================== ==================
Credit Facilities
In July 2000, Trimble obtained $200 million of senior, secured credit
facilities (the "Credit Facilities") from a syndicate of banks to support the
acquisition of the Spectra Precision Group and the Company's ongoing working
capital requirements and to refinance certain existing debt. At June 28, 2002,
Trimble has approximately $85.6 million outstanding under the Credit Facilities,
comprised of $42.6 million under a $100 million five-year term loan, $25 million
under a $50 million three-year U.S. dollar only revolving credit facility
("revolver"), and $18 million under a $50 million three-year multi-currency
revolver. The Company has access to $57 million of cash under the terms of its
three-year revolver loans. The Company has commitment fees on the unused portion
of 0.5% if the leverage ratio (which is defined as all outstanding debt,
excluding the seller subordinated note, over Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA), as defined in the related agreement) is
2.0 or greater and 0.375% if the leverage ratio is less than 2.0.
Pricing for any borrowings under the Credit Facilities was fixed for the
first six months at LIBOR plus 275 basis points and is thereafter tied to a
formula, based on the Company's leverage ratio. The weighted average interest
rate under the Credit Facilities was 4.6% for the month of June 28, 2002.
The Credit Facilities are secured by all material assets of the Company,
subject to foreign tax considerations. If Trimble is able to achieve and
maintain a leverage ratio (Debt/EBITDA) of 2.0x or less for four consecutive
quarters, the security for the Credit Facilities will be released. Financial
covenants of the Credit Facilities include leverage, fixed charge, and minimum
net worth tests. Should the Company default on one or more covenants, the
Company will attempt to obtain either waivers or amendments to the Facilities.
There can be no assurances that the Company will be able to obtain any necessary
waivers or amendments.
Two of the Company's financial covenants, minimum fixed charge coverage and
maximum leverage ratios are sensitive to EBITDA. EBITDA is correlated to the
Company's results of operations. Due to uncertainties associated with the
downturn in the worldwide economy and other factors, future revenues by quarter
are difficult to forecast. New cost cutting measures have been put in place by
the management team; however, if revenues should decline at a higher rate than
cost cutting measures on a quarter to quarter basis, the Company may violate the
two above mentioned financial covenants.
Subordinated Note
In the first fiscal quarter of 2002, the Company renegotiated the terms of
its subordinated note and under the revised agreement, Spectra Physics Holdings,
Inc., a subsidiary of Thermo Electron, extended the term of the note until July
14, 2004, at the current interest rate of approximately 10.4% per year. As a
result of the amendment,
11
the outstanding balance of the note at December 28, 2001 of $84 million was
reclassified as long-term. As of June 28, 2002 the principal amount outstanding
was $68.7 million. To the extent that interest and principal due on the maturity
date becomes delinquent, an additional 4% interest rate per annum will apply.
Currently, the note bears interest at a weighted average rate of 10.4%.
The Credit Facilities allow Trimble to repay the subordinated note at any
time (in part or in whole), provided that (a) Trimble's leverage ratio (Debt
(excluding the seller note)/EBITDA) prior to such repayment is less than 1.0x
and (b) after giving effect to such repayment Trimble would have (i) a leverage
ratio (Debt (excluding any remaining portion of the subordinated note)/EBITDA)
of less than 2.0x and (ii) cash and unused availability under the revolvers of
the Credit Facilities of at least $35 million. The note, by its terms, is
subordinated to the Credit Facilities.
Promissory Notes
The promissory notes at the end of June 28, 2002 include a $2.7 million
obligation to the former owners of ZSP Geodetic Systems GmbH, a subsidiary of
Trimble, assumed by the Company when it acquired the Spectra Precision Group.
The $2.7 million debt obligation has a stated maturity of September 2002 and
bears interest at 6%.
In addition, these notes include a $1.8 million promissory note arising
from the purchase of a building for the Company's Corvallis, Oregon site. The
note is payable in monthly installments through April 2015 bearing a variable
interest rate (5.4% at June 28, 2002).
The Company's weighted average cost of debt is approximately 5.7% as of
June 28, 2002.
NOTE 8 -- Segment Information:
Trimble is a designer and distributor of positioning products and
applications enabled by Global Positioning Systems (GPS), optical, laser, and
wireless communications technology. The Company designs and markets products,
which deliver integrated information solutions, such as collecting, analyzing,
and displaying position data to its end-users. The Company offers an integrated
product line for diverse applications in its targeted markets.
In the first fiscal quarter of 2002, Trimble realigned two of its
reportable segments. The Agriculture segment has been combined with the mapping
and Geographic Information Systems (GIS) market to form Trimble Field Solutions.
Mapping and GIS was previously part of Fleet and Asset Management. The mobile
positioning market that was part of Fleet and Asset Management is now Trimble
Mobile Solutions.
To achieve distribution, marketing, production, and technology advantages
in Trimble's targeted markets, the Company currently manages itself within five
segments:
o Engineering and Construction -- Consists of products currently used by
construction professionals in the field for positioning data collection,
field computing, data management, and automated machine guidance and
control. These products provide solutions for numerous construction
applications, including surveying; general construction; site preparation
and excavation; road and runway construction; and underground construction.
o Trimble Field Solutions -- Consists of products that provide solutions in a
variety of agriculture and fixed asset applications, primarily in the areas
of precise land leveling, machine guidance, yield monitoring, variable-rate
applications of fertilizers and chemicals and fixed asset data collection
for a variety of governmental and private entities. This segment is an
aggregation of the Company's Mapping and GIS operation and the Company's
Agriculture operation. The Company has aggregated these business operations
under a single general manager in order to take advantage of the
convergence of wireless communications and internet applications to provide
field solutions, and to continue to leverage its research and development
activities due to the similarities of products across the segment.
o Trimble Mobile Solutions -- Consists of products that enable end-users to
monitor and manage their mobile assets by communicating location-relevant
information from the field to the office. The Company offers a range
12
of products that address a number of sectors of this market including
truck fleets, security, telematics, and public safety vehicles.
o Component Technologies -- Currently, the Company markets its component
products through an extensive network of OEM relationships. These products
include proprietary chipsets, modules and a variety of intellectual
property. The applications into which end-users currently incorporate the
Company's component products include: timing applications for synchronizing
wireless and computer systems; in-vehicle navigation and telematics
(tracking) systems; fleet management; security systems; data collection
systems; and wireless handheld consumer products.
o Portfolio Technologies -- The various operations that comprise this segment
were aggregated on the basis that no single operation accounted for more
than 10% of the total revenue of the Company. Consists of various markets
that use accurate position, velocity, and timing information. These markets
include the operations of the Military Advanced Systems division and Tripod
Data Systems.
Trimble evaluates each of these segment's performance and allocates
resources based on profit and loss from operations before income taxes, and some
corporate allocations.
The accounting policies applied by each of the segments are the same as
those used by Trimble in general.
The following table presents revenues, operating income (loss), and
identifiable assets for Trimble's five segments. The information for fiscal 2001
has been reclassified in order to conform to the new basis of presentation. The
information includes the operations of Grid Data after April 2, 2001. Operating
income (loss) is net revenue less operating expenses, excluding general
corporate expenses, goodwill amortization, restructuring charges, nonoperating
income (expense), and income taxes. The identifiable assets that Trimble's Chief
Operating Decision Maker, the CEO, views by segment are accounts receivable and
inventory.
------------------------------------------------------------------------------------
Three Months Ended
June 28, 2002
------------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ------------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
(In thousands)
External net revenues $79,891 $18,212 $1,840 $15,175 $ 8,138 $123,256
======= ======= ====== ======= ========= ========
Operating income (loss) before
corporate allocations 15,151 3,869 (2,844) 2,374 2,170 20,720
----------------------------------------------------------------------------------
Six Months Ended
June 28, 2002
----------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- ------------- -----------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
(In thousands)
External net revenues $148,301 $36,243 $4,192 $25,200 $13,349 $227,285
======== ======= ====== ======= ======= ========
Operating income (loss) before
corporate allocations 26,819 8,386 (5906) 3,599 1,881 34,799
------------------------------------------------------------------------------------
June 28, 2002
------------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ------------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
(In thousands)
Assets:
Accounts receivable (1) $73,345 $11,746 $2,167 $9,125 $6,892 $103,275
Inventory 40,383 4,974 2,044 781 4,745 52,927
13
------------------------------------------------------------------------------------
Three Months Ended
June 29, 2001
------------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ------------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
- ---------------------------------- -------------- ------------ ------------ --------------- -------------- ------------
(In thousands)
External net revenues $86,934 $18,963 $2,963 $16,615 $8,112 $133,587
======= ======= ====== ======= ====== ========
Operating income (loss) before
corporate allocations 17,487 4,016 (2,651) 3,011 (596) 21,267
----------------------------------------------------------------------------------
Six Months Ended
June 29, 2001
----------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- ------------- -----------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
- ------------------------------------ -------------- ------------ ------------ --------------- ------------- -----------
(In thousands)
External net revenues $160,647 $35,970 $5,888 $32,777 $16,168 $251,450
======== ======= ====== ======= ======= ========
Operating income (loss) before
corporate allocations 27,792 7,129 (5,451) 5,244 (1,233) 33,481
----------------------------------------------------------------------------------
December 28, 2001
----------------------------------------------------------------------------------
-------------- ------------ ------------ --------------- -------------- ----------
Engineering Trimble Trimble
& Field Mobile Component Portfolio
Construction Solutions Solutions Technologies Technologies Total
- ------------------------------------ -------------- ------------ ------------ --------------- -------------- ----------
(In thousands)
Assets:
Accounts receivable (1) $ 62,471 $ 10,191 $ 4,274 $ 7,392 $ 7,249 $91,577
Inventory 37,246 4,639 1,992 2,490 5,463 51,830
- ----------------------------
(1) As presented, the accounts receivable number excludes cash received in
advance, deferred revenue and reserves, which are not allocated between
segments.
The following are reconciliations corresponding to totals in the
accompanying consolidated financial statements:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ------------------------------------------------- --------------- ---------------- --------------- ----------------
(In thousands)
Operating income (loss):
Total for reportable segments $ 20,720 $ 21,267 $ 34,779 $ 33,481
Unallocated corporate expenses (9,038) (17,285) (19,009) (34,391)
---------------- --------------- ---------------- ---------------
Operating income (loss) $ 11,682 $ 3,982 $ 15,770 $ (910)
================ =============== ================ ===============
14
June 28, December 28,
2002 2001
- ----------------------------------------------------------------- -------------
(In thousands)
Assets:
Accounts receivable total for reportable divisions $103,275 $91,577
Unallocated (1) (19,136) (19,897)
--------- ----------
Total $ 84,139 $71,680
========= ==========
Inventory total for reportable divisions $52,927 $51,830
Common inventory (2) (333) 330
--------- ----------
Net inventory $52,594 $52,160
========= ==========
- ----------------------------
(1) Includes cash in advance, deferred revenue and reserves that are not
allocated by segment.
(2) Consists of inventory that is common between the segments. Parts can be
used by more than one segment.
The following table presents revenues by product groups.
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ------------------------------- ------------------- ------------------- ------------------- ---------------------
(In thousands)
GPS products $65,149 $74,917 $119,124 $143,001
Laser and optical products 54,412 54,773 100,557 101,367
Other 3,695 3,897 7,604 7,082
------------------- ------------------- ------------------- ---------------------
Total revenue $123,256 $133,587 $227,285 $251,450
=================== =================== =================== =====================
NOTE 9 -- Equity:
Comprehensive Income (Loss)
The components of other comprehensive loss, net of related tax, include:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- --------------------------------------------- ---------------- ----------------- ---------------- -----------------
(In thousands)
Cumulative foreign currency translation adjustments $11,685 $(3,751) $11,469 $(11,928)
Net gain (loss) on interest rate swap - (102) 203 (231)
Net unrealized gain on investments 14 105 14 105
----------- ---------- ----------- -----------
Other comprehensive loss $11,699 $(3,748) $11,686 $(12,054)
=========== ========== =========== ===========
The change in cumulative foreign currency translation for the three and six
months ended June 28, 2002 was primarily due to the weakening of the U.S. dollar
against the Euro and Swedish Krona.
15
Accumulated other comprehensive income (loss) on the consolidated balance
sheets consists of unrealized gains on available for sale investments and
foreign currency translation adjustments.
The components of accumulated other comprehensive income (loss), net of
related tax as follows:
June 28, December 28,
2002 2001
- --------------------------------------------------------------------------------
(In thousands)
Cumulative foreign currency translation adjustments $(7,260) $(18,729)
Net loss on interest rate swap - (203)
Net unrealized gain on investments 30 16
---------- ----------
Accumulated other comprehensive loss $(7,230) $(18,916)
========== ==========
16
Warrants
On April 12, 2002, the Company issued to Spectra Physics Holdings USA,
Inc., a subsidiary of Thermo Electron Corporation, a warrant to purchase up to
376,233 shares of Trimble's common stock over a fixed period of time. Initially,
Spectra Physics' warrant entitles it to purchase 200,000 shares of common stock
over a five-year period at an exercise price of $15.11 per share. On a quarterly
basis beginning July 14, 2002, Spectra Physics' warrant is exercisable for an
additional 250 shares of common stock for every $1 million of principal and
interest outstanding until the note is paid off in full. These shares will be
purchasable at a price equal to the average of Trimble's closing price for the
five days immediately preceding the last trading day of each quarter. On July
14, 2002 an additional 17,364 shares became exercisable over a 5 year period at
an exercise price of $14.46 per share. Under the terms of the warrant, the total
number of shares issued will not exceed 376,233 shares. The warrant was valued
at $1.3 million and is being amortized to interest expense over the remaining
term of the related subordinated note.
NOTE 10 -- Earnings 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.
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
Numerator:
Income (loss) available to common shareholders used
in basic and diluted loss per share $ 4,326 $ (1,974) $ 3,611 $(13,561)
=========== ============ ============ ===========
Denominator:
Weighted-average number of common shares used in
calculating basic income (loss) per share 28,339 24,525 28,149 24,372
Effect of dilutive securities:
Common stock options 673 -- 587 --
Common stock warrants 46 -- 22 --
----------- ----------- ------------ -----------
Weighted-average number of common shares and
dilutive potential common shares used in
calculating diluted income (loss) per share 29,058 24,525 28,758 24,372
=========== ============ ============ ===========
Basic income (loss) per share $ 0.15 $ (0.08) $ 0.13 $(0.56)
=========== ============ ============ ===========
Diluted income (loss) per share $ 0.15 $ (0.08) $ 0.13 $(0.56)
=========== ============ ============ ===========
Options and warrants were not included in the computation of earnings per
share in the three and six months ended June 29, 2001 because the Company
reported a net loss. If Trimble had reported net income, additional 895,000 and
1,087,000 common equivalent shares related to outstanding options and warrants
would have been included in the calculation of diluted income (loss) per share
for the three and six months ended June 29, 2001, respectively.
NOTE 11 -- Related-Party Transactions:
Related-Party Lease
The Company currently leases office space in Ohio from an association of
three individuals, two of whom are employees of one of the Company's U.S.
operating units, under a noncancelable operating lease arrangement expiring in
2011. The annual rent is $345,000 and is subject to adjustment based on the
terms of the lease. The
17
Condensed Consolidated Statements of Operations include expenses from this
operating lease of $86,351 and $172,702 for the three and six month periods
ended June 28, 2002 and June 29, 2001, respectively.
Related -Party Notes Receivable
The Company has notes receivable from officers and employees of $1.2
million as of June 28, 2002 and $955,000 as of December 28, 2001. The notes bear
interest from 4.49% to 6.30% and have an average remaining life of 3.14 years as
of June 28, 2002.
NOTE 12 -- Contingencies:
In January 2001, Philip M. Clegg instituted a lawsuit in the United States
District Court for the District of Utah, Central Division, against
Spectra-Physics Laserplane, Inc., Spectra Precision AB and Trimble Navigation
Limited. The complaint alleges claims of infringement of U.S. Patent No.
4,807,131, breach of contract and unjust enrichment. The suit seeks damages and
an accounting for moneys alleged to be owed under a license agreement, plus
interest and attorney fees.
In August 2001, Lockheed Martin Corporation served a complaint alleging
patent infringement of U.S. Patent No. 4,949,089 on the Company, Spectra
Precision, Inc., Leica Geosystems, Inc., Sokkia Corporation and Carl Zeiss, Inc.
The lawsuit was filed in the United States District Court for the Eastern
District of Texas, Marshall Division. In July 2002, the Company entered into a
settlement agreement with Lockheed Martin and the court action was dismissed.
The settlement did not have a material adverse effect on the financial results
of the Company.
In November 2001, Qualcomm Inc. filed a lawsuit against the Company in the
Superior Court of the State of California. The complaint alleges claims for an
unspecified amount of money damages arising out of Qualcomm's perceived lack of
assurances in early 1999 that the Company's products purchased by Qualcomm would
work properly after a scheduled week number rollover event that took place in
August, 1999. Qualcomm is the only customer to make a claim against the Company
based on the week number rollover event.
In the opinion of management, the resolutions of the foregoing lawsuits are
not expected to have a material adverse effect on the overall financial position
of the Company. However, depending on the amount and timing, an unfavorable
resolution in any one of these matters could materially affect the Company's
future operations or cash flow in a particular period.
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.
NOTE 13 -- Restructuring Charges:
Restructuring charges of $0.2 million and $0.5 million were recorded for
the three and six month periods ended June 28, 2002 respectively, which are
primarily related to severance costs. For the three and six month periods ended
June 29, 2001, restructuring charges of $0.9 million and $2.6 million were
recorded, which are primarily related to severance costs. These restructuring
activities impacted 30 individuals in the first six months of fiscal 2002. In
the six months of fiscal 2001, 195 individuals were impacted. As of June 28,
2002, all of the restructuring charges have been paid.
NOTE 14 -- Joint Venture:
On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT, or
"Joint Venture"), a joint venture formed by Trimble and Caterpillar began
operations. The joint venture, 50 percent owned by Trimble and 50 percent owned
by Caterpillar, will develop and market, the next generation of advanced
electronic guidance and control products for earthmoving machines in the
construction, mining and waste industries. CTCT is based in Dayton, Ohio. Under
the terms of the joint venture agreement, Caterpillar contributed $11.0 million
cash and selected technology, for a total contributed value of $14.5 million and
Trimble contributed selected existing machine control product technologies
valued at $25.5 million. Additionally, both companies have licensed patents and
other
18
intellectual property from their portfolios to the joint venture. During the
first fiscal quarter of 2002, Trimble received a special cash distribution of
$11.0 million from the joint venture.
During the second fiscal quarter of 2002, Trimble recorded approximately
$1.2 million of expenses under the heading of "Expense for affiliated
operations, net" in Non operating income (expense) related to certain
transactions between the Company and the Joint Venture. This was comprised of
approximately $1.6 million of incremental costs incurred by Trimble as a result
of purchasing products from the Joint Venture at a higher transfer price than
its original manufacturing costs, offset by approximately $0.4 million of
contract manufacturing fees charged to the Joint Venture by Trimble. Due to the
nature of the transfer price agreements between Trimble and the Joint Venture, a
related party, the impact of these agreements are classified under Non operating
income (expense).
In addition, during the second fiscal quarter of 2002, the Company recorded
lower operating expenses of approximately $1.3 million due to the transfer of
employee related expenses for research and development ($1.0 million), and
sales, marketing and administrative functions ($0.3 million) to the Joint
Venture. These employees are devoted to the Joint Venture and are primarily
engaged in developing next generation products and technology for that entity.
Trimble has adopted the equity method of accounting for its investment in
the Joint Venture. This requires the company to record 50 percent of the Joint
Venture profits or losses in a given fiscal period. During the second fiscal
quarter of 2002, and the first quarter of its operations, the Joint Venture
reported a profit of $262,000 of which Trimble's share is $131,000.
The Company has elected to treat the cash distribution of $11.0 million as
a deferred gain, being amortized to the extent that losses are attributable from
the Joint Venture under the equity method described above. When the Joint
Venture is profitable on a sustainable basis, and future operating losses are
not anticipated, then Trimble will recognize as a gain, the portion of the $11.0
million which is unamortized. To the extent that it is possible that Trimble
will have any future funding obligation relating to the Joint Venture, then the
relevant amount of the $11.0 million will be deferred until such a time as the
funding obligation no longer exists. In future periods, both the Company's share
of profits (losses) under the equity method, and the amortization of its $11.0
million deferred gain will be recorded under the heading of "Expense for
affiliated operations, net" in Non operating income (expense).
19
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the "safe harbor" created by those sections. Actual results could
differ materially from those indicated in the forward-looking statements due to
a number of factors including, but not limited to, the risk factors discussed in
"Certain Other Risk Factors" below and elsewhere in this report as well as in
the Company's Annual Report on Form 10-K for fiscal year 2001 and other reports
and documents that the Company files from time to time with the Securities and
Exchange Commission. The Company has attempted to identify forward-looking
statements in this report by placing an asterisk (*) before paragraphs.
Discussions containing such forward-looking statements may be found in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below. In some cases, forward-looking statements can be identified
by terminology such as "may," "will," "should," " could," "predicts,"
"potential," "continue," "expects," "anticipates," "future," "intends," "plans,"
"believes," "estimates," and similar expressions. These forward-looking
statements are made as of the date of this Quarterly Report on Form 10-Q, and
the Company disclaims any obligation to update these statements or to explain
the reasons why actual results may differ.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Trimble's discussion and analysis of its financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, we evaluate our estimates, including
those related to product returns, doubtful accounts, inventories, investments,
intangible assets, income taxes, warranty obligations, restructuring costs, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the amount and timing of revenue and expenses and the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
BUSINESS DEVELOPMENTS
On April 2, 2001, Trimble acquired certain assets of Grid Data, an Arizona
corporation, for approximately $3.5 million in cash and the assumption of
certain liabilities. In addition, the purchase agreement provided for Trimble to
make certain earn-out payments based upon the completion of certain business
milestones. In April 2002, Trimble agreed to issue 268,352 shares of Trimble's
common stock to Grid Data in settlement of all earn-out payments due under the
purchase agreement. These shares were issued in June 2002 and resulted in
additional goodwill of $4.7 million, with a final purchase price of
approximately $8.2 million.
In August 1999, Trimble and Solectron entered into a supply agreement that
provided for the exclusive manufacture by Solectron of a significant portion of
Trimble's products for the three-year period ending August 13, 2002. The
agreement was extended for a one year period expiring in August 2003. As of the
date of this report, the Company is engaged in negotiations with Solectron
regarding the nature of the manufacturing agreement going forward. The Company
does not expect to experience any disruptions in its product supply as a result
of these negotiations.
CATERPILLAR JOINT VENTURE
On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT, or
"Joint Venture"), a joint venture formed by Trimble and Caterpillar began
operations. The joint venture, 50 percent owned by Trimble and 50 percent owned
by Caterpillar, will develop and market, the next generation of advanced
electronic guidance and control products for earthmoving machines in the
construction, mining and waste industries. CTCT is based in Dayton, Ohio. Under
the terms of the joint venture agreement, Caterpillar contributed $11.0 million
cash and selected technology, for a total contributed value of $14.5 million and
Trimble contributed selected existing machine control product technologies
valued at $25.5 million. Additionally, both companies have licensed patents and
other intellectual property from their portfolios to the joint venture. During
the first fiscal quarter of 2002, Trimble received a special cash distribution
of $11.0 million from the joint venture.
20
During the second fiscal quarter of 2002, Trimble recorded approximately
$1.2 million of expenses under the heading of "Expense for affiliated
operations, net" in Non operating income (expense) related to certain
transactions between the Company and the Joint Venture. This was comprised of
approximately $1.6 million of incremental costs incurred by Trimble as a result
of purchasing products from the Joint Venture at a higher transfer price than
its original manufacturing costs, offset by approximately $0.4 million of
contract manufacturing fees charged to the Joint Venture by Trimble. Due to the
nature of the transfer price agreements between Trimble and the Joint Venture, a
related party, the impact of these agreements are classified under Non operating
income (expense).
In addition, during the second fiscal quarter of 2002, the Company recorded
lower operating expenses of approximately $1.3 million due to the transfer of
employee related expenses for research and development ($1.0 million), and
sales, marketing and administrative functions ($0.3 million) to the Joint
Venture. These employees are devoted to the Joint Venture and are primarily
engaged in developing next generation products and technology for that entity.
Trimble has adopted the equity method of accounting for its investment in
the Joint Venture. This requires the company to record 50 percent of the Joint
Venture profits or losses in a given fiscal period. During the second fiscal
quarter of 2002, and the first quarter of its operations, the Joint Venture
reported a profit of $262,000 of which Trimble's share is $131,000.
The Company has elected to treat the cash distribution of $11.0 million as
a deferred gain, being amortized to the extent that losses are attributable from
the Joint Venture under the equity method described above. When the Joint
Venture is profitable on a sustainable basis, and future operating losses are
not anticipated, then Trimble will recognize as a gain, the portion of the $11.0
million which is unamortized. To the extent that it is possible that Trimble
will have any future funding obligation relating to the Joint Venture, then the
relevant amount of the $11.0 million will be deferred until such a time as the
funding obligation no longer exists. In future periods, both the Company's share
of profits (losses) under the equity method, and the amortization of its $11.0
million deferred gain will be recorded under the heading of "Expense for
affiliated operations, net" in Non operating income (expense).
RESULTS FROM CONTINUING OPERATIONS EXCLUDING INFREQUENT AND ACQUISITION
RELATED ADJUSTMENTS
Income (loss) from continuing operations include certain infrequent and
acquisition related charges that management believes are not reflective of
on-going operations. The following table, which does not purport to present the
results of continuing operations in accordance with generally accepted
accounting principles, reflects results of operations to exclude the effects of
such items as follows (in thousands):
21
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes from continuing
Operations $ 6,326 $ (974) $ 6,611 $ (12,061)
Infrequent and acquisition-related charges:
Loss on sale of business (Other income and expense) - - - 240
Amortization of goodwill and other purchased
intangibles 2,324 7,394 4,302 14,710
Gain on sale of minority investment (Other
income and expense) - (270) - (270)
Restructuring charges 188 910 492 2,634
------------- ---------- ---------- -----------
Total infrequent and acquisition-related charges 2,512 8,034 4,794 17,314
------------- ---------- ---------- -----------
Adjusted income (loss) before income taxes from
continuing operations 8,838 7,060 11,405 5,253
Income tax provision 2,000 475 3,000 950
------------- ---------- ---------- -----------
Adjusted net income $ 6,838 $ 6,585 $8,405 $ 4,303
============= ========== ========== ===========
RESULTS OF OPERATIONS
The Company's annual revenues from operations for the three and six month
periods ended June 28, 2002 were $123.3 million and $227.3 million, as compared
with $133.6 million and $251.5 million in the corresponding periods in fiscal
2001. The net income for the three and six months ended June 28, 2002, was $4.3
million, or $0.15 diluted income per share and $3.6 million, or $0.13 diluted
income per share, compared to a net loss for the corresponding periods in fiscal
2001, of $2.0 million, or $0.08 diluted loss per share and $13.6 million or
$0.56 diluted loss per share. Summary of financial data by business segment
follows.
The following table shows revenue and operating income by segment for the
periods indicated and should be read in conjunction with the narrative
descriptions below. Operating income by segment excludes unallocated corporate
expenses, which are comprised primarily of general and administrative costs,
amortization of goodwill and other purchased intangibles, as well as other items
not controlled by the business segment.
22
Three Months Ended Six Months Ended
% of % of % of % of
June 28, Total June 29, Total June 28, Total June 29, Total
2002 Revenue 2001 Revenue 2002 Revenue 2001 Revenue
- -------------------------------------------- -------------- ----------- ----------- ----------- ----------- ----------- ------------
(Dollars in thousands)
Engineering and Construction
Revenue $79,891 65% $86,934 65% $148,301 65% $160,647 64%
Segment Operating income
from operations 15,151 17,487 26,819 27,792
Segment Operating income
as a percentage of segment
revenue 19% 20% 18% 17%
Trimble Field Solutions
Revenue 18,212 15% 18,963 14% 36,243 16% 35,970 14%
Segment Operating income
from operations 3,869 4,016 8,386 7,129
Segment Operating income
as a percentage of segment
revenue 21% 21% 23% 20%
Trimble Mobile Solutions
Revenue 1,840 2% 2,963 2% 4,192 2% 5,888 2%
Segment Operating loss from
operations (2,844) (2,651) (5,906) (5,451)
Segment Operating loss
as a percentage of segment
revenue (155)% (89)% (141)% (93)%
Component Technologies
Revenue 15,175 12% 16,615 13% 25,200 11% 32,777 13%
Segment Operating income
from operations 2,374 3,011 3,599 5,244
Segment Operating income
as a percentage of segment
revenue 16% 18% 14% 16%
Portfolio Technologies
Revenue 8,138 6% 8,112 6% 13,349 6% 16,168 6%
Segment Operating income
(loss) from operations 2,170 (596) 1,881 (1,233)
Segment Operating income
(loss) as a percentage of
segment revenue 27% (7%) 14% (7)%
Total Revenue $123,256 $133,587 $227,285 $251,450
Total Segment Operating
income from continuing
operations $20,720 $21,267 34,779 33,481
23
A reconciliation of Trimble's consolidated segment operating income to
consolidated income (loss) before income taxes from operations follows:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ------------------------------------------------------- ---------------- -------------- --- -------------- --------------
(In thousands)
Consolidated segment operating income from
continuing operations $ 20,720 $ 21,267 $ 34779 $ 33,481
Unallocated corporate expense (6,526) (8,981) (14,215) (17,047)
Amortization of goodwill and other purchased
intangibles (2,324) (7,394) (4,302) (14,710)
Restructuring charges (188) (910) (492) (2,634)
Non-operating income (expense), net (5,356) (4,956) (9,159) (11,151)
---------------- -------------- --- -------------- --------------
Income (loss) from operations before income taxes $ 6,326 $ (974) $ 6,611 $ (12,061)
================ ============== === ============== ==============
Revenue
For the three months ended June 28, 2002, total revenue decreased by $10.3
million or 7% to $123.3 million from $133.6 million in the corresponding period
in fiscal 2001.
For the six months ended June 28, 2002, total revenue decreased by $24.2
million or 10% to $227.3 million from $251.5 million in the corresponding period
in fiscal 2001.
Engineering and Construction
Revenue
Products within the Engineering and Construction segment include surveying,
general construction, site preparation, excavation, road and runway
construction, interior construction and underground construction systems.
Engineering and Construction revenues decreased by $7.0 million and $12.3
million or 8% for the three and six months ended June 28, 2002 as compared with
the same corresponding periods in fiscal 2001. The decreases were due to the
following:
o As a result of a shift in the distribution model from direct sales offices
to more dealer dependent channels, Construction Instruments and Machine
Control product lines recorded reduced revenue which accounted for $3.3
million and $6.1 million decline for the three and six month periods,
respectively.
o During the second quarter of fiscal 2002 the Survey product lines recorded
a decline over the previous year due to surveyors, state and local
governmental agencies, and other construction professionals delaying the
purchase of new equipment. The Construction Instruments product line also
recorded a decline in revenues due to the continuing general economic
slowdown in fiscal 2002.
Operating Income
Engineering and Construction operating income decreased by $2.3 million and
$0.9 million or 13% and 4% for the three and six months ended June 28, 2002 as
compared with the same corresponding periods in fiscal 2001. The decreases were
due to the following:
o Lower revenues and a shift in product mix accounted for a decline in gross
margins for the Engineering and Construction segment.
o The continued realization of cost synergies from actions implemented in
2001 as a result of the acquisition of the Spectra Precision Group. These
actions included the integration of sales forces, rationalization of
24
overlapping product lines, and the elimination of redundant development,
and sales and service facilities. These cost savings helped to offset the
decline in gross margins.
Trimble Field Solutions
Revenue
Products within the Trimble Field Solutions segment include GPS-based
machine guidance systems, field management systems, laser-based water management
systems and solutions for a variety of applications in asset tracking. Trimble
Field Solutions revenues decreased by $0.8 million or 4% for the three months
ended June 28, 2002 as compared with the same corresponding period in fiscal
2001. Trimble Field Solutions revenues increased by $0.3 million or 1% for the
six months ended June 28, 2002 as compared with the same corresponding period in
fiscal 2001. The change in revenue was primarily due to the following:
o Much higher unit volumes and lower prices led to higher revenues for the
Agricultural Machine Guidance systems resulting mainly from new products
introduced at attractive price points.
o The increase in Agricultural revenues was offset by lower volumes for
Geographic Information Systems (GIS) Data Capture products. The reduction
in GIS Data capture product volumes was partially due to weakness in US
federal, state, and local government spending.
Operating Income
Trimble Field Solutions operating income decreased by $147,000 or 3% for
the three months ended June 28, 2002 as compared with the same corresponding
period in fiscal 2001. The slight decrease in operating income was due to the
lower revenues above being offset by a decrease in operating expenses primarily
a reduction in selling expenses.
Trimble Field Solutions operating income increased by $1.3 million or 18%
for the six months ended June 28, 2002 as compared with the same corresponding
period in fiscal 2001. The increase in operating income was due to slightly
higher revenues and a reduction in operating expenses primarily in selling
expenses.
Trimble Mobile Solutions
Revenue
Products within the Trimble Mobile Solutions segment combine GPS and
information technologies to provide solutions for a variety of applications in
fleet management. Trimble Mobile Solutions revenues decreased by $1.1 million or
38%, and $1.7 million or 29% for the three and six months ended June 28, 2002 as
compared with the corresponding period in fiscal 2001. The decrease in revenue
was due to the following factors:
o Weakness in our Satcom Galaxy Inmarsat C business. We announced early last
year that we would exit this product line due to the wide availability and
significant cost savings of cellular products.
o Slow down in system integration projects due to reduced spending at
municipalities.
o Reduced sales of wireless products due to the economic slow down.
Operating Income
Trimble Mobile Solutions operating loss increased by $0.2 million or 7% and
$0.5 million or 8% for the three and six months ended June 28, 2002 as compared
with the corresponding period in fiscal 2001. The increase in operating loss
were due to the following:
o Lower revenue base as compared to the same corresponding period of the
previous year.
25
o Decrease in margins due to the sell-off of existing Satcom inventory at
reduced prices.
o Significant costs incurred in the development of a service platform to
enable a range of asset management solutions including an internet
delivered cellular based solution for vehicle fleet management.
Component Technologies
Revenue
Products within the Component Technologies segment consist principally of
proprietary GPS chipsets and modules marketed to original equipment
manufacturers. Component Technologies revenues decreased by $1.4 million or 9%,
and $7.6 million or 23% for the three and six months ended June 28, 2002 as
compared with the corresponding period in fiscal 2001. The decrease in revenue
was primarily due to the following factors:
o Embedded product lines were down approximately $0.8 million or 20% and $3.1
million or 35% for the three and six month periods due to the economic
slowdown.
o Wireless Infrastructure product lines were down by approximately $2.4
million or 37% and $4.1 million or 40% for the three and six month periods
due to reduced spending in the telecommunications market.
o In-vehicle navigation sales increased by approximately $1.8 million for the
three month period due to strong demand by one of our major customers. This
was partially offset by a decrease in average selling prices. We expect
this trend to continue as technology advances in component technology will
enable, among other things, reduced cost
Operating Income
Component Technologies operating income decreased by $0.6 million or
21% and $1.6 million or 31% for the three and six months ended June 28, 2002 as
compared with the corresponding period in fiscal 2001. The decrease in operating
income was due primarily to lower revenue, unfavorable product mix change, and
partially offset by reductions in operating expenses.
Portfolio Technologies
Revenue
This segment is an aggregation of various operations that each equal less
than ten percent of the Company's total operating revenue. These markets include
the operations of the Military Advanced Systems division and Tripod Data
Systems. Portfolio Technologies revenues increased by $26,000 or less than 0.5%
for the three months ended June 28, 2002 as compared with the same corresponding
period in fiscal 2001. The increase in revenue was primarily due to the
following:
o Increase of $1.3 million or 46% in our military product lines.
o The above increases were offset by a reduction of $1.4 million in our
commercial aviation product line. The sale of the air transport product
line to Honeywell occurred in the first half of fiscal 2001.
Portfolio Technologies revenues decreased by $2.8 million or 17% for the
six months ended June 28, 2002 as compared with the same corresponding period in
fiscal 2001. The decrease in revenue was due to a reduction of $3.1 million in
our commercial aviation product line. The sale of the air transport product line
to Honeywell occurred in the first half of fiscal 2001.
26
Operating Income
Portfolio Technologies operating income increased by $2.8 million or 464%,
and $3.1 million or 253% for the three and six months ended June 28, 2002 as
compared with the same corresponding periods in fiscal 2001. The increase in
operating income was primarily due to the following:
o Decrease in research and development expenses of approximately $0.7 million
and $1.3 million is primarily due to an increase in cost reimbursement
funds for military research and development programs and a reduction in
temporary help and consultants.
o Disposal of the loss generating commercial aviation product line in the
three and six months of fiscal 2001 of approximately $1.8 million and $2.0
million.
International Revenues.
* Sales to our unaffiliated customers in locations outside the U.S.
comprised approximately 46% and 49% of total revenues for six months ended June
28, 2002 and June 29, 2001, respectively. North and South America represented
59% of total revenue, Europe 29%, and Asia 12% in the first six months of fiscal
2002. We anticipate that sales to international customers will continue to
account for a significant portion of our revenue. For this reason, we are
subject to the risks inherent in these foreign sales, including unexpected
changes in regulatory requirements, exchange rates, governmental approval, and
tariffs or other barriers. Even though the U.S. Government announced on March
29, 1996, that it would support and maintain the GPS system, and on May 1, 2000,
stated that it has no intent to ever again use Selective Availability (SA), a
method of degrading GPS accuracy, there may be reluctance in certain foreign
markets to purchase such products given the control of GPS by the U.S.
Government. Trimble's results of operations could be adversely affected if we
were unable to continue to generate significant sales in locations outside the
U.S.
Gross Margin
Gross margin varies due to a number of factors, including product mix,
international sales mix, customer type, the effects of production volumes and
fixed manufacturing costs on unit product costs, and new product start-up costs.
Gross margin as a percentage of total revenues was 50% and 51% for the three and
six months ended June 28, 2002 and 49% for the same corresponding periods in
fiscal 2001. The increase in gross margin percentage for the first three and six
months of 2002, compared with the same corresponding periods in fiscal 2001, was
a result of Trimble incurring a $3.0 and $6.0 million charge primarily
associated with the write-down of inventory related to the consolidation and
simplification of product lines last year, which was not repeated in fiscal
2002. Cost synergies and further integration of our Spectra Precision
acquisition also contributed to increased efficiencies in manufacturing costs
over the prior fiscal year.
Because of potential product mix changes within and among the industry
markets, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, including increases in component prices and other factors,
current level gross margins cannot be assured. In addition, should the global
economic conditions deteriorate further, gross margin could be further adversely
impacted.
27
Operating Expenses
The following table shows operating expenses for the periods indicated and
should be read in conjunction with the narrative descriptions of those operating
expenses below:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- --------------------------------------------------------------- -------------- ----------------- -------------- ---------------
(In thousands)
Research and development $ 14,986 $ 15,736 $ 30,024 $ 31,555
Sales and marketing 21,897 27,530 44,024 55,671
General and administrative 9,874 9,979 20,672 19,371
Restructuring charges 188 910 492 2,534
Amortization of goodwill and other purchased intangibles 2,324 7,394 4,302 14,710
----------- ----------- ----------- -----------
Total $ 49,269 $ 61,549 $ 99,514 $ 123,941
=========== =========== =========== ===========
Research and Development
Research and development spending decreased by $0.8 million and $1.5
million during the three and six month periods ended June 28, 2002, and
represented 12% and 13% of revenue, compared with 12% and 13% in the same
corresponding periods in fiscal 2001. The reduction of research and development
expenses was due to the transfer of employee related expenses to the CTCT joint
venture of approximately $1.0 million for the three months ended June 28, 2002.
* The Company believes that the development and introduction of new
products is critical to its future success and expects to continue its active
development of future products.
Sales and Marketing
Sales and marketing expense decreased by $5.6 million and $11.6 million
during the three and six month periods ended June 28, 2002, and represents 17%
and 19% of revenue, compared with 21% and 22% in the same corresponding periods
in fiscal 2001. The decreases in 2002 were due primarily to the following
factors:
o During fiscal 2001 the Company sold off many of its direct sales offices
which decreased sales and marketing expense by approximately $2.4 million
and $5.0 million for the three and six months ended June 28, 2002 as
compared to the same periods in fiscal year 2001.
o Decreases in compensation and related expenses, as well as, temporary help
and consulting expenses of approximately $1.5 million and $2.9 million for
the three and six months ended June 28, 2002 compared with similar periods
in prior year.
o Decreases in travel, advertising, promotional, trade show, and sales
commission expenses of approximately $1.1 million and $2.2 million for the
three and six months ended June 28, 2002 compared with similar periods in
prior year.
o Reduction in facility, equipment, office and telephone expenses of
approximately $0.5 million and $1.4 million for the three and six months
ended June 28, 2002 compared with similar periods in the prior year.
* 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.
28
General and Administrative
General and administrative expense decreased by $0.1 million during the
three month period ended June 28, 2002, representing 8% of revenue, compared
with 7% in the same corresponding period in fiscal 2001. The decrease in 2002
was due primarily to the following factors:
o Reduction in equipment, office, outside services and telephone expenses of
approximately $0.7 million for the three months ended June 28, 2002
compared with similar period in prior year.
o The above decreases were partially offset by an increase in compensation
and related expenses, as well as, temporary help and consulting expenses of
approximately $0.6 million for the three months ended June 28, 2002
compared with similar period in prior year.
General and administrative expense increased by $1.3 million during the six
month period ended June 28, 2002, representing 9% of revenue, compared with 7%
in the same corresponding period in fiscal 2001. The increase in 2002 was due
primarily to the following factors:
o An allowance for doubtful accounts charge of approximately $0.6 million
during the first fiscal quarter of 2002 primarily related to exposures
faced by the Company in Argentina because of the country's troubled
economy, as well as customers impacted by the difficult economic climate.
o Increase in compensation and related expenses, as well as, temporary help
and consulting/outside services.
Restructuring charges
Restructuring charges of $0.2 million and $0.5 million were recorded for
the three and six month periods ended June 28, 2002 respectively, which are
primarily related to severance costs. For the three and six month periods ended
June 29, 2001, restructuring charges of $0.9 million and $2.6 million were
recorded, which are primarily related to severance costs. These restructuring
activities impacted 30 individuals in the first six months of fiscal 2002. In
the six months of fiscal 2001, 195 individuals were impacted. As of June 28,
2002, all of the restructuring charges have been paid.
Spectra Precision Group Restructuring Activities
At the time the Company acquired the Spectra Precision Group in July 2000,
the Company formulated a restructuring plan and provided approximately $9.0
million for costs to close certain duplicative office facilities, combine
operations including redundant domestic and foreign legal entities, reduce
workforce in overlapping areas, and relocate certain employees. These costs were
accrued for as part of the allocation of the purchase price. Included in the
total cost was approximately $2.7 million related to the discontinuance of
overlapping product lines, which was included in our reserve for excess and
obsolete inventory. The facility consolidation and employee relocations resulted
primarily from combining certain office facilities and duplicative functions,
including management functions, of the Spectra Precision Group. As of June 28,
2002, the Company had charged against the reserve approximately $3.6 million, of
non inventory related charges, which consisted of $ 1.1 million for legal and
tax consulting expenses relating to consolidation of legal entities, $ 1.3
million for severance expenses, $0.8 million for facilities and direct sales
office closures, $ 0.3 million for an underfunded pension plan, and other costs
of $0.1 million, of which $0.7 million was paid in the first six months of 2002.
The Company revised its final estimates for costs to complete the remaining
planned activities and accordingly reduced its restructuring reserve by
approximately $1.1 million, with a corresponding adjustment to Goodwill, in the
fourth quarter of fiscal 2001. The reserve balance was approximately $1.3
million at June 28, 2002, and the Company anticipates completing the majority of
its remaining restructuring activities during fiscal 2002. These activities
consist principally of legal costs and other expenses required to combine
redundant legal entities.
29
The elements of the reserve at June 28, 2002, on the balance sheet
(included in accrued liabilities) are as follows:
Employee Severance and Facility Closure, Legal
Relocation and Tax Expense Total
(In thousands)
Total reserve $ 1,945 $ 4,370 $ 6,315
Amounts paid/written off (1,685) (2,296) (3,981)
Revision to estimates (260) (812) (1,072)
--------------------------------------------------------------------------
Balance as of June 28, 2002 $ - $ 1,262 $ 1,262
==========================================================================
Amortization of Goodwill, Purchased and Other Intangibles
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002 2001 2002 2001
- ------------------------------------------------------- ----------------- ----------------- ---------------- -----------------
(In thousands)
Amortization of goodwill $ - $1,954 $ - $3,909
Amortization of purchased intangibles 2,324 5,440 4,302 10,801
Amortization of other intangibles 186 229 395 470
----------------- ----------------- ---------------- -----------------
Total amortization of goodwill, purchased, and other
intangibles $2,510 $7,623 $4,697 $15,180
================= ================= ================ =================
Amortization expense of goodwill, purchased and other intangibles decreased
during the three and six month periods ended June 28, 2002 by approximately $5.1
million and $10. 5 million representing 2% of revenue in fiscal 2002, compared
with 6% in fiscal 2001. The decrease was primarily due to the adoption of SFAS
142, which does not require the amortization of goodwill and intangible assets
with indefinite useful lives.
Nonoperating income (expense), net
The following table shows nonoperating income (expenses), net for the
periods indicated and should be read in conjunction with the narrative
descriptions of those expenses below:
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
2002