UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 3, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____to____ Commission File Number 0-18645 TRIMBLE NAVIGATION LIMITED (Exact name of registrant as specified in its charter) California 94-2802192 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) identification No.) 645 North Mary Avenue, Sunnyvale, California 94088 (Address of Principal Executive Offices) (Zip Code) (408) 481-8000 (Registrant's telephone number, including area code) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of April 3, 1998, there were 22,788,600 shares of Common Stock (no par value) outstanding.
TRIMBLE NAVIGATION LIMITED This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Actual results could differ materially from those indicated in the forward-looking statements as a result of the risk factors set forth in this report. The Company has attempted to identify forward-looking statements in this report by placing an asterisk (*) in the left-hand margin of paragraphs containing those statements. INDEX Page PART I. FINANCIAL INFORMATION Number Item 1. Financial Statements Condensed Consolidated Balance Sheets - April 3, 1998 and January 2, 1998 3 Condensed Consolidated Statements of Operations - Three Months ended April 3, 1998 and March 31, 1997 4 Condensed Consolidated Statements of Cash Flows - Three Months ended April 3, 1998 and March 31, 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 18 SIGNATURES 19 2
PART I. FINANCIAL INFORMATION Item 1. Financial Statements TRIMBLE NAVIGATION LIMITED CONDENSED CONSOLIDATED BALANCE SHEETS April 3, January 2, 1998 1998 - ------------------------------------------------------------------------------- (In thousands) (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 16,931 $ 19,951 Short term investments 53,524 53,171 Accounts and other receivable, net 48,986 49,101 Inventories 52,887 47,773 Other current assets 4,002 4,195 ------------- ------------ Total current assets 176,330 174,191 Net property and equipment 21,629 21,965 Intangible assets 3,563 3,725 Deferred income taxes 335 356 Other assets 7,161 7,426 ------------- ------------ Total assets $ 209,018 $ 207,663 ============= ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 166 $ 44 Accounts payable 16,748 18,724 Accrued compensation and benefits 7,509 5,830 Customer advances 823 830 Accrued liabilities 10,261 9,391 Income taxes payable 2,466 2,664 ------------- ------------ Total current liabilities 37,973 37,483 ------------- ------------ Noncurrent portion of long-term debt and other liabilities 30,607 30,697 ------------- ------------ Total liabilities 68,580 68,180 ------------- ------------ Shareholders' equity: Common stock 131,894 132,655 Common stock warrants 700 700 Retained earnings (accumulated deficit) 8,591 6,676 Unrealized gain on short term investments 13 8 Foreign currency translation adjustment (760) (556) ------------- ------------ Total shareholders' equity 140,438 139,483 ------------- ------------ Total liabilities and shareholders' equity $ 209,018 $ 207,663 ============= ============ See accompanying notes to condensed consolidated financial statements. 3
TRIMBLE NAVIGATION LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended April 3, January 2, 1998 1998 - ------------------------------------------------------------------------------- (In thousands, except per share data) Total revenue $ 76,608 $ 60,551 ---------------- ---------------- Operating expenses: Cost of sales 38,644 29,045 Research and development 11,827 9,001 Sales and marketing 16,458 14,348 General and administrative 7,484 6,406 ---------------- ---------------- 74,413 58,800 ---------------- ---------------- Operating income 2,195 1,751 ---------------- ---------------- Nonoperating income (expense): Interest income 1,043 1,053 Interest and other expenses (858) (966) Foreign exchange gain , net 35 91 ---------------- ---------------- 220 178 ---------------- ---------------- Income before income taxes 2,415 1,929 Income tax provision 500 500 ---------------- ---------------- Net income $ 1,915 $ 1,429 ================ ================ Basic net income per share $ 0.08 $ 0.06 ================ ================ Shares used in calculating basic net income per share 22,780 22,066 ================ ================ Diluted net income per share $ 0.08 $ 0.06 ================ ================ Shares used in calculating diluted net income per share 23,620 22,434 ================ ================ See accompanying notes to condensed consolidated financial statements. 4
TRIMBLE NAVIGATION LIMITED NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - Basis of Presentation: The condensed consolidated financial statements for the three month periods ended April 3, 1998, and March 31, 1997 presented in this Quarterly Report on Form 10-Q are unaudited. The balance sheet at January 2, 1998, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these statements include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report to Shareholders for the year ended January 2, 1998. During fiscal year 1997 and effective as of the Company's 1997 fiscal year end, the Company changed from a calendar fiscal year end and adopted a 52-53 week fiscal year ending on the Friday nearest to December 31, which for fiscal 1998 will be January 1, 1999. The Company does not expect the effects of any differences due to the change of fiscal years to have a material impact on the Company's financial results of operations. The results of operations for the three month period ended April 3, 1998 are not necessarily indicative of the results that may be expected for the year ending January 1, 1999. NOTE 2 - Inventories: Inventories consist of the following: April 3, January 2, 1998 1998 - -------------------------------------------------------------------------- (In thousands) Raw materials $ 34,317 $ 32,123 Work-in-process 8,066 7,123 Finished goods 10,504 8,527 --------------- ---------------- $ 52,887 $ 47,773 --------------- ---------------- 5
NOTE 3 - New Accounting Standards: As of January 3, 1998, the Company adopted Statement 130 (SFAS 130), "Reporting Comprehensive Income." SFAS 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS 130 did not have any impact on the Company's net income or shareholders' equity for the period ended April 3, 1998. SFAS 130 requires unrealized gains or losses to be reported on the Company's securities which are available for sale and foreign currency translation adjustments, which prior to adoption were reported separately as part of shareholders' equity and which were included in other comprehensive income. Prior year financial statements have been reclassified to conform with the requirements of SFAS 130. The components of comprehensive income, net of related tax for the three months ended April 3, 1998 and March 31, 1997 are as follows: April 3, January 2, 1998 1998 - ------------------------------------------------------------------------------ (In thousands) Net income $ 1,915 $ 1,429 Unrealized gains/(losses) on securities 5 (63) Foreign currency translation adjustments (204) (231) ------------- ------------ Comprehensive income $ 1,716 $ 1,135 ============= ============ The components of accumulated other comprehensive income, net of related taxes at April 3, 1998 and January 2, 1998 are as follows: April 3, January 2, 1998 1998 - ------------------------------------------------------------------------------ (In thousands) Unrealized gains/(losses) on securities $ 13 $ 8 Foreign currency translation adjustments (760) (556) ------------- ------------ Accumulated comprehensive income $ (747) $ (548) ============= ============ In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information, which is effective for fiscal years beginning after December 15, 1997. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. Because SFAS 131 is effective for 6
financial statements for fiscal years beginning after December 15, 1997, the Company will adopt the new requirements for reporting in fiscal year 1998 and retroactively restate fiscal year 1997. Management has not completed its review of SFAS 131, but does not anticipate that the adoption of this statement will have a significant effect on the Company's reported segments. NOTE 4 - Earnings Per Share: The following table sets forth the computation of basic and diluted earnings per share: Three Months Ended April 3, January 2, 1998 1998 - ------------------------------------------------------------------------------- (in thousands except per share amounts) Numerator: Income available to common shareholders used in basic and diluted income per share $ 1,915 $ 1,429 Denominator: Weighted-average number of Common Shares used in basic income per share 22,780 22,066 Effect of dilutive securities: Common stock options 658 309 Common stock warrants 182 59 ----------- ---------- Weighted-average number of Common Shares and dilutive potential Common Shares used in diluted income per share 23,620 22,434 =========== ========== Basic income per share $ 0.08 $ 0.06 =========== ========== Diluted income per share $ 0.08 $ 0.06 =========== ========== NOTE 5 - Contingencies: Shareholder Litigation On December 6, 1995, two shareholders filed a class action lawsuit against the Company and certain directors and officers of the Company. Subsequent to that date, additional lawsuits were filed by other shareholders. The lawsuits were 7
subsequently amended and consolidated into one complaint which was filed on April 5, 1996. The amended consolidated complaint sought to bring an action as a class action consisting of all persons who purchased the common stock of the Company during the period April 18, 1995, through December 5, 1995 (the "Class Period"). The plaintiffs alleged that the defendants sought to induce the members of the Class to purchase the Company's common stock during the Class Period at artificially inflated prices. The plaintiffs seek recissory or compensatory damages with interest thereon, as well as reasonable attorneys' fees and extraordinary equitable and/or injunctive relief. The Company filed a motion to dismiss, which was heard by the Court on August 16, 1996. The court rejected the plaintiffs' lawsuit, but allowed thirty days to resubmit its complaint. On September 24, 1996, the plaintiffs filed an amended complaint. On April 28, 1997, the Court granted in part, and denied in part, the Company's motion to dismiss. The Court further granted the plaintiffs leave to replead certain dismissed claims. On June 19, 1997, the plaintiffs filed a third amended and consolidated complaint. The Company has answered the complaint by denying all liability. The Company does not believe that it is possible to predict the outcome of this litigation. Other Litigation On January 31, 1997, counsel for one Philip M. Clegg wrote to Trimble asserting that a license under Clegg's U.S. Patent No. 4,807,131, which was issued February 21, 1989, would be required by Trimble because of a joint venture Trimble had entered into with Caterpillar Corporation concerning the use of Trimble GPS products in combination with earth moving equipment. To date, no infringement action has been initiated on behalf of Mr. Clegg. The Company does not believe that there will be any adverse consequences to the Company as a result of this inquiry. A former shareholder has filed an action against the Company claiming rights to shares that were previously canceled on the Company's stock records pursuant to lost stock certificate indemnification agreements. The complaint was dismissed for a lack of jurisdiction. The Company does not believe that there will be any adverse consequences to the Company as a result of this case. In October 1995, an employee who was terminated by the Company in 1992 filed a complaint against the Company, alleging that his incentive stock options continued to vest subsequent to his termination. He sought damages of approximately $1,000,000. The Company filed a general denial in answer to the complaint. The trial was concluded on September 25, 1997, and the jury rendered its verdict in favor of the Company on all causes of action. It is unclear whether the time for appeal has past, although no appeal has been filed to date. The Company does not believe that an appeal, if any, would be successful. 8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Revenues Revenues for the three months ended April 3, 1998 and March 31, 1997, were $76,608,000 and $60,551,0000, respectively. The table below breaks out the Company's revenues by business unit: Three Months Ended April 3, ------------------------------------------ April 3, March 31, Increase/ 1998 1997 (Decrease) - ------------------------------------------------------------------------------- (In thousands) Commercial Systems $ 49,594 $ 38,122 30% Software & Component Technologies 8,947 9,575 (7)% Aerospace 18,067 12,854 41% -------------- ------------ ---------- Total $ 76,608 $ 60,551 27% -------------- ------------ ---------- Commercial Systems Commercial Systems revenues increased for the three months ended April 3, 1998 as compared to the corresponding period for 1997. The increase was primarily in the Land Survey, Mapping and GIS Systems, and Mobile Positioning and Communications vertical markets. The Land Survey market increase in the first quarter of 1998 over the first quarter of 1997 is due in part to strong customer acceptance of the new GPS Total Station 4800 product, which was introduced late the third quarter of 1997. Mapping and GIS sales increased in the first quarter of 1998 as strong demand for the product line continued. 9
Mobile Positioning and Communications revenues for the first quarter of 1998 were higher than the first quarter of 1997 due to increased demand for vehicle tracking units and to sales of the Galaxy Sentinel product which was introduced in the second quarter of 1997. Software and Component Technologies * Software and Component Technologies revenues decreased for the three months ended April 3, 1998, as compared with the corresponding period for 1997 due primarily to the slow down in the U.S. market in embedded GPS products. The company expects this condition to continue at least through the second quarter of fiscal year 1998. However, the Company believes that it has been able to maintained its market share worldwide. Aerospace * Aerospace revenues increased for the three months ending April 3, 1998, compared with the corresponding period for 1997 due to shipments to the U.S. Government under the CUGR program and strong sales for Honeywell-Trimble (HT 9100), as well as strong sales for the Terra by Trimble product. * 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. The Company believes that opportunities in this market have been substantially reduced by cutbacks in U.S. and foreign military spending. Revenue outside the US * Sales to unaffiliated customers in locations outside the U.S. comprised approximately 47% and 48% of revenue in the first three months of 1998 and 1997, respectively. During the first three months of 1998, the Company experienced higher revenues in the U.S. due primarily to strong customer acceptance of the new GPS total station 4800 product The Company 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 and, therefore, the Company is subject to the risks inherent in these sales, including unexpected changes in regulatory requirements, exchange rates, governmental approval, tariffs or other barriers. Even though the U.S. Government announced on March 29, 1996, that it would support and maintain the GPS system, as well as eliminate the use of Selective Availability (S/A) (a method of degrading GPS accuracy), customers in certain foreign markets may be reluctant to purchase products based on GPS technology given the control of GPS by the U.S. Government. The Company's results of operations could be adversely affected if the Company were unable to continue to generate significant sales in locations outside the U.S. Gross Margin * Gross margin varies on a quarterly basis due to a number of factors, including product mix, technology license fees, domestic versus international sales, 10
customer type, the effects of production volumes and fixed manufacturing costs on unit product costs and new product start-up costs. Gross margin as a percentage of total product revenue was 50% for the three months ended April 3, 1998, as compared with 52% in the corresponding 1997 period. The decrease in the gross margin percentages primarily reflects increased labor costs from new product introductions, expediting fees and rework for materials, and the use of outside manufacturing to relieve the over-capacity the Company is currently experiencing. In addition, because of mix changes within and among the business units, market pressures on unit selling prices, fluctuations in unit manufacturing costs, and other factors, there is no assurance that current margins will be sustained. While commercial systems products have the highest gross margins of all the Company's products, their margins have decreased, primarily due to the need to lower prices in response to competition. The Company expects competition to increase in its commercial system markets, and it is therefore likely that further price erosion will occur, with consequent lower gross margin percentages. * The Company also expects that a higher percentage of its business in the future will be conducted through alliances with larger strategic partners such as Honeywell, Caterpillar and Case. As a result of volume pricing and the assumption of certain operating costs in connection with such partners, margins are likely to be lower than sales directly to end-users. Operating Expenses The following table shows operating expenses for the periods indicated and should be read in conjunction with the narrative descriptions of those operating expenses below: Three Months Ended ---------------------------------------------- April 3, March 31, 1998 1997 Increase - ------------------------------------------------------------------------- (In Thousands) Research and development $ 11,827 $ 9,001 31% Sales and marketing 16,458 14,348 15% General and administrative 7,484 6,406 17% ------------- -------------- ------------- Total $ 35,769 $ 29,755 20% ------------- -------------- ------------- Research and Development Research and development expenses increased in the three months ended April 3, 1998, as compared with the corresponding 1997 period. The higher research and development expense in the 1998 period is due to an increase in personnel and the related expenses which accompany an increase in the number of employees. 11
There was also an increase in the number of specialized engineering consultants and temporary employees. The increase in research and development is part of the Company's continuing aggressive development of future products. * The Company expects that a significant portion of its future revenues and operating income will continue to be derived from sales of newly introduced products. Consequently, the Company's future success depends, in part, on its ability to continue to advance product technology and to develop and manufacture new competitive products with high gross profit margins. Development and manufacturing schedules for technology products are difficult to predict, and there can be no assurance that the Company will achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to the future success of the Company. In addition, certain of the Company's products are subject to governmental and similar certifications before they can be sold. For example, FAA certification is required for all aviation products. An inability or delay in obtaining such certifications could have an adverse effect on the Company's operating results. Sales and Marketing The increase in sales and marketing expenses for the three months ended April 3, 1998, as compared with the corresponding period in 1997 is due primarily to an increase in personnel and related expenses which accompany an increase in the number of employees. In addition, the Company experienced increases in advertising and promotional items incurred by Commercial Systems group for trade shows which occurred in the first quarter of 1998 including a world wide sales conference held by the Company in the first quarter of 1998, which resulted in increased travel expenses, as compared with the first quarter of 1997. * The Company's future growth will also depend upon the timely development and continued viability of the markets in which the Company currently competes and upon the Company's ability to continue to identify and exploit new markets for its products. In addition, the Company has encountered significant competition in selected markets, and the Company expects such competition to intensify as the market for GPS applications receives acceptance. Several of the Company's competitors are major corporations with substantially greater financial, technical, marketing and manufacturing resources. Increased competition is likely to result in reduced market share and in price reductions of GPS-based products, which could adversely affect the Company's revenues and profitability. General and Administrative The increase in general and administrative expense for the three months ended April 3, 1998, as compared with the corresponding period for 1997, is primarily do to an increase in personnel and the related expenses which accompany an increase in the number of employees. There was also an increase in the number of information system consultants and temporary employees. 12
Income Taxes The income tax rates of 21% and 26% for the three months ended April 3, 1998 and March 31, 1997, respectively, are less than the federal statutory rate of 35% primarily due to realization of previously reserved deferred tax assets. The 1998 rate is lower than the 1997 rate primarily due to lower taxes on foreign income. Inflation The effects of inflation on the Company's financial results have not been significant to date. Liquidity and Capital Resources * At April 3 1998, the Company had cash and cash equivalents of $16,931,000 and short-term investments of $53,524,000. The Company has relied primarily on cash provided by operating and financing activities and net sales of short-term investments to fund capital expenditures, the repurchase of the Company's common stock (see further explanation below), and other investing activities. Management believes that its cash, cash equivalents and short-term investment balances, together with its existing credit line, will be sufficient to meet its anticipated cash needs for at least one-year. For the three month period ended April 3, 1998, net cash provided from operating activities was $1,029,000 as compared to cash provided of $6,152,00 in the corresponding period in 1997. Inventory as of April 3, 1998 increased by $5,100,000 from the 1997 year end levels primarily due to purchases of strategic parts, and an increase in work in process and finished goods that could not be shipped prior to the Company's revenue recognition cut off for the quarter. The Company's ability to continue to generate cash from operations will depend in a large part on revenues, the rate of collections of accounts receivable and management of inventory levels. Cash provided by sales of common stock in 1998 represents the proceeds from purchases made pursuant to the Company's stock option and employee stock purchase plans and totaled $1,097,000 for the three months ended April 3, 1998. In August 1997, the Company entered into a three year $50,000,000 unsecured revolving credit facility with four banks (the "Credit Agreement"). This credit facility replaced the previous two year $30,000,000 unsecured line that expired in August 1997. The Credit Agreement enables the Company to borrow up to $50,000,000, provided that certain financial and other covenants are met. Under a separate agreement the Company has an additional $5,000,000 line of credit provided only by the lead bank under the Credit Agreement for "Letter of Credit" purposes, and this is also subject to the covenants in the main facility. 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 13
to 2.00 times, or 0.4% and borrowings to bear interest at 1.75% over LIBOR if the ratio is greater than 2.00 times. In addition to borrowing at the specified LIBOR rate, the Company has the right to borrow with interest at the higher of (i) one of the bank's annual prime rate and (ii) the federal funds rate plus 0.5%. To date, the Company has not made any borrowings under the lines. In addition, the Company is restricted from paying dividends under the terms of the Credit Agreement. In February 1996, the Company announced that it had approved a discretionary program whereby up to 600,000 shares of its common stock could be repurchased by the Company to offset the potential dilutive effects to earnings per share from the issuance of stock options. The Company intends to use existing cash, cash equivalents and short-term investments to finance any such stock repurchases under this program. In 1996, the Company purchased 250,000 shares at a cost of $3,545,000. In 1997, the Company purchased 139,500 shares at a cost of $1,834,000. In the first quarter of 1998, the Company purchased 95,000 shares at a cost of $1,859,000. The Company is continually evaluating potential external investments in technologies related to its business and, to date, has made relatively small investments in a number of GPS related technology companies. There can be no assurance that investments made to date and potential future investments will be successful. Year 2000 / GPS Week Number Rollover Issues In prior years, certain computer programs were written using two digits rather than four to define the applicable year. These programs were written without considering the impact of the upcoming change in the century and may experience problems handling dates beyond the year 1999. This could cause computer applications to fail or to create erroneous results unless corrective measures are taken. Incomplete or untimely resolution of the Year 2000 issue could have a material adverse impact on our Company's business, operations or financial condition in the future. The GPS week number rollover (WNRO) issue is peculiar to GPS technology. The constellation of GPS satellites, which are operated by the United States government, broadcast time in the form of a "GPS week number", and a time offset into each "GPS week." Week numbers range from 0 to 1023. Week 0 started on January 6, 1980, and week 1023 will end on August 21, 1999, at which time the week number will roll over back to 0. This may cause GPS receivers to erroneously interpret high-week-number, pre-WNRO data as post-dating later low-week-number, post-WNRO data. This may cause satellite positions to be miscalculated and produce gross position fix errors. Receivers that process and display calendar dates based on "weeks since 1980" may generate date calculation errors. Trimble has been assessing the impact that the Year 2000 issue will have on the Company's internal computer systems. In response to these assessments, which are ongoing, the Company has developed a plan to inventory critical systems and develop solutions to those systems that are found to have date-related deficiencies. Project plans call for the completion of the solution implementation phase and testing of those solutions prior to any anticipated 14
impact on our systems. The Company is also surveying critical suppliers and customers to determine the status of their Year 2000 compliance programs. Trimble is also assessing the capability of its products sold to customers over a period of years to handle the Year 2000 / GPS WNRO issues. The Company has developed a test plan that is based upon the U.S. Government supplied GPS Receiver Boundary Rollover Test Plan. The Company's test plan has been customized for each of its products and includes, at a minimum, the tests included in the U.S. Government supplied test plan. To perform these tests Trimble must rely upon commercially available simulators to simulate the satellites during WNRO. We have received compliance statements from the simulator suppliers. Based on work to date, assuming the accuracy of the simulators, and assuming that the proposed project plans, which continue to evolve, can be implemented as planned, the Company believes future costs relating to the Year 2000 / GPS WNRO issues will not have a material impact on the Company's consolidated financial position, results of operations or cash flows. Other Risk Factors The Company's revenues have historically tended to fluctuate on a quarterly basis due to the timing of shipments of products under contracts and the sale of licensee rights. A significant portion of the Company's quarterly revenues occurs from orders received and immediately shipped to customers in the last few weeks and days of a quarter. If orders are not received, or if shipments were to be delayed a few days at the end of a quarter, the operating results and reported earnings per share for that quarter could be significantly impacted. Future revenues are difficult to predict, and projections are based primarily on historical models, which are not necessarily accurate representations of the future. * The Company has a relatively fixed cost structure in the short term which is determined by the business plans and strategies the Company intends to implement in the three markets it addresses. This effective leveraging means that increases or decreases in revenues have more than a proportional impact on net income or losses. The Company estimates that a change in product revenue of $1 million would change earnings per share by 2 to 3 cents * The Company believes that its Software and Component Technologies business unit will produce a significant portion of the Company's business in the future. The Software and Component Technologies business unit differs in nature from most of the Company's markets because volumes are high and margins are relatively low. Software and Component Technologies customers are extremely price sensitive. As costs decrease through technological advances, these advances are typically passed on to the customer. To compete in the Software and Component Technologies market requires high-volume production and manufacturing techniques. Customers expect high quality standards with very low defect rates. Compared to competitors which have far greater resources in such high-volume manufacturing and associated support activities, the Company is relatively inexperienced. 15
The Company's stock price is subject to significant volatility. If revenues and/or earnings fail to meet the expectations of the investment community, there could be an immediate and significant impact on the trading price of the Company's stock. The value of the Company's products relies substantially on the Company's technical innovation in fields in which there are many current patent filings. The Company recognizes that as new patents are issued or are brought to the Company's attention by the holders of such patents, it may be necessary for the Company to withdraw products from the market, take a license from such patent holders, or redesign its products. The Company does not believe any of its products infringe patents or other proprietary rights of third parties, but cannot be certain they do not do so. In addition, the legal costs and engineering time required to safeguard intellectual property or to defend against litigation could become a significant expense of operations. Such events could have a material adverse effect on the Company's revenues or profitability. (See Note 5 to the Condensed Consolidated Financial Statements - Contingencies: Other Litigation) The Company is continuously evaluating alliances and external investments in technologies related to its business, and has already entered into alliances and made relatively small investments in a number of GPS related technology companies. Acquisitions of companies, divisions of companies, or products and alliances 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; and (iii) loss of key employees of acquired operations. Any such problems could have a material adverse effect on the Company's business, financial condition, and results of operations. No assurances can be given that the Company will not incur problems from current or future alliances, acquisitions, or investments. Furthermore, there can be no assurance that the Company will realize value from any such alliances, acquisitions, or investments. The Company's products rely on signals from the GPS Navstar satellite system built and maintained by the U.S. Department of Defense. Navstar satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites have design lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. To repair damaged or malfunctioning satellites is not economically feasible. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites would impair the current utility of the GPS system and the growth of current and additional market opportunities. In addition, there can be no assurance that the U.S. Government will remain committed to the operation and maintenance of GPS satellites over a long period of time, or that the policies of the U.S. Government for the use of GPS without charge will remain unchanged. However, the 1996 Presidential Decision Directive marks the first time in the evolution of GPS that access and use for the consumer, civilian and commercial 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 in the future. Any of the foregoing factors could affect the willingness of buyers of the Company's products to 16
select GPS-based systems instead of products based on competing technologies. Any resulting change in market demand for GPS products would have a material adverse effect on the Company's financial results. In 1995, certain European government organizations expressed concern regarding the susceptibility of GPS equipment to intentional or inadvertent signal interference. Such similar concern could translate into reduced demand for GPS products in certain geographic regions in the future. 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Page A. Exhibits Number 3.8 Bylaws of the Company, as amended 20-43 10.59 1993 Stock Option Plan, as amended 44-53 10.60 1988 Employee Stock Purchase Plan, as 54-67 amended 27.0 Financial Data Schedule for the quarters ended April 3, 1998 and March 31, 1997 68 B. Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended April 3, 1998 18
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIMBLE NAVIGATION LIMITED (Registrant) By: /s/ Dennis R. Ing Dennis R. Ing (Executive Vice President Finance, Chief Financial Officer) DATE: May 15, 1998 19