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 JULY 4, 2003 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 94085 ------------------------------------------ (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 [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined under in Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ] As of August 7, 2003, there were 32,612,030 shares of Common Stock (no par value) outstanding. <page> TRIMBLE NAVIGATION LIMITED FORM 10-Q INDEX <table> <caption> Page Number PART I - FINANCIAL INFORMATION <s> <c> <c> ITEM 1. Financial Statements: Consolidated Condensed Balance Sheets -- July 4, 2003 and January 3, 2003 (unaudited).............................. 3 Consolidated Condensed Statements of Operations -- Three and Six Months Ended July 4, 2003 and June 28, 2002 (unaudited)..... 4 Consolidated Condensed Statements of Cash Flows -- Six Months Ended July 4, 2003 and June 28, 2002 (unaudited)............... 5 Notes to Consolidated Condensed Financial Statements........................ 6-18 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................... 18-34 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.................. 35-36 ITEM 4. Controls and Procedures..................................................... 36 PART II - OTHER INFORMATION ITEM 1. Legal Proceedings........................................................... 37 ITEM 2. Changes in Securities and Use of Proceeds................................... 37 ITEM 4. Submission of Matters to a Vote of Securities Holders....................... 37 ITEM 6. Exhibits and Reports on Form 8-K............................................ 38,45 SIGNATURES........................................................................... 40-44 </table>
PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements <table> <caption> TRIMBLE NAVIGATION LIMITED CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) July 4, January 3, As at 2003 2003 (1) - ----- ---- -------- (in thousands) ASSETS <s> <c> <c> Current assets: Cash and cash equivalents $ 30,825 $ 28,679 Accounts and other receivables, net 114,661 79,645 Inventories, net 71,108 61,144 Other current assets 7,398 8,477 ----- ----- Total current assets 223,992 177,945 Property and equipment, at cost less accumulated depreciation 21,591 22,037 Goodwill 216,384 205,933 Other intangible assets, less accumulated amortization 18,916 23,238 Deferred income taxes 434 417 Other assets 22,985 12,086 ------ ------ Total non-current assets 280,310 263,711 ------- ------- Total assets $ 504,302 $ 441,656 ========= ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank and other short-term borrowings $ - $ 6,556 Current portion of long-term debt 12,623 24,104 Accounts payable 36,719 30,669 Accrued compensation and benefits 22,467 17,728 Accrued liabilities 16,053 21,000 Accrued warranty expense 6,591 6,394 Deferred income tax liabilities 1,385 - Income taxes payable 7,187 6,450 ----- ----- Total current liabilities 103,025 112,901 Non-current portion of long-term debt 98,114 107,865 Deferred gain on joint venture 10,377 10,792 Deferred income tax liabilities 2,779 2,561 Other non-current liabilities 6,434 6,186 ----- ----- Total liabilities 220,729 240,305 ------- ------- Commitments and Contingencies Shareholders' equity: Common stock, no par value; 60,000 shares authorized; 32,309 and 29,309 shares outstanding, respectively 277,719 225,872 Accumulated deficit (10,037) (23,495) Accumulated other comprehensive income (loss) 15,891 (1,026) ------ ------ Total shareholders' equity 283,573 201,351 ------- ------- Total liabilities and shareholders' equity $ 504,302 $ 441,656 ========= ========== </table> (1) Derived from the January 3, 2003 audited consolidated financial statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2002. * See accompanying Notes to Consolidated Condensed Financial Statements. <page> <table> <caption> TRIMBLE NAVIGATION LIMITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (in thousands, except per share data) <s> <c> <c> <c> <c> Revenue $138,132 $123,256 $ 265,457 $ 227,285 Cost of revenue 67,037 62,305 132,607 112,001 ------ ------ ------- ------- Gross margin 71,095 60,951 132,850 115,284 Operating expenses Research and development 17,077 14,986 33,117 30,024 Sales and marketing 24,560 21,897 48,557 44,024 General and administrative 9,896 9,874 18,531 20,672 Restructuring charges 716 188 1,106 492 Amortization of purchased intangibles 1,725 2,324 3,520 4,302 ----- ----- ----- ----- Total operating expenses 53,974 49,269 104,831 99,514 ------ ------ ------- ------ Operating income 17,121 11,682 28,019 15,770 Non-operating income (expense), net Interest income 82 133 187 220 Interest expense (6,096) (3,548) (9,576) (7,578) Foreign currency transaction gain (loss), net 391 (710) 483 (769) Expenses for affiliated operations, net (1,901) (1,210) (3,116) (1,210) Other income (expense), net (92) (21) (139) 178 --- --- ---- --- Total non-operating expense, net (7,616) (5,356) (12,161) (9,159) ------- ------- ------- ------ Income before income taxes 9,505 6,326 15,858 6,611 Income tax provision 1,400 2,000 2,400 3,000 ----- ----- ----- ----- Net income $ 8,105 $ 4,326 $ 13,458 $ 3,611 ======== ======== ========= ========= Basic earnings per share $ 0.26 $ 0.15 $ 0.44 $ 0.13 ======== ======== ========= ========= Shares used in calculating basic earnings per share 31,474 28,339 30,417 28,149 Diluted earnings per share $ 0.25 $ 0.15 $ 0.43 $ 0.13 ======== ======== ========= ========= Shares used in calculating diluted earnings per share 33,079 29,058 31,564 28,758 </table> * See accompanying Notes to Consolidated Condensed Financial Statements.
TRIMBLE NAVIGATION LIMITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended ---------------- July 4, June 28, 2003 2002 ---- ---- (In thousands) Cash flow from operating activities: Net income $ 13,458 $3,611 Adjustments to reconcile net income to cash flows provided by operating activities: Depreciation expense 4,460 5,585 Amortization expense 3,908 4,697 Provision for doubtful accounts 150 1,542 Amortization of deferred gain - (796) Amortization of debt issuance cost 3,273 - Deferred income taxes 1,588 1,044 Other 1,875 892 Decrease (increase) in assets: Accounts receivable, net (32,550) (14,001) Inventories (10,795) (784) Other assets (2,877) (1,239) Effect of foreign currency translation adjustment 5,132 757 Increase (decrease) in liabilities: Accounts payable 6,050 2,272 Accrued compensation and benefits 4,739 2,457 Deferred gain on joint venture (415) 11,000 Deferred gain - other - 324 Accrued liabilities (2,366) (2,752) Income taxes payable 737 1,571 --- ----- Net cash provided (used) by operating activities (3,633) 16,180 ------ ------ Cash flow from investing activities: Acquisition of property and equipment, net (3,472) (4,213) Acquisitions, net of cash acquired (5,453) (2,158) Costs of capitalized patents (13) (48) --- --- Net cash used by investing activities (8,938) (6,419) ------ ------- Cash flow from financing activities: Issuance of common stock and warrants 44,386 19,262 Collections (payment) of notes receivable 645 (665) Payments on long-term debt and revolving credit lines (30,314) (31,700) -------- -------- Net cash provided (used) by financing activities 14,717 (13,103) ------ -------- Net increase (decrease) in cash and cash equivalents 2,146 (3,342) Cash and cash equivalents, beginning of period 28,679 31,078 ------ ------ Cash and cash equivalents, end of period $ 30,825 $ 27,736 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 7,993 $ 10,294 Income tax, net of refunds 290 1,733 * See accompanying Notes to Consolidated Condensed Financial Statements. <page> NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - UNAUDITED NOTE 1 -- Basis of Presentation and New Accounting Standards: 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 July 4, 2003 and June 28, 2002, which are presented in this Quarterly Report on Form 10-Q are unaudited. The balance sheet at January 3, 2003, 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 of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented. Certain amounts from prior years have been reclassified to conform to the current year presentation. 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 January 3, 2003. The results of operations for the three and six month periods ended July 4, 2003 are not necessarily indicative of the results that may be expected for the fiscal year ending January 2, 2004. New Accounting Standards In November of 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 is not expected to have a material impact on the Company's financial condition or results of operations. In January of 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 requires a variable interest entity ("VIE") to be consolidated by a company if that company is considered to be the primary beneficiary in a VIE. Primary beneficiary is the party subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The requirements of FIN No. 46 apply immediately to VIE's created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. The Company is currently evaluating the provisions of FIN No. 46. In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments With Characteristics of both Liabilities and Equity" which requires freestanding financial instruments such as mandatory redeemable shares, forward purchase contracts and written put options to be reported as liabilities by their issuers as well as related new disclosure requirements. The provisions of SFAS No. 150 are effective for instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on the Company's financial condition or results of operations. Stock Compensation and SFAS 123 Disclosures In accordance with the provisions of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation" and "Statement of Financial Accounting Standards No. 148 ("SFAS 148"), "Accounting for Stock-Based Compensation - Transition and Disclosure," Trimble applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its stock option plans and stock purchase plan. Accordingly, the Company does not recognize compensation cost for stock options granted at fair market value. <page> For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period, and the estimated fair value of purchases under the employee stock purchase plan is expensed in the year of purchase as well as the stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value based method had been applied to all awards. The effects on pro forma disclosure of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosure of future years. Pro forma information regarding net income (loss) and earnings (loss) per share is required by SFAS No. 123 and has been determined as if Trimble had accounted for its employee stock options and purchases under the employee stock purchase plan using the fair value method of SFAS No.123. The fair value for these options was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions at July 4, 2003 and June 28, 2002: July 4, June 28, 2003 2002 ---- ---- Expected stock price volatility 61.4% 53.3% Risk free interest rate 2.9% 3.1% Expected life of options after vesting 1.5 1.4 Expected dividend yield - - The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Trimble's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of its employee stock options. Trimble's pro forma information is as follows: <table> <caption> Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- <s> <c> <c> <c> <c> (In thousands) Net income - as reported $ 8,105 $ 4,326 $ 13,458 $ 3,611 Stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects 2,970 3,473 5,364 6,380 Net earnings (loss) - pro forma 5,135 853 8,094 (2,769) Basic earnings per share - as reported 0.26 0.15 0.44 0.13 Basic earnings (loss) per share - pro forma 0.16 0.03 0.27 (0.10) Diluted earnings per share - as reported 0.25 0.15 0.43 0.13 Diluted earnings (loss) per share - pro forma 0.16 0.03 0.26 (0.10) </table> NOTE 2 - Acquisitions: The consolidated condensed financial statements include the results of operations of acquired companies commencing on the date of acquisition. The total purchase consideration for each of the below acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. Applanix Corporation * At the beginning of the third fiscal quarter, Trimble acquired privately held Applanix Corporation of Ontario, Canada in a stock transaction valued at CAD $25 million (769,493 shares valued at approximately US$18.7 million). <page> Applanix develops systems that integrate Inertial Navigation System (INS) and Global Positioning System (GPS) technologies. Trimble expects the Applanix acquisition to extend its technology portfolio and enable increased robustness and capabilities in its future positioning products. Applanix's performance will be reported under the Company's Portfolio Technologies business segment. LeveLite Technology, Inc. On August 15, 2002, Trimble acquired LeveLite Technology, Inc. ("LeveLite"), a California corporation, for approximately $5.7 million. This strategic acquisition complements Trimble's entry-level construction instrument product line. The purchase price consisted of 437,084 shares of common stock. The merger agreement provides for Trimble to make additional earn-out payments not to exceed $3.9 million (in common stock and cash payment) based on future revenues derived from existing product sales to a certain customer. The additional payments, if earned, result in additional goodwill. As of July 4, 2003, the total earn-out amount was approximately $1.1 million. Also, if Trimble receives any proceeds from a pending litigation, a portion will be paid to the former shareholders of LeveLite. Grid Data, Inc. 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 earn-out payments based upon the completion of certain business milestones. In June 2002, Trimble issued 268,352 shares in settlement of all earn-out payments, which resulted in additional goodwill of $4.8 million, with a final purchase price of approximately $8.3 million. NOTE 3 - Joint Ventures: Caterpillar Trimble Control Technologies Joint Venture On April 1, 2002, Caterpillar Trimble Control Technologies LLC ("CTCT"), a joint venture formed by Trimble and Caterpillar began operations. CTCT is 50 percent owned by Trimble and 50 percent owned by Caterpillar, with equal voting rights. It is developing and marketing next generation 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 plus 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 CTCT. During the first fiscal quarter of 2002, Trimble received a special cash distribution of $11.0 million from CTCT. Trimble 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 CTCT under the equity method. When and if CTCT 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 un-amortized. To the extent that it is possible that the Company will have any future-funding obligation relating to CTCT, then the relevant amount of the $11.0 million will be deferred until such a time, as the funding obligation no longer exists. Both Trimble's share of profits (losses) under the equity method and the amortization of the $11.0 million deferred gain are recorded under the heading of "Expense for affiliated operations, net" in Non-operating income (expense). <page> The expenses for affiliated operations at CTCT, net is comprised of incremental costs as a result of purchasing products from CTCT at a higher price than Trimble's original manufacturing costs, partially offset by contract manufacturing fees charged to CTCT: <table> <caption> Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (in millions) <s> <c> <c> <c> <c> Total expenses for affiliated operations, net* $ 1.9 $ 1.2 $ 3.1 $ 1.2 </table> * Due to the nature of the relationship between Trimble and CTCT, a related party, the impact of these agreements is classified under non-operating income (expense) under the heading of "Expense for affiliated operations, net". Reimbursement of costs from CTCT due to employee-related costs for Trimble's employees devoted to CTCT: Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (in millions) Total reimbursed costs from CTCT $ 1.9 $ 1.2 $ 3.8 $ 1.2 Trimble has adopted the equity method of accounting for its investment in CTCT. This requires that the Company records its share of CTCT profits or losses in a given fiscal period, partially offset by the amortization of an equal amount of the original deferred gain on the sale of technology to CTCT. These transactions are recorded as a Non-operating expense under the heading of "Expense for affiliated operations, net": Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (in millions) CTCT's reportable loss $ (0.4) $ (0.3) $ (0.8) $ (0.3) Trimble's share of CTCT's reportable loss $ (0.2) $ (0.1) $ (0.4) $ (0.1) At July 4, 2003, the outstanding balance due from CTCT to Trimble was approximately $5.9 million while the outstanding balance due to CTCT from Trimble was approximately $5.7 million. <page> Nikon-Trimble Joint Venture On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to form a joint venture in Japan, Nikon-Trimble Co., Ltd. ("Nikon-Trimble"), which would assume the operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of Nikon Corporation and Trimble Japan KK, a Japanese subsidiary of Trimble. Nikon-Trimble began operations in July 2003. Under the terms of the Nikon-Trimble agreement, Nikon contributed (Y)1.2 billion (approximately US$10 million on June 30, 2003) in cash, while Trimble contributed (Y)500 million (approximately US$4.1 million on June 30, 2003) in cash and (Y)700 million of its common stock (232,834 shares valued at approximately US$5.9 million on June 30, 2003). The Nikon-Trimble joint venture purchased certain tangible and intangible assets from Nikon Geotecs Co., Ltd. and Trimble Japan KK. Nikon-Trimble is 50 percent owned by Trimble and 50 percent owned by Nikon, with equal voting rights. It is focusing on the design and manufacture of surveying instruments including mechanical total stations and related products. In Japan, this joint venture will distribute Nikon's survey products as well as Trimble's Global Positioning System (GPS) survey products and other Engineering and Contstruction products, including robotic total stations. Outside of Japan, Trimble will be the exclusive distributor of Nikon survey and construction products. Trimble has adopted the equity method of accounting for its investment in Nikon-Trimble, with 50% share of profit or loss from this joint venture to be reported by Trimble in the Non-operating section of the Consolidated Statement of Operations under the heading of "Expenses for affiliated operations, net." At July 4, 2003, the outstanding balance from Nikon-Trimble due to Trimble was approximately $2.6 million related to the transfer of certain tangible and intangible assets from Trimble Japan KK. NOTE 4 - Goodwill and Intangible Assets: Goodwill and purchased intangible assets consisted of the following: <table> <caption> July 4, January 3, As of 2003 2003 (in thousands) <s> <c> <c> Goodwill: Goodwill, Spectra Precision acquisition 196,540 185,277 Goodwill, other acquisitions 19,844 20,656 ------ ------ Total goodwill* $ 216,384 $ 205,933 ========== ========== Other intangible assets: Intangible assets with definite life: Technology 27,029 25,986 Trade names, trademarks, patents, and other intellectual property 20,548 21,594 ------ ------ Total intangible assets 47,577 47,580 Less accumulated amortization (28,661) (24,342) ------- ------- Total Other intangible assets, net $ 18,916 $ 23,238 ========== ========== </table> * The increase in goodwill during the six-months of 2003 was primarily due to the weakening of the US dollar versus Euro and Swedish Krona of approximately $8.3 million. <page> NOTE 5 -- Certain Balance Sheet Components: Inventories, net consisted of the following: July 4, January 3, As of 2003 2003 (in thousands) Raw materials $ 20,922 $ 21,098 Work-in-process 3,322 5,187 Finished goods 46,864 34,859 ------ ------ $ 71,108 $ 61,144 ========= ======== Other current assets, net consisted of the following: July 4, January 3, As of 2003 2003 - ----- ---- ---- (in thousands) Notes receivable $ 1,040 $ 1,685 Prepaid expenses 5,434 5,495 Other 924 1,297 --- ----- $ 7,398 $ 8,477 ======== ========= Property and equipment consisted of the following: July 4, January 3, As of 2003 2003 - ----- ---- ---- (in thousands) Machinery and equipment $ 70,686 $ 64,964 Furniture and fixtures 10,092 9,779 Leasehold improvements 6,649 6,558 Buildings 5,253 5,253 Land 1,391 1,391 ----- ----- 94,071 87,945 Less accumulated depreciation (72,480) (65,908) ------- ------- $ 21,591 $ 22,037 ========= ========== Other non-current assets consisted of the following: July 4, January 3, As of 2003 2003 - ----- ---- ---- (in thousands) Debt issuance costs, net $ 1,826 $ 2,493 Nikon-Trimble joint venture investment* 10,570 - Other investments 1,384 1,381 Deposits 1,112 1,196 Demonstration equipment, net 3,954 2,665 Receivables from employees 1,050 1,223 Other 3,089 3,128 ----- ----- $ 22,985 $ 12,086 =========== ========== * Includes transaction costs of approximately $0.5 million. <page> NOTE 6 -- Derivative Financial Instruments: Trimble transacts business in various foreign currencies and hedges certain identified risks associated with foreign currency transactions in order to minimize the impact of changes in foreign currency exchange rates on earnings. Trimble utilizes forward contracts to hedge certain trade and inter-company receivables and payables. These contracts reduce the exposure to fluctuations in exchange rate movements, as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the hedge contracts. These hedge instruments are marked to market through earnings every period. The following table provides information about our foreign exchange forward contracts outstanding as of July 4, 2003: Foreign Currency Contract Value Fair Value in Amount USD USD Currency Buy/Sell (in thousands) (in thousands) (in thousands) - -------- -------- -------------- -------------- -------------- AUD Buy 1,300 $ (794) $ (881) CAD Buy 470 (334) (351) EUR Buy 1,693 (1,947) (1,944) JPY Buy 122,864 (1,031) (1,040) MXN Buy 320 (29) (31) NZD Buy 4,100 (2,375) (2,438) SEK Buy 112,241 (13,577) (13,991) CAD Sell (700) 457 524 EUR Sell (28,859) 32,416 33,080 JPY Sell (551,795) 4,652 4,676 MXN Sell (5,000) 460 473 $ 17,898 $ 18,078 --------- --------- NOTE 7 -- Long-Term Debt: Trimble's long-term debt consists of the following: July 4, January 3, As of 2003 2003 - ----- ---- ---- (in thousands) Credit Facilities: Term loan $ 50,000 $ 32,600 Revolving credit facility 59,000 35,000 Subordinated note - 69,136 Promissory notes and other 1,737 1,789 ----- ----- 110,737 138,525 Less bank and other short-term borrowings - 6,556 Less current portion of long-term debt 12,623 24,104 ------ ------ Non-current portion $ 98,114 $ 107,865 ======== ========= <page> The following table summarizes our future repayment obligations (excluding interest): <table> <caption> 2007 and July 3, 2003 Total 2003 2004 2005 2006 Beyond - ------------ ----- ---- ---- ---- ---- ------ <s> <c> <c> <c> <c> <c> <c> (in thousands) Credit Facilities: Term Loan 50,000 $ 6,250 $12,500 $12,500 $12,500 $6,250 Revolving credit facility 59,000 - - - 59,000 - Promissory note and other 1,737 55 110 110 110 1,352 Total contractual cash obligations $110,737 $ 6,305 $12,610 $12,610 $71,610 $7,602 </table> Credit Facility On June 25, 2003, Trimble obtained a $175 million secured credit facility, ("the Credit Facility") from a syndicate of 9 banks to repay the Thermo Subordinated Note ("the Subordinated Note") and certain existing higher interest credit facilities, pay fees and expenses related to this new credit facility, and for ongoing working capital and general corporate needs. Due to the full repayment of the Subordinated Note and the amount outstanding under the original higher interest credit facility, the Company recorded a non-cash charge as Interest Expense of approximately $3.6 million. At July 4, 2003, Trimble had approximately $109 million of borrowings under the Credit Facility, comprised of a $50 million four-year term loan and $59 million of a $125 million three-year revolver. The Company has access to an additional $64 million of cash under the terms of the revolving credit facility. The Company has commitment fees on the unused portion of 0.5% if the Leverage Ratio (which is defined as total indebtedness to 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 Facility is fixed for the first six months at LIBOR plus 200 basis points (3.11 % at July 4, 2003) and is thereafter tied to a formula, based on the Leverage Ratio. The Credit Facility is secured by all of the Company's material assets, except for assets that are subject to foreign tax considerations. Financial covenants of the Credit Facility include leverage, fixed charge, and minimum net worth tests. At July 4, 2003, Trimble was in compliance with all financial debt covenants. The amount due under the revolver loan is paid as the loan matures on June 25, 2006, and the loan commitment fees are paid on a quarterly basis. Under the terms of the Credit Facility, the Company is currently restricted from paying dividends and is limited as to the amount of its common stock that it can repurchase. The Company is allowed to pay dividends and repurchase shares of its common stock up to 25% of net income in the previous fiscal year. Subordinated Note In the first fiscal quarter of 2002, the Company renegotiated the terms of the Subordinated Note and under the revised agreement extended the term of the Subordinated Note until July 14, 2004, at an interest rate of approximately 10.4% per year. The Subordinated Note was paid-off in full on June 25, 2003 as permitted in the new Credit Facility Agreement dated June 25, 2003. Promissory Note The promissory note consists of a $1.7 million liability arising from the purchase of a building for Trimble's Corvallis, Oregon site. The note is payable in monthly installments through April 2015, bearing a 3.99% variable interest rate as of July 4, 2003. <page> Weighted Average Cost of Debt The weighted average cost of debt was approximately 3.11% for the fiscal quarter ended July 4, 2003. NOTE 8 -- Segment Information: Trimble is a designer and distributor of positioning products and applications enabled by GPS, optical, laser, and wireless communications technology. The Company designs and markets products, by delivering integrated information solutions such as collecting, analyzing, and displaying position data to its end-users. Trimble offers an integrated product line for diverse applications in its targeted markets. To achieve distribution, marketing, production, and technology advantages in Trimble's targeted markets, the Company manages its operations in the following five segments: o Engineering and Construction -- Consists of products currently used by survey and 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 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 mapping and geographic information systems (GIS) and Agriculture operations. Trimble has aggregated these business operations under a single general manager in order to continue to leverage its research and development activities due to the similarities of products across the segment. o 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. Trimble offers a range of products that address a number of sectors of this market including truck fleets, security, telematics, and public safety vehicles. o Component Technologies -- Currently, Trimble markets its GPS 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 component products include: timing applications for synchronizing wireless and computer systems; in-vehicle navigation and telematics (tracking) systems; fleet management; security systems; data collection networks; 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. During the first two fiscal quarters of 2003, this segment was comprised solely of the Military and Advanced Systems business. The Tripod Data Systems business is now included in the Engineering and Construction segment, while previously it was included in this segment. Beginning with the third quarter of fiscal 2003, Applanix's performance will be reported in this business segment. 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 Company and each of its segments employ the same accounting policies. <page> The following table presents revenues, operating income (loss), and identifiable assets for the five segments. All financial information for fiscal 2002 has been re-stated in order to reflect the realignment of the reportable segments. Operating income (loss) is net revenue less operating expenses, excluding general corporate expenses, goodwill amortization, restructuring charges, non-operating income (expense), and income taxes. The identifiable assets that Trimble's Chief Operating Decision Maker (Trimble's Chief Executive Officer) views by segment are accounts receivable and inventory. <table> <caption> Engineering & Field Mobile Component Portfolio Construction Solutions Solutions Technologies Technologies Total ------------ --------- --------- ------------ ------------ ----- (In thousands) <s> <c> <c> <c> <c> <c> <c> Three months ended July 4, 2003: External net revenues $ 95,797 $ 19,950 $ 3,651 $ 16,820 $ 1,914 $138,132 Operating income (loss) before corporate allocations $ 18,623 $ 3,555 $ (2,025) $ 4,558 $ (386) $ 24,325 Three months ended June 28, 2002: External net revenues $ 83,856 $ 18,212 $ 1,840 $ 15,175 $ 4,173 $123,256 Operating income (loss) before corporate allocations $ 15,124 $ 3,152 $ (3,172) $ 2,173 $ 754 $ 18,031 Six months ended July 4, 2003: External net revenues $181,460 $ 40,631 $ 6,819 $ 32,686 $ 3,861 $265,457 Operating income (loss) before corporate allocations $ 30,863 $ 6,869 $ (2,712) $ 8,413 $(1,138) $ 42,295 Six months ended June 28, 2002: External net revenues $155,905 $ 36,243 $ 4,192 $ 25,200 $ 5,745 $227,285 Operating income (loss) before corporate allocations $ 27,319 $ 7,014 $ (6,495) $ 3,215 $ (243) $ 30,810 As of July 4, 2003 Accounts receivable (1) $105,213 $ 13,103 $ 2,698 $ 8,275 $ 2,736 $132,025 Inventories $ 58,196 $ 4,639 $ 3,057 $ 1,861 $ 3,355 $ 71,108 As of January 3, 2003 Accounts receivable (1) $ 73,474 $ 11,598 $ 1,960 $ 11,276 $ 1,966 $100,274 Inventories $ 46,332 $ 7,337 $ 1,986 $ 2,853 $ 2,636 $ 61,144 - ---------------------------- </table> (1) As presented, the accounts receivable number excludes cash received in advance, deferred revenue and allowances, which are not allocated between segments. The following are reconciliations corresponding to totals in the accompanying consolidated condensed financial statements: Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands) Operating income: Total for reportable segments $24,325 $18,031 $42,295 $30,810 Unallocated corporate expenses 4,763 3,837 9,650 10,246 Amortization of purchased intangible assets 1,725 2,324 3,520 4,302 Restructuring charges 716 188 1,106 492 --- --- ----- --- Operating income $17,121 $11,682 $28,019 $15,770 ======= ======= ======= ======= <page> July 4, January 3, As of 2003 2003 - ----- ---- ---- (In thousands) Assets: Accounts receivable total for reportable divisions $132,025 $100,274 Unallocated (1) (17,364) (20,629) ------- ------- Total $114,661 $79,645 ======== ======= - ---------- (1) Includes cash in advance, deferred revenue, reserves, and other receivables that are not allocated by segment. NOTE 9 -- Equity: Comprehensive Income (Loss) The components of comprehensive income, net of related tax, include: <table> <caption> Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands) <s> <c> <c> <c> <c> Net income $ 8,105 $ 4,326 $13,458 $ 3,611 Foreign currency translation adjustments 12,619 11,685 16,825 11,469 Net gain on hedging transactions 14 - 7 203 Net unrealized gain on investments 57 14 85 14 Comprehensive income $20,795 $16,025 $30,375 $15,297 </table> Accumulated other comprehensive income on the consolidated condensed 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: July 4, January 3, As of 2003 2003 (In thousands) Cumulative foreign currency translation adjustments $ 15,793 $ (1,032) Net gain on hedging transactions 14 7 Net unrealized gain (loss) on investments 84 (1) -- -- Accumulated other comprehensive income (loss) $ 15,891 (1,026) ========= ====== Equity Financing: On April 14, 2003, Trimble sold 2,100,000 shares of its common stock, no par value per share, to a certain investor at a price of $18.25 per share in an offering pursuant to its shelf registration statement. The offering resulted in net proceeds to Trimble of approximately $36.6 million, approximately $31 million of which was used to pay down the principal balance and $5.6 million was used to pay down the accrued interest due on the Subordinated Note. This Subordinated Note was paid off on June 25, 2003.
NOTE 10 -- Earnings Per Share: The following data show the amounts used in computing earnings per share and the effect on the weighted-average number of shares of dilutive potential common stock. <table> <caption> Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands) <s> <c> <c> <c> <c> Numerator: Net Income $ 8,105 $ 4,326 $ 13,458 $ 3,611 ======= ======= ======== ======= Denominator: Weighted-average number of common shares used in basic earnings per share 31,429 28,339 30,395 28,149 Effect of dilutive securities (using treasury Stock method): Common stock options 1,425 673 1,068 587 Common stock warrants 225 46 101 22 Weighted-average number of common shares and dilutive potential common shares used in diluted earnings per share 33,079 29,058 31,564 28,758 ====== ====== ====== ====== Basic earnings per share $0.26 $0.15 $0.44 $0.13 Diluted earnings per share $0.25 $0.15 $0.43 $0.13 </table> <page> NOTE 11 -- Related-Party Transactions: Lease Trimble currently leases office space in Ohio from an association of three individuals, one of whom is an employee of one of the U.S. operating units, under a non-cancelable operating lease arrangement expiring in 2011. The annual rent is subject to adjustment based on the terms of the lease. The Consolidated Condensed Statements of Operations include expenses from this operating lease of $86,351 for each of fiscal quarters ended July 4, 2003 and June 28, 2002, and $172,702 for each of six-month periods ended July 4, 2003 and June 28, 2002. Notes Receivable Trimble has notes receivable from officers and employees of approximately $1.05 million as of July 4, 2003 and $1.2 million as of January 3, 2003. The notes bear interest from 4.49% to 6.62% and have an average remaining life of 2.17 years as of July 4, 2003. Joint Ventures See Note 3 of the Notes to Consolidated Condensed Financial Statements. NOTE 12 -- Product Warranties: While Trimble engages in extensive product quality programs and processes including actively monitoring and evaluating the quality of component suppliers, the Company's warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. <page> Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required. Changes in the product warranty liability during the six months ended July 4, 2003 are as follows: (in thousands) -------------- Balance at January 3, 2003 $ 6,394 Warranties accrued 2,746 Warranty claims (2,549) ------ Balance at July 4, 2003 $ 6,591 ======= NOTE 13 -- Litigation: The Company is a party to other disputes incidental to its business, including a current claim from a European distributor. The Company believes that its ultimate liability as a result of such disputes, if any, would not be material to its overall financial position, results of operations, or liquidity.
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 2002 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. See the discussion of our critical accounting policies under the heading Management's Discussion and Analysis of Financial Condition and Results of Operations in our Form 10K for fiscal 2002. Recent Business Developments Nikon-Trimble Joint Venture On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to form a joint venture in Japan, Nikon-Trimble Co., Ltd. ("Nikon-Trimble"), which would assume the operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of Nikon Corporation and Trimble Japan KK, our Japanese subsidiary. Nikon-Trimble began operations in July of 2003. Under the terms of the Nikon-Trimble agreement, Nikon contributed (Y)1.2 billion (approximately US$10 million on June 30, 2003) in cash, while we contributed (Y)500 million (approximately US$4.1 million on June 30, 2003) in cash and (Y)700 million of our common stock (232,834 shares valued at approximately US$5.9 million on June 30, 2003). Nikon-Trimble purchased certain tangible and intangible assets from Nikon Geotecs Co., Ltd., and Trimble Japan KK. Nikon-Trimble is 50 percent owned by us and 50 percent owned by Nikon, with equal voting rights. It is focusing on the design and manufacture of surveying instruments including mechanical total stations and related products. In Japan, this joint venture will distribute Nikon's survey products as well as our Global Positioning System (GPS) survey products and other Engineering and Construction products, including robotic total stations. Outside of Japan, we will be the exclusive distributor of Nikon survey and construction products. We have adopted the equity method of accounting for our investment in Nikon-Trimble, therefore 50% share of profit or loss from this joint venture will be reported by Trimble in the Non-operating section of the Consolidated Statement of Operations under the heading of "Expenses for affiliated operations, net." At July 4, 2003, the outstanding balance from Nikon-Trimble due to Trimble was approximately $2.6 million related to the transfer of certain tangible and intangible assets from Trimble Japan KK. <page> * We expect the joint venture to enhance our market position in survey instruments through geographic expansion and market penetration. The Nikon instruments will broaden our survey and construction product portfolio and enable us to better access emerging markets. It will also provide us with the ability to sell our GPS and robotic technology to existing Nikon customers. Additionally, Nikon-Trimble is expected to improve our market position in Japan. Acquisition of Applanix Corporation * At the beginning of our third fiscal quarter, we acquired privately held Applanix Corporation of Ontario, Canada in a stock transaction valued at CAD $25 million (769,493 shares valued at approximately US$18.7 million). Applanix develops systems that integrate Inertial Navigation System (INS) and Global Positioning System (GPS) technologies. We expect the Applanix acquisition to extend our technology portfolio and enable increased robustness and capabilities in our future positioning products. Applanix's performance will be reported under our Portfolio Technologies business segment. Results of Operations Our revenues from operations from the three months and six months periods ended July 4, 2003, were $138.1 million and $265.5 million, as compared to $123.3 million and $227.3 million in the corresponding periods in fiscal 2002. The net income for the three and six months periods ended July 4, 2003 was $8.1 million, or $0.25 diluted income per share and $13.5 million, or $0.43 diluted income per share, compared to a net income for the corresponding periods in fiscal 2002, of $4.3 million, or $0.15 diluted income per share and $3.6 million or $0.13 diluted income per share. 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 purchased intangibles as well as other items not controlled by the business segment. At the beginning of fiscal 2003, we realigned two of our reportable segments and therefore the following table shows restated revenue and operating income by segment to reflect this realignment. The Tripod Data Systems business is now included in the Engineering and Construction segment, while previously it was included in the Portfolio segment. <table> <caption> Three Months Ended Six Months Ended % of % of % of % of July 4, Total June 28, Total July 4, Total June 28, Total 2003 Revenue 2002 Revenue 2003 Revenue 2002 Revenue ---- ------- ---- ------- ---- ------- ---- ------- (Dollars in thousands) <s> <c> <c> <c> <c> <c> <c> <c> <c> Engineering and Construction Revenue $ 95,797 69% $ 83,856 68% $181,460 68% $155,905 69% Segment operating income $ 18,623 $ 15,124 $ 30,863 $ 27,319 Segment operating income as a 19% 18% 17% 18% percent of segment revenue Field Solutions Revenue $ 19,950 15% $ 18,212 15% $ 40,631 15% $ 36,243 16% Segment operating income $ 3,555 $ 3,152 $ 6,869 $ 7,014 Segment operating income as a 18% 17% 17% 19% percent of segment revenue Mobile Solutions Revenue $ 3,651 3% $ 1,840 2% $ 6,819 3% $ 4,192 2% Segment operating loss $(2,025) $(3,172) $(2,712) $(6,495) Segment operating loss as a (55%) (172%) (40%) (155%) percent of segment revenue </table> <page> <table> <caption> Three Months Ended Six Months Ended % of % of % of % of July 4, Total June 28, Total July 4, Total June 28, Total 2003 Revenue 2002 Revenue 2003 Revenue 2002 Revenue ---- ------- ---- ------- ---- ------- ---- ------- <s> <c> <c> <c> <c> <c> <c> <c> <c> Component Technologies Revenue $ 16,820 12% $ 15,175 12% $ 32,686 12% $ 25,200 11% Segment operating income $ 4,558 $ 2,173 $ 8,413 $ 3,215 Segment operating income as a 27% 14% 26% 13% percent of segment revenue Portfolio Technologies Revenue $ 1,914 1% $ 4,173 3% $ 3,861 2% $ 5,745 2% Segment operating income (loss) $ (386) $ 754 $(1,138) $ (243) Segment operating income (20%) 18% (29%) (4%) (loss) as a percent of segment revenue Total Revenue $138,132 $123,256 $265,457 $227,285 Total Segment operating income $ 24,325 $ 18,031 $ 42,295 $ 30,810 </table> A reconciliation of our consolidated segment operating income to consolidated income before income taxes from operations follows: <table> <caption> Three Months Ended Six Months Ended July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands) <s> <c> <c> <c> <c> Consolidated segment operating income $ 24,325 $ 18,031 $ 42,295 $ 30,810 Unallocated corporate expenses (4,763) (3,837) (9,650) (10,246) Amortization of purchased intangible assets (1,725) (2,324) (3,520) (4,302) Restructuring charges (716) (188) (1,106) (492) Non-operating expense, net (7,616) (5,356) (12,161) (9,159) ------ ------ ------- ------ Income from operations before income taxes $ 9,505 $ 6,326 $ 15,858 $ 6,611 ======== ======== ======== ======== </table> Engineering and Construction Engineering and Construction revenues increased by $11.9 million (or 14.2%) and $25.6 million (or 16.4%) while segment operating income increased $3.5 million (or 23.1%) and $3.5 million (or 13%) for the three and six months ended July 4, 2003 as compared to the same corresponding periods in fiscal 2002. We continued to experience increased demand for survey equipment primarily due to the strength of our products, our marketing actions and geographic expansion. We also recorded approximately $1.9 million and $3.9 million in incremental revenues for the three and six months ended July 4, 2003, respectively, from LeveLite that was acquired in August of 2002. We benefited from new product introductions and increased demand for TDS hand-held data collection products, in particular the Recon (tm) data collector. The weakening of the US dollar versus several major currencies during the year contributed approximately $4.6 million and $7.7 million of the revenue increases for the three and six months ended July 4, 2003 as compared to the same corresponding periods in fiscal 2002. Segment operating income increased as a result of higher revenues but were partially offset by increased operating expenses overseas (largely driven by the weaker US dollar), increased research and development ("R&D") spending as we continue to invest in developing next generation technology, and strength in our OEM business which typically has lower gross margins than sales through our dealer channel. Field Solutions Field Solutions revenues increased by approximately $1.7 million (or 9.5%) and $4.4 million (or 12%), while segment operating income increased by $0.4 million (or 12.8%) and decreased by $0.1 million (or 2%) for the three and six months ended July 4, 2003 as compared to the same corresponding periods in fiscal 2002. Revenues were up year over year due to continued strong sales of the GeoExplorer (r) CE series handhelds and robust market acceptance of Autopilot products. Despite increased revenues, segment operating income decreased from the corresponding first six months of 2002 primarily due to lower gross margins as a result of product mix changes and additional costs associated with the introduction of new products. Mobile Solutions Mobile Solutions revenues increased by $1.8 million (or 98%) and $2.6 million (or 63%), while segment operating loss decreased by $1.1 million (or 36%) and $3.8 million (or 58%) for the three and six months ended July 4, 2003 as compared to the same corresponding periods in fiscal 2002. The increased revenues were primarily attributable to the ready-mix vertical market, mainly from increased sales of products and services related to the Televisant (tm) system platform. During the past year, we also saw a shift in the composition of revenue in this segment, with a growing portion attributed to this newer service-based product offering while the legacy hardware-only business is declining in importance. The reduction of the segment operating loss by $1.1 million was due to the implementation of cost reduction initiatives of over $0.9 million, and the positive impact in the first half of 2003 of increased gross margins in this segment over prior year due to shift in demand to higher margin products, led by the introduction of new General Packet Radio System ("GPRS") products. Component Technologies Component Technologies revenues increased by $1.6 million (or 11%) and $7.5 million (or 30%), while segment operating income increased by $2.4 million (or 110%) and $5.2 million (or 162%) for the three and six months ended July 4, 2003 as compared to the same corresponding periods in fiscal 2002. The increase in revenues during fiscal 2003 was primarily due to increased demand from our wireless infrastructure customers. The increased revenues and higher gross margins aided by favorable product mix, as well as lower costs due to the transfer of the manufacturing of our products to China, which resulted in higher segment operating income. Portfolio Technologies Portfolio Technologies revenues decreased by $2.3 million (or 54%) and $1.9 million (or 33%), while operating loss increased by $1.1 million (or 151%) and $0.9 million (or 368%) for the three and six months ended July 4, 2003 as compared to the same corresponding periods in fiscal 2002. These results were primarily driven by lower revenue of military-related products and unfavorable product mix changes. International Revenues * Sales to our unaffiliated customers in locations outside the U.S. were approximately 49% and 46% of total revenues for six months ended July 4, 2003 and June 28, 2002, respectively. North and South America represented 56% of total revenue, Europe, the Middle East and Africa 31%, and Asia 13% in the first six months of fiscal 2003. 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. 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. <page> Gross margin as a percentage of total revenues was approximately 51% and 50% for the three and six months ended July 4, 2003, and approximately 50% and 51% for the corresponding periods in fiscal 2002. Gross margin was higher due to strong sales by Tripod Data Systems', GIS, wireless infrastructure, survey products, and strong focus on product cost reductions. * 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. 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 ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (In thousands) Research and development $ 17,077 $ 14,986 $ 33,117 $ 30,024 Sales and marketing 24,560 21,897 48,557 44,024 General and administrative 9,896 9,874 18,531 20,672 Restructuring charges 716 188 1,106 492 Amortization of purchased intangibles 1,725 2,324 3,520 4,302 ----- ----- ----- ----- Total $ 53,974 $ 49,269 $ 104,831 $ 99,514 ======== ======== ========= ======== Research and Development Research and development spending increased by $2.1 million and $3.1 million during the three and six month periods ended July 4, 2003, and represented 12.4% and 12.5% of revenue, compared with 12.2% and 13.2% in the same corresponding periods in fiscal 2002. The increase in fiscal 2003 was due primarily to continued investment in next generation technology of approximately $2.4 million and $3.7 million during the three and six months periods ended July 4, 2003, primarily in the Engineering and Construction segment and the weakness of the US dollar versus major European currencies. * We believe that the development and introduction of new products are critical to the Company's future success and expect to continue the active development of new products. Sales and Marketing Sales and marketing expense increased by $2.7 million and $4.5 million during the three and six month periods ended July 4, 2003 and represents 17.8% and 18.3% of revenue, compared with 17.8% and 19.4% in the same corresponding periods in fiscal 2002. The increases in fiscal 2003 were primarily due to increased compensation, commission, advertising and promotion related expenses of approximately $1.5 million and $2.0 million during the three and six-month periods ended July 4, 2003 compared with similar periods during the prior year essentially driven by higher revenues and the weakness of the US dollar versus major European currencies. * Our future growth will depend in part on the timely development and continued viability of the markets in which we currently compete as well as our ability to continue to identify and exploit new markets for our products. <page> General and Administrative General and administrative expense increased by $22,000 (representing 7.2% of revenue) during the second fiscal quarter of 2003 as compared to the corresponding period during fiscal 2002 (representing 8.0% of revenue). General and administrative expense decreased by $2.1 million (representing 7.0% of revenue) during the six-month period ended July 4, 2003 over the corresponding period during fiscal 2002 (representing 9.1% of revenue). The primary reasons for lower general and administrative expense during the first six-months period of fiscal 2003 as compared to the corresponding period in fiscal 2002 were lower bad debt expenses of approximately $1.4 million and a decrease in legal expenses of approximately $0.6 million principally due to the settlement of a lawsuit. Restructuring Charges Restructuring charges of $0.7 million and $1.1 million were recorded during the three and six months periods ended July 4, 2003, respectively, which related to severance costs and Trimble's Japanese office relocation due to the Nikon-Trimble joint venture formation. As a result of these actions, our headcount decreased during the six months period ended July 4, 2003 by 50 individuals and in the corresponding period of fiscal 2002 by 30 individuals. As of July 4, 2003, the outstanding unpaid balance related to restructuring activities was approximately $135,000. Non-operating Expense, Net The following table shows Non-operating expenses, net for the periods indicated and should be read in conjunction with the narrative descriptions of those expenses below: <table> <caption> Three Months Ended Six Months Ended ------------------ ---------------- July 4, June 28, July 4, June 28, 2003 2002 2003 2002 ---- ---- ---- ---- (in thousands) <s> <c> <c> <c> <c> Interest income $ 82 $ 133 $ 187 $ 220 Interest expense (6,096) (3,548) (9,576) (7,578) Foreign currency transaction gain (loss) 391 (710) 483 (769) Expenses for affiliated operations, net (1,901) (1,210) (3,116) (1,210) Other expense (92) (21) (139) 178 --- --- ---- --- Total $ (7,616) $ (5,356) $(12,161) $(9,159) ======== ======== ========= ======== </table> Non-operating expense, net increased by $2.3 million during the second quarter of fiscal 2003 as compared with the corresponding period in fiscal 2002, while increasing by $3.0 million during the six-months period ended July 4, 2003 as compared with the corresponding period in fiscal 2002 primarily due to increased interest expense and expenses for affiliated operations. The increase in interest expense of $2.6 million was mainly due to $2.3 million of debt issuance costs written off as a result of our debt refinancing in June 2003 and $1.3 million related to the write off of the remaining unamortized portion of the warrants issued to Spectra Physics Holdings, Inc. upon the full repayment of the principal balance of the Subordinated Note in June 2003. The increase of expenses for affiliated operations for the three-month period is due to the shipment of a higher volume of Machine Control products containing CTCT technology as compared to the corresponding period in fiscal 2002. The increase of expenses for affiliated operations during the six-month period is due to the fact that CTCT commenced operations in April of 2002, resulting in no such expenses during the first fiscal quarter of 2002. Thess increases were partially offset by a reduction in interest expenses mainly due to debt reduction and lower interest rate. Income Tax Provision The Company recorded provisions for income taxes of $1.4 million for the three months ended July 4, 2003 and $2.4 million for the six months ended July 4, 2003. The provisions for income taxes for the comparable periods in 2002 were $2 million and $3 million, respectively. These amounts reflect foreign taxes on profits in foreign jurisdictions and the ability to realize the benefit from the net operating losses generated in the United States. <page> Off-Balance Sheet Financings and Liabilities Other than lease commitments incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned subsidiaries that are not included in the consolidated financial statements. Liquidity And Capital Resources July 4, January 3, As of 2003 2003 - ----- ---- ---- (dollars in thousands) Cash and cash equivalents $30,825 $28,679 As a percentage of total assets 6.1% 6.5% Accounts receivable days sales outstanding (DSO) 69 58 Inventory turns per year 3.8 4.1 July 4, June 28, Six Months Ended 2003 2002 - ---------------- ---- ---- (in thousands) Cash provided (used) by operating activities $ (3,633) $ 16,180 Cash used by investing activities $ (8,938) $ (6,419) Cash provided (used) by financing activities $ 14,717 $(13,103) Net change in cash and cash equivalents $ 2,146 $ (3,342) At July 4, 2003, our cash and cash equivalents increased by $2.1 million from January 3, 2003. We repaid our entire indebtedness under our previous credit facility on June 25, 2003 as well as our subordinated note. We simultaneously borrowed $109 million on our new Credit Facility dated June 25, 2003. We also increased our accounts receivables by approximately $32.6 million during the first six months of fiscal 2003 and our inventories by approximately $10.8 million. These increases resulted in net cash used in operating activities of approximately $3.6 million during the first six months of fiscal 2003. We also used approximately $3.5 million for capital expenditures. At July 4, 2003, our debt mainly consisted of $109 million outstanding under a secured credit facility. We have relied primarily on cash provided by operating activities to fund capital expenditures and other investing activities. On April 14, 2003, the Company sold 2,100,000 shares of its common stock, no par value per share, to a certain investor at a price of $18.25 per share in an offering pursuant to the Company's shelf registration statement. The offering resulted in net proceeds to the Company of approximately $36.6 million, approximately $31 million of which was used to pay down the principal balance and $5.6 million was used to pay down the accrued interest due on the Subordinated Note. * In the first six months of 2003, cash used by operating activities was $3.6 million, as compared to $16.2 million provided by operating activities during the corresponding period in fiscal 2002. The decrease was primarily due to increase in accounts receivable and inventories of $32.6 million and $10.8 million, respectively. Also, the prior year was positively impacted by a special one-time distribution of $11.0 million by the CTCT joint venture to us. Our ability to continue to generate cash from operations will depend in large part on revenues, the rate of collections of accounts receivable, and profitability. <page> Cash flows used in investing activities were $8.9 million in the first six months of fiscal 2003, as compared to $6.4 million in the corresponding fiscal period in 2002. The increase was primarily due to a $4.2 million cash outlay related to the company's cash contribution to the Nikon-Trimble joint venture in June 2003. Cash provided by financing activities was $14.7 million in the first six months of 2003, as compared to $13.1 million used in financing activities in the corresponding period in fiscal 2002. In the first six months ended July 4, 2003, we received net proceeds of approximately $36.6 million from the sale of 2.1 million shares of our common stock in April 2003, $7.8 million of cash from the issuance of common stock to our employees under the stock option and stock purchase plans. These receipts were partially offset by $30.3 million of debt repayments. In the corresponding period in fiscal 2002, we made $31.7 million of debt repayments and this was partially offset by $17.4 million of net proceeds received from a private equity placement and $1.9 million related to the issuance of common stock under the employee stock option and stock purchase plans. On June 25, 2003, we obtained a new Credit Facility which enabled us to pay off our indebtedness under the previous credit facility and the Subordinated Note in the amount of $109 million. The new Credit Facility is secured by all material assets of our Company, except for assets that are subject to foreign tax considerations. Financial covenants of the Credit Facility include leverage, fixed charge, and minimum net worth tests. At July 4, 2003 and as of the date of this report, we are in compliance with debt covenants. The amounts due under the revolver loan are paid as the loans mature, and the loan commitment fees are paid on a quarterly basis. Under the four-year term loan portion of the Credit Facility, we are due to make payments (excluding interest) of approximately $6.3 million in fiscal 2003, $12.5 million in each of the following fiscal years for the next 3 years (2004, 2005, and 2006) and $6.2 million in fiscal 2007. * We believe that our cash and cash equivalents, together with our Credit Facility, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. At July 4 2003, we had $30.8 million of cash and cash equivalents, as well as access to $64 million of borrowings under the terms of our revolver loans. Under the terms of the Credit Facility, we are currently restricted from paying dividends and are limited as to the amount of our common stock that we can repurchase. We are allowed to pay dividends and repurchase shares of our common stock up to 25% of net income in the previous fiscal year. The following table summarizes our future repayment obligations (excluding interest): 2007 and July 3, 2003 Total 2003 2004 2005 2006 Beyond - ------------ ----- ---- ---- ---- ---- ------ (in thousands) Credit Facilities: Term Loan $ 50,000 $ 6,250 $12,500 $12,500 $12,500 $ 6,250 Revolving credit facility 59,000 - - - 59,000 - Promissory note and other 1,737 55 110 110 110 1,352 Total contractual cash obligations $110,737 $ 6,305 $12,610 $12,610 $71,610 7,602 * We expect fiscal 2003 capital expenditures to be approximately $8 million to $11 million, primarily for computer equipment, software, and leasehold improvements associated with business expansion. Decisions related to how much cash is used for investing are influenced by the expected amount of cash to be provided by operations. New Accounting Standards In November of 2002, the EITF reached a consensus on Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables." EITF Issue No. 00-21 provides guidance on how to account for arrangements that involve the delivery or performance of multiple products, services, and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The adoption of EITF Issue No. 00-21 is not expected to have a material impact on the Company's financial condition or results of operations. <page> In January of 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities." FIN No. 46 requires a variable interest entity ("VIE") to be consolidated by a company if that company is considered to be the primary beneficiary in a VIE. Primary beneficiary is the party subject to a majority of the risk of loss from the variable interest entity's activities or entitled to receive a majority of the entity's residual returns or both. The requirements of FIN No. 46 apply immediately to VIE's created after January 31, 2003. The consolidation requirements apply to older entities in the first fiscal year or interim period beginning after June 15, 2003. We are currently evaluating the provisions of FIN No. 46. In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments With Characteristics of both Liabilities and Equity" which requires freestanding financial instruments such as mandatory redeemable shares, forward purchase contracts and written put options to be reported as liabilities by their issuers as well as related new disclosure requirements. The provisions of SFAS No. 150 are effective for instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material impact on the Company's financial condition or results of operations. Risks And Uncertainties You should carefully consider the following risk factors, in addition to the other information contained in this Form 10-Q and in any other documents to which we refer you in this Form 10-Q, before purchasing our securities. The risks and uncertainties described below are not the only ones we face. Our Inability to Accurately Predict Orders and Shipments May Affect Our Revenue, Expenses and Earnings per Share. We have not been able in the past to consistently predict when our customers will place orders and request shipments, so that we cannot always accurately plan our manufacturing requirements. As a result, if orders and shipments differ from what we predict, we may incur additional expenses and build excess inventory, which may require additional accruals. Any significant change in our customers' purchasing patterns could have a material adverse effect on our operating results and reported earnings per share for a particular quarter. Our Operating Results in Each Quarter May Be Affected by Special Conditions, Such As Seasonality, Late Quarter Purchases, and Other Potential Issues. Due, in part, to the buying patterns of our customers, a significant portion of our quarterly revenues occurs from orders received and immediately shipped to customers in the last few weeks and days of each quarter, although our operating expenses tend to remain fairly predictable. Engineering and construction purchases tend to occur in early spring, and governmental agencies tend to utilize funds available at the end of the government's fiscal year for additional purchases at the end of our third fiscal quarter in September of each year. Concentrations of orders sometimes also occur at the end of our other two fiscal quarters. Additionally, a majority of our sales force earns commissions on a quarterly basis, which may cause concentrations of orders at the end of any fiscal quarter. If for any reason expected sales are deferred, orders are not received, or shipments are delayed a few days at the end of a quarter, our operating results and reported earnings per share for that quarter could be significantly impacted. We Are Dependent on a Sole Manufacturer and Assembler for Many of Our Products and on Sole Suppliers of Critical Parts for Our Products. Since August 1999, we have been substantially dependent upon Solectron Corporation as the exclusive manufacturing partner for many of our GPS products previously manufactured out of our Sunnyvale facilities. Under the agreement with Solectron, we provide to Solectron a twelve-month product forecast and place purchase orders with Solectron sixty calendar days in advance of the scheduled delivery of products to our customers. Although purchase orders placed with Solectron are cancelable, the terms of the agreement would require us to purchase from Solectron all material inventory not returnable or usable by other Solectron customers. Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate manufacturing capacity from Solectron to meet customers' delivery requirements or we may accumulate excess inventories, if such inventories are not usable by other Solectron customers. <page> Our current contract with Solectron continues in effect until either party gives the other ninety days written notice. Since January 2003, Solectron has been assembling most of our Component Technology products in China. Although this initiative in China has brought cost savings over assembling in California, we cannot predict potential effects that may result in the future. In addition, we rely on sole suppliers for a number of our critical components. We have experienced shortages of components in the past. Our current reliance on sole or a limited group of suppliers involves several risks, including a potential inability to obtain an adequate supply of required components and reduced control over pricing. Any inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply or to manufacture such components internally could significantly delay our ability to ship our products, which could damage relationships with current and prospective customers and could harm our reputation and brand, which could have a material adverse effect on our business. Our Annual and Quarterly Performance May Fluctuate. Our operating results have fluctuated and can be expected to continue to fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Results in any period could be affected by: o changes in market demand, o competitive market conditions, o market acceptance of existing or new products, especially in our Mobile Solutions business o fluctuations in foreign currency exchange rates, o the cost and availability of components, o our ability to manufacture and ship products, o the mix of our customer base and sales channels, o the mix of products sold, o our ability to expand our sales and marketing organization effectively, o our ability to attract and retain key technical and managerial employees, o the timing of shipments of products under contracts and sale of licensing rights, and o general global economic conditions. In addition, demand for our products in any quarter or year may vary due to the seasonal buying patterns of our customers in the agricultural and engineering and construction industries. Due to the foregoing factors, our operating results in one or more future periods are expected to be subject to significant fluctuations. The price of our common stock could decline substantially in the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, which are based primarily on historical models that are not necessarily accurate representations of the future. <page> Our Gross Margin Is Subject to Fluctuation. Our gross margin is affected by a number of factors, including product mix, product pricing, cost of components, foreign currency exchange rates and manufacturing costs. For example, since our Engineering and Construction (E&C) and Geographic Information Systems (GIS) products generally have higher gross margins than our Component Technologies products, absent other factors, a shift in sales toward E&C and GIS products would lead to a gross margin improvement. On the other hand, if market conditions in the highly competitive E&C and GIS market segments forced us to lower unit prices, we would suffer a decline in gross margin unless we were able to timely offset the price reduction by a reduction in production costs or by sales of other products with higher gross margins. A decline in gross margin could negatively impact our earnings per share. Our Business is Subject to Disruptions and Uncertainties Caused by War or Terrorism. Acts of war or acts of terrorism could have a material adverse impact on our business, operating results, and financial condition. The threat of terrorism and war and heightened security and military response to this threat, or any future acts of terrorism, may cause further disruption to our economy and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of orders, or the manufacture or shipment of our products, our business, operating results, and financial condition could be materially and adversely affected. Our Substantial Indebtedness Could Materially Restrict Our Operations and Adversely Affect Our Financial Condition. We now have, and for the foreseeable future expect to have, a significant level of indebtedness. Our substantial indebtedness could: o increase our vulnerability to general adverse economic and industry conditions; o limit our ability to fund future working capital, capital expenditures, research and development and other general corporate requirements, or to make certain investments that could benefit us; o require us to dedicate a substantial portion of our cash flow to service interest and principal payments on our debt; o limit our flexibility to react to changes in our business and the industry in which we operate; and o limit our ability to borrow additional funds. Our Credit Agreement Contains Stringent Financial Covenants. On June 25, 2003, Trimble executed a Credit Agreement with Scotia Capital and certain other banks, which provides for financial commitments totaling up to $175 million. This credit facility contains financial covenants regarding minimum fixed charge coverage and maximum leverage ratio, which are extremely sensitive to changes in earnings before interest, taxes, depreciation and amortization ("EBITDA"). In turn, EBITDA is highly correlated to revenues and costs. Due to uncertainties associated with the downturn in the worldwide economy, our future revenues by quarter are more difficult to forecast and we have put in place various cost cutting measures, including the consolidation of service functions and centers, offices, and of redundant product lines and reductions in staff. If revenues should decline at a faster pace than the rate of these cost cutting measures, on a quarter-to-quarter basis we may not be in compliance with the two above-mentioned financial covenants. If we default on one or more covenants, we will have to obtain either negotiated waivers or amendments to the Credit Agreement. If we were unable to obtain such waivers or amendments, the banks would have the right to accelerate the payment of our outstanding obligations under the Credit Agreement, which would have a material adverse effect on our financial condition and viability as an operating company. In addition, a default under one of our debt instruments may also trigger cross-defaults under our other debt instruments. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on us. We Are Dependent on Key Customers. We generate a portion of our revenue from large original equipment manufacturers such as Siemens VDO Automotive AG and Nortel. A reduction or loss of business with these customers could have a material adverse effect on our financial condition and results of operations. There can be no assurance that we will be able to continue to realize value from these relationships in the future. <page> We Are Dependent on New Products. Our future revenue stream depends to a large degree on our ability to bring new products to market on a timely basis. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products and achieve market acceptance of such products. We may incur problems in the future in innovating and introducing new products. Our development stage products may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we were unable to successfully define, develop and introduce competitive new products, and enhance existing products, our future results of operations would be adversely affected. Development and manufacturing schedules for technology products are difficult to predict, and we might not achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. A delay in new product introductions could have a significant impact on our results of operations. We Face Risks of Entering Into and Maintaining Alliances. We believe that in certain emerging markets our success will depend on our ability to form and maintain alliances with established system providers and industry leaders, such as Caterpillar, McNeilus, and CNH Global. Our failure to form and maintain such alliances, or the preemption of such alliances by actions of other competitors or us will adversely affect our ability to penetrate emerging markets. No assurances can be given that we will not experience problems from current or future alliances or that we will realize value from any such strategic alliances. We Are Dependent on the Availability of Allocated Bands Within the Radio Frequency Spectrum. Our GPS technology is dependent on the use of the Standard Positioning Service ("SPS") provided by the U.S. Government's Global Positioning System ("GPS"). The GPS SPS operates in radio frequency bands that are globally allocated for radio navigation satellite services. International allocations of radio frequency are made by the International Telecommunications Union ("ITU"), a specialized technical agency of the United Nations. These allocations are further governed by radio regulations that have treaty status and which may be subject to modification every two to three years by the World Radio Communication Conference. Any ITU reallocation of radio frequency bands, including frequency band segmentation or sharing of spectrum, may materially and adversely affect the utility and reliability of our products, which would, in turn, cause a material adverse effect on our operating results. Many of our products use other radio frequency bands, together with the GPS signal, to provide enhanced GPS capabilities, such as real-time kinematic precision. The continuing availability of these non-GPS radio frequencies is essential to provide enhanced GPS products to our precision survey markets. Any regulatory changes in spectrum allocation or in allowable operating conditions may materially and adversely affect the utility and reliability of our products, which would, in turn, cause a material adverse effect on our operating results. In addition, unwanted emissions from mobile satellite services and other equipment operating in adjacent frequency bands or in-band from licensed and unlicensed devices may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our operating results. The FCC continually receives proposals for novel technologies and services, such as ultra-wideband technologies, which may seek to operate in, or across, the radio frequency bands currently used by the GPS SPS and other public safety services. Adverse decisions by the FCC that result in harmful interference to the delivery of the GPS SPS and other radio frequency spectrum also used in our products may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our business and financial condition. We Are Subject to the Adverse Impact of Radio Frequency Congestion. We have certain RTK products, such as our 5800 RTK GPS Survey system, that use integrated radio communication technology requiring access to available radio frequencies allocated by the FCC. In addition, access to these frequencies by state agencies is under management by state radio communications coordinators. Some bands are experiencing congestion that excludes their availability for access by state agencies in some states, including the state of California. An inability to obtain access to these radio frequencies could have an adverse effect on our operating results. <page> Many of Our Products Rely on the GPS Satellite System. The GPS satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites were originally designed to have lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. However, of the current deployment of 28 satellites in place, some have already been in operation for 13 years. To repair damaged or malfunctioning satellites is currently not economically feasible. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites may impair the current utility of the GPS system and the growth of current and additional market opportunities. In addition, there can be no assurance that the U.S. Government will remain committed to the operation and maintenance of GPS satellites over a long period, or that the policies of the U.S. Government for the use of GPS without charge will remain unchanged. However, a 1996 Presidential Decision Directive marks the first time in the evolution of GPS that access for civilian use free of direct user fees is specifically recognized and supported by Presidential policy. In addition, Presidential policy has been complemented by corresponding legislation, signed into law. Because of ever-increasing commercial applications of GPS, other U.S. Government agencies may become involved in the administration or the regulation of the use of GPS signals. Any of the foregoing factors could affect the willingness of buyers of our products to select GPS-based systems instead of products based on competing technologies. Any resulting change in market demand for GPS products could have a material adverse effect on our financial results. For example, European governments have expressed interest in building an independent satellite navigation system, known as Galileo. Depending on the as yet undetermined design and operation of this system, there may be interference to the delivery of the GPS SPS and may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our business and operating results. We Face Risks in Investing in and Integrating New Acquisitions. We are continuously evaluating external investments in technologies related to our business, and have made relatively small strategic equity investments in a number of GPS-related and laser-related technology companies. For example, we recently acquired Applanix Corporation. Acquisitions of, and investments in, companies, divisions of companies, or products entail numerous risks, including: o potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration; o diversion of management's attention; o loss of key employees of acquired operations; o the difficulty of assimilating geographically dispersed operations and personnel of the acquired companies; o the potential disruption of our ongoing business; o unanticipated expenses related to such integration; o the correct assessment of the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount which must be amortized over the appropriate life of the asset; o the impairment of relationships with employees and customers of either an acquired company or our own business; o the potential unknown liabilities associated with acquired business; and o inability to recover strategic investments in development stage entities. As a result of such acquisitions, we have significant assets that include goodwill and other purchased intangibles. The testing of these intangibles under established accounting guidelines for impairment requires significant use of judgment and assumptions. Changes in business conditions could require adjustments to the valuation of these assets. In addition, losses incurred by a company in which we have an investment may have a direct impact on our financial statements or could result in our having to write-down the value of such investment. Any such problems in integration or adjustments to the value of the assets acquired could harm our growth strategy and have a material adverse effect on our business, financial condition and compliance with debt covenants. We Face Competition in Our Markets. <page> Our markets are highly competitive and we expect that both direct and indirect competition will increase in the future. Our overall competitive position depends on a number of factors including the price, quality and performance of our products, the level of customer service, the development of new technology and our ability to participate in emerging markets. Within each of our markets, we encounter direct competition from other GPS, optical and laser suppliers and competition may intensify from various larger domestic and international competitors and new market entrants, some of which may be our current customers. The competition in the future, may, in some cases, result in price reductions, reduced margins or loss of market share, any of which could materially and adversely affect our business, operating results and financial condition. We believe that our ability to compete successfully in the future against existing and additional competitors will depend largely on our ability to execute our strategy to provide systems and products with significantly differentiated features compared to currently available products. We may not be able to implement this strategy successfully, and our products may not be competitive with other technologies or products that may be developed by our competitors, many of whom have significantly greater financial, technical, manufacturing, marketing, sales and other resources than we do. We Must Carefully Manage Our Future Growth. Growth in our sales or continued expansion in the scope of our operations could strain our current management, financial, manufacturing and other resources and may require us to implement and improve a variety of operating, financial and other systems, procedures and controls. Specifically we have experienced strain in our financial and order management system, as a result of our acquisitions. We are expanding our sales, accounting, manufacturing, and other information systems to meet these challenges. These systems, procedures or controls may not be adequate to support our operations and may not be designed, implemented or improved in a cost effective and timely manner. Any failure to implement, improve and expand such systems, procedures and controls in a timely and efficient manner could harm our growth strategy and adversely affect our financial condition and ability to achieve our business objectives. We are Dependent on Proprietary Technology. Our future success and competitive position is dependent upon our proprietary technology, and we rely on patent, trade secret, trademark and copyright law to protect our intellectual property. The patents owned or licensed by us may be invalidated, circumvented and challenged. The rights granted under these patents may not provide competitive advantages to us. Any of our pending or future patent applications may not be issued within the scope of the claims sought by us, if at all. Others may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents owned by us. In addition, effective copyright, patent and trade secret protection may be unavailable, limited or not applied for in certain foreign countries. The steps taken by us to protect our technology might not prevent the misappropriation of such technology. The value of our products relies substantially on our technical innovation in fields in which there are many current patent filings. We recognize that as new patents are issued or are brought to our attention by the holders of such patents or as other intellectual property claims are made, it may be necessary for us to withdraw products from the market, take a license from such patent holders, or redesign our products. We do not believe any of our products currently infringe patents or other proprietary rights of third parties, but we cannot be certain they do not do so. In addition, the legal costs and engineering time required to safeguard intellectual property or to defend against litigation could become a significant expense of operations. Such events could have a material adverse effect on our revenues or profitability. We are a Party to Certain Litigation Matters From Time to Time in the Ordinary Course of Our Business. We are a party to certain litigation matters from time to time in the ordinary course of our business. For example, we are a defendant in a lawsuit filed by one of our European distributors. If we are found liable, we could be required to pay significant damages, including punitive damages and attorneys' fees. We Are Dependent on Retaining and Attracting Highly Skilled Development and Managerial Personnel. Our ability to maintain our competitive technological position will depend, in a large part, on our ability to attract, motivate, and retain highly qualified development and managerial personnel. Competition for qualified employees in our industry and location is intense, and there can be no assurance that we will be able to attract, motivate and retain enough qualified employees necessary for the future continued development of our business and products. <page> We May Encounter Problems Associated With International Operations and Sales. Our customers are located throughout the world. Sales to unaffiliated customers outside the United States comprised approximately 49% of our revenues in the first six months of fiscal 2003, and 46% in the corresponding period in fiscal 2002. In addition, we have significant international operations, including manufacturing facilities, sales personnel and customer support operations. Our international sales organization contains offices in 21 foreign countries. Our international manufacturing facilities are in Sweden and Germany, and we have a regional fulfillment center in the Netherlands. Our international presence exposes us to risks not faced by wholly domestic companies. Specifically, we have experienced issues relating to integration of foreign operations, greater difficulty in accounts receivable collection, longer payment cycles and currency fluctuations. Additionally, we face the following risks, among others: o unexpected changes in regulatory requirements; o tariffs and other trade barriers; o political, legal and economic instability in foreign markets, particularly in those markets in which we maintain manufacturing and research facilities; o difficulties in staffing and management; o language and cultural barriers; seasonal reductions in business activities in the summer months in Europe and some other countries; o war and acts of terrorism; and o potentially adverse tax consequences. In certain foreign markets there may be reluctance to purchase products based on GPS technology, given the control of GPS by the U.S. Government. We Are Exposed to Fluctuations in Currency Exchange Rates. A significant portion of our business is conducted outside the United States, and as such, we face exposure to adverse movements in non-U.S. currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Compared to the first six months of 2002, in the first six months of 2003, the US currency has weakened against other currencies, especially against the Euro and Swedish Krona. Currently, we hedge only those currency exposures associated with certain assets and liabilities denominated in nonfunctional currencies and periodically will hedge anticipated foreign currency cash flows. The hedging activities undertaken by us are intended to offset the impact of currency fluctuations on certain nonfunctional currency assets and liabilities. Our attempts to hedge against these risks may not be successful, resulting in an adverse impact on our net income. We Are Subject to the Impact of Governmental and Other Similar Certifications. We market certain products that are subject to governmental and similar certifications before they can be sold. For example, CE certification for radiated emissions is required for most GPS receiver and data communications products sold in the European Union. An inability to obtain such certifications in a timely manner could have an adverse effect on our operating results. Also, some of our products that use integrated radio communication technology require an end-user to obtain licensing from the Federal Communications Commission (FCC) for frequency-band usage. These are secondary licenses that are subject to certain restrictions. During the fourth quarter of 1998, the FCC temporarily suspended the issuance of licenses for certain of our real-time kinematic products because of interference with certain other users of similar radio frequencies. An inability or delay in obtaining such certifications or changes to the rules by the FCC could adversely affect our ability to bring our products to market, which could harm our customer relationships and have a material adverse effect on our business. <page> The Volatility of Our Stock Price Could Adversely Affect Your Investment in Our Common Stock. The market price of our common stock has been, and may continue to be, highly volatile. During the first six months of 2003, our stock price ranged from a high of $27.75 to a low of $13.02. We believe that a variety of factors could cause the price of our common stock to fluctuate, perhaps substantially, including: o announcements and rumors of developments related to our business or the industry in which we compete; o quarterly fluctuations in our actual or anticipated operating results and order levels; o general conditions in the worldwide economy, including fluctuations in interest rates; o announcements of technological innovations; o new products or product enhancements by us or our competitors; o developments in patents or other intellectual property rights and litigation; o developments in our relationships with our customers and suppliers; and o any significant acts of terrorism against the United States. In addition, in recent years the stock market in general and the markets for shares of "high-tech" companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common stock may decline. We are Subject to Environmental Laws and Potential Exposure to Environmental Liabilities. We are subject to various federal, state and local environmental laws and regulations that govern our operations, including the handling and disposal of non-hazardous and hazardous wastes, and emissions and discharges into the environment. Failure to comply with such laws and regulations could result in costs for corrective action, penalties or the imposition of other liabilities. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating hazardous substances or petroleum products on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of, or failure to remediate properly, such substances could adversely affect the value and the ability to transfer or encumber such property. Based on currently available information, although there can be no assurance, we believe that such liabilities will not have a material impact on our business. Provisions in Our Charter Documents and Under California Law Could Prevent or Delay a Change of Control, which Could Reduce the Market Price of Our Common Stock. Certain provisions of our articles of incorporation, as amended and restated, our bylaws, as amended and restated, and the California General Corporation Law may be deemed to have an anti-takeover effect and could discourage a third party from acquiring, or make it more difficult for a third party to acquire, control of us without approval of our board of directors. These provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock. We have adopted a Preferred Shares Rights Agreement, commonly known as a "poison pill". The provisions described above, our poison pill and provisions of the California General Corporation Law may discourage, delay or prevent a third party from acquiring us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We use certain derivative financial instruments to manage these risks. We do not use derivative financial instruments for speculative or trading purposes. All financial instruments are used in accordance with policies approved by our board of directors. Market Interest Rate Risk We are exposed to market risk due to the possibility of changing interest rates under our secured credit Facility. Our Credit Facility is comprised of a three-year U.S. dollar-only revolver, and a four-year term loan that expires on June 25, 2007. Borrowings under the Credit Facility have interest payments based on a floating rate of LIBOR plus a number of basis points tied to a formula based on our Leverage Ratio. As of July 4, 2003, our debt to EBITDA, as defined under our Credit Facility (Leverage Ratio) was approximately 2.05. At this Leverage Ratio our interest rate on the Credit Facility is LIBOR plus 200 basis points. EBITDA, as defined in our credit agreement, differs from the common definition of EBITDA in so far as it excludes extraordinary non-cash charges. Leverage Ratio Effect on Interest Expense: LEVERAGE RATIO APPLICABLE EUROCURRENCY MARGIN Less than 1.50 1.50% 1.50 or greater, but less than 2.00 1.75% 2.00 or greater, but less than 2.25 2.00% 2.25 or greater, but less than 2.50 2.50% 2.50 or greater, but less than 2.75 2.75% 2.75 or greater 3.00% The revolver matures on June 25, 2006 and has an outstanding principal balance of $59 million, while the term loan matures on June 25, 2007 and has an outstanding principal balance of $50 million, as of July 4, 2003 (all in U.S. currency only). The three-month LIBOR effective rate at July 4, 2003 was 1.11%. A hypothetical 10% increase in three-month LIBOR rates could result in approximately $121,000 annual increase in interest expense on the existing principal balances. In addition, we have a $1.7 million promissory note, of which approximately $0.1 million was classified as a current liability at July 4, 2003. The note is payable in monthly installments, bearing a 3.99% variable interest rate as of July 4, 2003. A hypothetical 10% increase in interest rates would not have a material impact on the results of our operations. * The hypothetical changes and assumptions made above will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by our management should the hypothetical market changes actually occur over time. As a result, actual earnings effects in the future will differ from those quantified above. <page> Foreign Currency Exchange Rate Risk We transact business in various foreign currencies and hedges identified risks associated with foreign currency transactions in order to minimize the impact of changes in foreign currency exchange rates on earnings. We utilize forward contracts to hedge certain trade and inter-company receivables and payables. These contracts reduce the exposure to fluctuations in exchange rate movements as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the hedge contracts. These hedge instruments are marked to market through earnings every period. From time to time, we may also utilize forward foreign exchange contracts designated as cash flow hedges of operational exposures represented by firm backlog orders to specific accounts over a specific period of time. We record changes in the fair value of cash flow hedges in accumulated, other comprehensive income (loss), until the firm backlog transaction ships. Upon recognition of revenue, we reclassify the gain or loss on the cash flow hedge to the statement of operations. For the fiscal quarter ended July 4, 2003, we have no outstanding contracts related to firm backlog hedges. The critical terms of the cash flow hedging instruments are the same as the underlying forecasted transactions. The changes in fair value of the derivatives are intended to offset changes in the expected cash flow from the forecasted transactions. All forward contracts have maturity of less than six months. * We do not anticipate any material adverse effect on our consolidated financial position utilizing our current hedging strategy. The following table provides information about our foreign exchange forward contracts outstanding as of July 4, 2003: Foreign Currency Contract Value Fair Value in Amount USD USD Currency Buy/Sell (in thousands) (in thousands) (in thousands) - -------- -------- -------------- -------------- -------------- AUD Buy 1,300 (794) $ (881) CAD Buy 470 (334) (351) EUR Buy 1,693 (1,947) (1,944) JPY Buy 122,864 (1,031) (1,040) MXN Buy 320 (29) (31) NZD Buy 4,100 (2,375) (2,438) SEK Buy 112,241 (13,577) (13,991) CAD Sell (700) 457 524 EUR Sell (28,859) 32,416 33,080 JPY Sell (551,795) 4,652 4,676 MXN Sell (5,000) 460 473 --- --- $ 17,898 $ 18,078 ITEM 4. CONTROLS AND PROCEDURES (a) Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. (b) Internal Controls Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. <page> PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The Company is a party to other disputes incidental to its business, including a current claim from a European distributor. The Company believes that its ultimate liability as a result of such disputes, if any, would not be material to its overall financial position, results of operations, or liquidity. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. On April 23, 2003, Trimble issued 17,699 shares, of its common stock, no par value per share, to former shareholders of LeveLite. This stock issuance, combined with cash payments to each such shareholder, constituted the first quarter of fiscal 2003, earn-out payments pursuant to the Company's merger agreement with LeveLite. The merger agreement provides for Trimble to make earn-out payments not to exceed an aggregate $3.9 million (in common stock and cash payment) based on future revenues derived from existing product sales to a certain customer. Upon a hearing before the California Department of Corporations in which the terms and conditions of the offer to the LeveLite shareholders were approved, the shares of Common Stock to be issued in the transaction were exempt from registration by reason of qualification under Section 3(a)(10) of the Securities Act of 1933, as amended. On June 30, 2003, Trimble issued 232,834 shares of common stock to Nikon-Trimble Co. Ltd. The Company issued these shares as a contribution to capital in the formation of Nikon-Trimble Co. as a joint venture with Nikon Corporation. The shares were valued at $25.43 per share and were exempt from registration under Section 4(2) of the Securities Act of 1933, as amended, based on the nature of the purchaser and the nature of the arms-length negotiated transaction. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's annual meeting of shareholders ("Annual Meeting") was held at the Sheraton Four Points Hotel in Sunnyvale, located at 1250 Lakeside Drive, Sunnyvale, California 94086, on May 20, 2003. At the Annual Meeting, an election of directors was held with the following individuals being elected to the Company's Board of Directors. VOTE ---- FOR WITHHELD --- -------- Steven W. Berglund 26,055,409 803,980 Robert S. Cooper 16,380,506 10,478,883 John B. Goodrich 25,077,929 1,781,460 William Hart 25,043,285 1,816,104 Ulf J. Johansson 25,075,204 1,784,185 Bradford W. Parkinson 16,305,049 10,554,340 Other matters voted upon at the Annual Meeting and the results of the voting with respect to each such matter were as follows: 1. To amend the Company's Articles of Incorporation to increase the amount of authorized shares from 40,000,000 to 60,000,000. BROKER FOR AGAINST ABSTAINED NON-VOTE --- ------- --------- -------- 26,171,716 551,508 136,164 2,506,744 2. To ratify the appointment of Ernst & Young LLP as the independent auditors of the Company for the current fiscal year ending January 2, 2004. BROKER FOR AGAINST ABSTAINED NON-VOTE --- ------- --------- -------- 24,801,387 2,025,325 32,676 2,506,744 <page> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Restated Articles of Incorporation of Trimble Navigation Limited, filed June 25, 1986. (1) 3.2 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed October 6, 1988. (1) 3.3 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed July 18, 1990. (1) 3.4 Certificate of Determination of Trimble Navigation Limited, filed February 19, 1999. (1) 3.5 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed May 29, 2003. 3.6 Amended and Restated Bylaws of Trimble Navigation Limited. (2) 10.2 Credit Agreement dated June 25, 2003. 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. 31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. 32.1 Certification of Chief Executive Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. 32.2 Certification of Chief Financial Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. - ---------- (1) Incorporated by reference to identically numbered exhibits filed in response to Item 14(a), "Exhibits" of the registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1999, as filed with the SEC on March 29, 1999. (2) Incorporated by reference to exhibit number 3.8 to the registrant's Quarterly Report on Form 10-Q for the quarter ended September 27, 2002. (b) Reports on Form 8-K On April 9, 2003, the Company filed a report on Form 8-K to make certain information publicly available. On April 14, 2003, the Company filed a report on Form 8-K to make certain information publicly available. On April 14, 2003, the Company filed a report on Form 8-K reporting the sale of 2,100,000 shares of its common stock, no par value per share, to a certain investor at a price of $18.25 per share. <page> On April 30, 2003, the Company filed a report on Form 8-K reporting the financial results for the fiscal quarter ending April 4, 2003. On June 20, 2003, the Company filed a report on Form 8-K reporting that it had reached a definitive agreement to acquire Applanix Corporation of Ontario, a Canadian corporation. On June 26, 2003, the Company filed a report on Form 8-K reporting that it had signed an agreement for a new $175 Million credit facility syndicated by nine banks and arranged by the Bank of Nova Scotia.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRIMBLE NAVIGATION LIMITED -------------------------- (Registrant) By: /s/ Mary Ellen Genovese ----------------------- Mary Ellen Genovese Chief Financial Officer (Authorized Officer and Principal Financial Officer) DATE: August 15, 2003
EXHIBIT INDEX Exhibit No. Description 3.1 Restated Articles of Incorporation of Trimble Navigation Limited, filed June 25, 1986. (1) 3.2 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed October 6, 1988. (1) 3.3 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed July 18, 1990. (1) 3.4 Certificate of Determination of Trimble Navigation Limited, filed February 19, 1999. (1) 3.5 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed May 29, 2003. 3.6 Amended and Restated Bylaws of Trimble Navigation Limited. (2) 10.2 Credit Agreement dated June 25, 2003. 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. 31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. 32.1 Certification of Chief Executive Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. 32.2 Certification of Chief Financial Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated August 15, 2003. - ---------- (1) Incorporated by reference to identically numbered exhibits filed in response to Item 14(a), "Exhibits" of the registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1999, as filed with the SEC on March 29, 1999. (2) Incorporated by reference to exhibit number 3.8 to the registrant's Quarterly Report on Form 10-Q for the period ending September 27, 2002.