form10q-q106
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 MARCH 31, 2006
OR
[
] TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE
TRANSITION PERIOD FROM __________ TO __________
Commission
file
number: 0-18645
TRIMBLE
NAVIGATION LIMITED
(Exact
name of
registrant as specified in its charter)
California
|
94-2802192
|
(State
or
other jurisdiction of
Incorporation
or organization)
|
(IRS
Employer
Identification Number)
|
935
Stewart Drive, 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 a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check
one):
Large
Accelerated
Filer [
X ] Accelerated
Filer [
] Non-accelerated
Filer [
]
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act).
Yes [
] No [
X ]
As
of May 1, 2006,
there were 54,633,587 shares of
Common Stock (no
par value) outstanding.
TRIMBLE
NAVIGATION LIMITED
FORM
10-Q
for the Quarter ended March 31, 2006
INDEX
PART
I.
|
Financial
Information
|
Page
|
|
|
|
ITEM
1.
|
Financial
Statements (Unaudited):
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets —
|
|
|
March
31, 2006
and December 30, 2005
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Income —
|
|
|
Three
Months
Ended March 31, 2006 and April 1, 2005
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows —
|
|
|
Three
Months
Ended March 31, 2006 and April 1, 2005
|
5
|
|
|
|
|
Notes
to
Condensed Consolidated Financial Statements
|
6
|
|
|
|
ITEM
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
|
|
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
25
|
|
|
|
ITEM
4.
|
Controls
and
Procedures
|
26
|
|
|
|
|
|
|
PART
II.
|
Other
Information
|
|
|
|
|
ITEM
1.
|
Legal
Proceedings
|
27
|
|
|
|
ITEM
1A.
|
Risk
Factors
|
27
|
|
|
|
ITEM
6.
|
Exhibits
|
34
|
|
|
|
SIGNATURES
|
35
|
PART
I -
FINANCIAL INFORMATION
ITEM
1.
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE
NAVIGATION
LIMITED
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
March
31,
|
|
|
|
December
30,
|
|
As
at
|
|
2006
|
|
|
|
2005
|
|
(in
thousands)
|
|
(UNAUDITED)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
$
|
97,648
|
|
|
$
|
73,853
|
|
Accounts
receivable, net
|
|
171,392
|
|
|
|
145,100
|
|
Other
receivables
|
|
5,998
|
|
|
|
6,489
|
|
Inventories,
net
|
|
101,552
|
|
|
|
107,851
|
|
Deferred
income taxes
|
|
20,709
|
|
|
|
18,504
|
|
Other
current
assets
|
|
10,047
|
|
|
|
8,580
|
|
Total
current
assets
|
|
407,346
|
|
|
|
360,377
|
|
Property
and
equipment, net
|
|
44,012
|
|
|
|
42,664
|
|
Goodwill
|
|
289,605
|
|
|
|
286,146
|
|
Other
purchased intangible assets, net
|
|
26,860
|
|
|
|
27,310
|
|
Deferred
income taxes
|
|
4,485
|
|
|
|
3,580
|
|
Other
assets
|
|
23,947
|
|
|
|
23,011
|
|
Total
non-current assets
|
|
388,909
|
|
|
|
382,711
|
|
Total
assets
|
$
|
796,255
|
|
|
$
|
743,088
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
$
|
166
|
|
|
$
|
216
|
|
Accounts
payable
|
|
49,684
|
|
|
|
45,206
|
|
Accrued
compensation and benefits
|
|
29,290
|
|
|
|
36,083
|
|
Accrued
liabilities
|
|
22,284
|
|
|
|
16,189
|
|
Deferred
revenues
|
|
18,727
|
|
|
|
12,588
|
|
Accrued
warranty expense
|
|
7,445
|
|
|
|
7,466
|
|
Deferred
income taxes
|
|
1,260
|
|
|
|
4,087
|
|
Income
taxes
payable
|
|
29,188
|
|
|
|
24,922
|
|
Total
current
liabilities
|
|
158,044
|
|
|
|
146,757
|
|
Non-current
portion of long-term debt
|
|
437
|
|
|
|
433
|
|
Deferred
income tax
|
|
9,881
|
|
|
|
5,602
|
|
Other
non-current liabilities
|
|
16,033
|
|
|
|
19,041
|
|
Total
liabilities
|
|
184,395
|
|
|
|
171,833
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock no par value; 3,000 shares authorized; none
outstanding
|
|
-
|
|
|
|
-
|
|
Common
stock,
no par value; 90,000 shares authorized;
54,471
and
53,910 shares issued and outstanding at March 31, 2006 and December
30,
2005, respectively
|
|
397,688
|
|
|
|
384,196
|
|
Retained
earnings
|
|
193,353
|
|
|
|
167,525
|
|
Accumulated
other comprehensive income
|
|
20,819
|
|
|
|
19,534
|
|
Total
shareholders' equity
|
|
611,860
|
|
|
|
571,255
|
|
Total
liabilities and shareholders' equity
|
$
|
96,255
|
|
|
$
|
743,088
|
|
(1) |
Derived
from
the December 30, 2005 audited Consolidated Financial Statements included
in the Annual Report on Form 10-K of Trimble Navigation Limited for
fiscal
year 2005.
|
See
accompanying
Notes to the Condensed Consolidated Financial Statements.
TRIMBLE
NAVIGATION
LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
Three
Months
Ended
|
|
|
March
31,
|
|
April
1,
|
|
|
2006
|
|
2005
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
Revenue
(1)
|
$
|
225,854
|
$
|
195,383
|
Cost
of sales
(1)
|
|
118,391
|
|
97,576
|
Gross
margin
|
|
107,463
|
|
97,807
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
Research
and
development
|
|
24,446
|
|
21,828
|
Sales
and
marketing
|
|
32,706
|
|
30,371
|
General
and
administrative
|
|
15,761
|
|
12,832
|
Restructuring
charges
|
|
-
|
|
278
|
Amortization
of purchased intangible assets
|
|
1,485
|
|
2,298
|
Total
operating expenses
|
|
74,398
|
|
67,607
|
Operating
income
|
|
33,065
|
|
30,200
|
Non-operating
income (expense), net
|
|
|
|
|
Interest
income (expense), net
|
|
434
|
|
(611)
|
Foreign
currency transaction gain (loss), net
|
|
593
|
|
(157)
|
Income
(expense) for affiliated operations, net
|
|
1,616
|
|
(3,039)
|
Other
income,
net
|
|
164
|
|
30
|
Total
non-operating income (expense), net
|
|
2,807
|
|
(3,777)
|
Income
before
taxes
|
|
35,872
|
|
26,423
|
Income
tax
provision
|
|
10,044
|
|
8,984
|
Net
income
|
$
|
25,828
|
$
|
17,439
|
|
|
|
|
|
Basic
earnings
per share
|
$
|
0.48
|
$
|
0.33
|
Shares
used in
calculating basic earnings per share
|
|
54,242
|
|
52,500
|
|
|
|
|
|
Diluted
earnings per share
|
$
|
0.45
|
$
|
0.31
|
Shares
used in
calculating diluted earnings per share
|
|
57,859
|
|
56,371
|
(1)
Sales to related parties were $4.9 million with an associated cost of sales
of
$3.0 million for the three months ended March 31, 2006. Sales to related parties
were $2.2 million with an associated cost of sales of cost of sales of $0.9
million for the three month periods ended and April 1, 2005. In addition, cost
of sales associated with related party inventory purchases was $5.5 million
for
the three month period ended March 31, 2006.
See
accompanying
Notes to the Condensed Consolidated Financial Statements.
TRIMBLE
NAVIGATION
LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Three
Months
Ended
|
|
|
March
31,
|
|
|
April
1,
|
|
|
2006
|
|
|
2005
|
(In
thousands)
|
|
|
|
|
(Revised
-
See Note 1)
|
|
|
|
|
|
|
Cash
flow from
operating activities:
|
|
|
|
|
|
Net
income
|
$
|
25,828
|
|
$
|
17,439
|
Adjustments
to
reconcile net income to net cash
|
|
|
|
|
|
provided
by
(used in) operating activities:
|
|
|
|
|
|
Depreciation
expense
|
|
3,104
|
|
|
2,512
|
Amortization
expense
|
|
2,380
|
|
|
2,339
|
Provision
for
doubtful accounts
|
|
360
|
|
|
388
|
Deferred
income taxes
|
|
(1,880)
|
|
|
488
|
Stock-based
compensation
|
|
3,230
|
|
|
-
|
Excess
tax
benefit for stock-based compensation
|
|
(3,941)
|
|
|
-
|
Other
|
|
428
|
|
|
71
|
Changes in
assets and liabilities:
|
|
|
|
|
|
Accounts
receivable, net
|
|
(26,211)
|
|
|
(32,155)
|
Other
receivables
|
|
527
|
|
|
456
|
Inventories
|
|
5,870
|
|
|
(4,739)
|
Other
current
and non-current assets
|
|
(6,827)
|
|
|
1,054
|
Accounts
payable
|
|
4,361
|
|
|
2,121
|
Accrued
compensation and benefits
|
|
(6,601)
|
|
|
(3,033)
|
Accrued
liabilities
|
|
3,503
|
|
|
765
|
Deferred
gain
on joint venture
|
|
-
|
|
|
125
|
Deferred
revenue
|
|
5,410
|
|
|
1,513
|
Income
taxes
payable
|
|
7,336
|
|
|
8,521
|
Net
cash
provided by (used in) operating activities
|
|
16,877
|
|
|
(2,135)
|
|
|
|
|
|
|
Cash
flow from
investing activities:
|
|
|
|
|
|
Acquisition
of
property and equipment
|
|
(4,972)
|
|
|
(3,164)
|
Cost
of
acquisitions, net of cash acquired
|
|
(2,272)
|
|
|
(11,197)
|
Costs
of
capitalized patents
|
|
-
|
|
|
(75)
|
Net
cash used
in investing activities
|
|
(7,244)
|
|
|
(14,436)
|
|
|
|
|
|
|
Cash
flow from
financing activities:
|
|
|
|
|
|
Issuance
of
common stock
|
|
7,149
|
|
|
5,566
|
Collection
of
notes receivable
|
|
10
|
|
|
110
|
Excess
tax
benefit for stock-based compensation
|
|
3,941
|
|
|
-
|
Payments
on
long-term debt and revolving credit lines
|
|
-
|
|
|
(10,125)
|
Net
cash
provided by (used in) financing activities
|
|
11,100
|
|
|
(4,449)
|
|
|
|
|
|
|
Effect
of
exchange rate changes on cash and cash equivalents
|
|
3,062
|
|
|
(659)
|
|
|
|
|
|
|
Net
increase
(decrease) in cash and cash equivalents
|
|
23,795
|
|
|
(21,679)
|
Cash
and cash
equivalents, beginning of period
|
|
73,853
|
|
|
71,872
|
Cash
and cash
equivalents, end of period
|
$
|
97,648
|
|
$
|
50,193
|
See
accompanying
Notes to the Condensed Consolidated Financial Statements.
NOTES
TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE
1. OVERVIEW AND
BASIS OF PRESENTATION
Trimble
Navigation
Limited (“we,” “Trimble” or the “Company”), incorporated in California in 1981,
provides positioning product solutions to commercial and government users in
a
large number of markets. These markets include surveying, construction,
agriculture, urban and resource management, military, transportation and
telecommunications.
Trimble
has a 52-53
week fiscal year, ending on the Friday nearest to December 31, which for fiscal
2005 was December 30. The first fiscal quarters of 2006 and 2005 ended on March
31, 2006 and April 1, 2005, respectively. Fiscal 2006 and 2005 are 53-week
years. Unless otherwise stated, all dates refer to its fiscal year and fiscal
periods.
The
accompanying
financial data as of March 31, 2006 and for the three months ended March 31,
2006 and April 1, 2005 has been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
U.S.
have been condensed or omitted pursuant to such rules and regulations. The
following discussion should be read in conjunction with Trimble’s 2005 Annual
Report on Form 10-K.
In
first quarter of
fiscal 2006, the Company revised its statements of cash flows for the first
quarter of fiscal 2005. The changes relate to the Company’s classification of
the foreign exchange impact on its cash and cash equivalents that was
erroneously included in cash flows from operations. These corrections have
been
made retrospectively modifying the presentation for the first quarter of
fiscal
2005. The changes resulted in an increase to cash flows used in operations
of $0.9 million for the first quarter of fiscal 2005. This revision to the
statements of cash flows had no impact on the Company’s cash and cash
equivalents, balance sheet, or income statement.
In
the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary to present a fair statement of financial position as of March 31,
2006, results of operations for the three months ended March 31, 2006 and April
1, 2005 and cash flows for the three months ended March 31, 2006 and April
1,
2005, as applicable, have been made. The results of operations for the three
months ended March 31, 2006 are not necessarily indicative of the operating
results for the full fiscal year or any future periods.
The
preparation of
financial statements in accordance with accounting principles generally accepted
in the U.S. requires management to make estimates and assumptions that affect
the amounts reported in its condensed consolidated financial statements and
accompanying notes. Management bases its estimates on historical experience
and
various other assumptions believed to be reasonable. Although these estimates
are based on management’s best knowledge of current events and actions that may
impact the company in the future, actual results may be different from the
estimates. Trimble’s critical accounting policies are those that affect its
financial statements materially and involve difficult, subjective or complex
judgments by management. For the
first
quarter of fiscal 2006, the Company changed its critical accounting policy
related to stock-based compensation. See Note 2 to the Notes to the Condensed
Consolidated Financial Statements for additional information.
For
more information
on the Company’s significant accounting principles, refer to Trimble’s 2005
Annual Report on Form 10-K.
NOTE
2. NEW
ACCOUNTING PRONOUNCEMENTS
SFAS
No. 123R
“Share-Based Payment”
In
December 2004,
the Financial Accounting Standards Board (“FASB”) issued Standard of Financial
Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS
123(R) requires employee stock options and rights to purchase shares under
stock
participation plans to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS 123.
Trimble
has adopted
SFAS 123(R) using the
modified
prospective method which requires the adoption of the accounting
standard for fiscal periods beginning after June 15, 2005. As a result, the
Company's financial statements for fiscal periods after December 30,
2005 will include stock-based compensation expenses that are not comparable
to financial statements of fiscal periods prior to December 30, 2005. SFAS
123(R) requires stock-based compensation to be estimated using the fair value
on
the date of grant using an option-pricing model. The value of the portion of
the
award that is expected to vest is recognized as expense over the related
employees' requisite service periods in the Company’s Condensed Consolidated of
Income. Prior to the adoption of SFAS 123(R), the Company accounted for
stock-based compensation to employees and directors using the intrinsic value
method in accordance with APB Opinion No. 25 as allowed under Statement of
Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based
compensation expense had been recognized in the Company’s Condensed Consolidated
Statement of Income because the exercise price of the Company’s stock options
granted to employees and directors equaled the fair market value of the
underlying stock at the date of grant.
See
Note 3 to the Notes to the Condensed Consolidated Financial Statements for
additional information.
NOTE
3. STOCK-BASED
COMPENSATION
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 applied 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 prior to fiscal 2006. Accordingly, Trimble did not recognize
compensation cost for stock-based compensation prior to fiscal 2006. For periods
subsequent to fiscal 2005, Trimble will recognize expense related to stock-based
compensation in accordance with SFAS 123(R).
The
following table
summarizes stock-based compensation expense, net of tax, related to employee
stock-based compensation included in the Condensed Consolidated Statements
of
Income in
accordance with
SFAS 123(R) for
the three months
ended March 31, 2006 and April 1, 2005.
|
Three
Months
Ended
|
|
|
March
31,
|
|
April
1,
|
|
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Cost
of
sales
|
$
|
287
|
$
|
-
|
|
|
|
|
|
Research
&
development
|
|
639
|
|
-
|
Sales
&
marketing
|
|
741
|
|
-
|
General
&
administrative
|
|
1,562
|
|
-
|
Stock-based
compensation expense included in operating expenses
|
|
2,942
|
|
-
|
|
|
|
|
|
Total
stock-based compensation
|
|
3,229
|
|
-
|
Tax
benefit
(1)
|
|
(294)
|
|
-
|
Total
stock-based compensation, net of tax
|
$
|
2,935
|
$
|
-
|
The
table below
provides pro forma information for the first quarter of fiscal 2005 as if
Trimble had accounted for its employee stock options and purchases under the
employee stock purchase plan in accordance with SFAS 123.
|
Three
Months
Ended
|
|
|
April
1,
|
|
|
2005
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
Net
income -
as reported
|
$
|
17,439
|
Stock-based
compensation expense, net of tax (2)
|
|
3,063
|
Net
income -
pro forma
|
$
|
14,376
|
|
|
|
Basic
earnings
per share - as reported
|
$
|
0.33
|
Basic
earnings
per share - pro forma
|
$
|
0.27
|
|
|
|
Diluted
earnings per share - as reported
|
$
|
0.31
|
Diluted
earnings per share - pro forma
|
$
|
0.25
|
(2)
Includes
compensation expense for employee stock purchase plan and reduction of tax
benefits for stock-based compensation other than non-qualified stock options
which were not included in the pro forma disclosure of Trimble’s first quarter
of fiscal 2005 Form 10-Q. Tax benefit relate to non-qualified options only
as
allowed by the applicable tax requirements using the statutory tax rate as
of
the first quarter of fiscal 2005.
OPTIONS
Stock
option expense
recognized during the period is based on the value of the portion of share-based
payment awards that is expected to vest during the period. Stock option expense
recognized in the Company’s Condensed Consolidated of Income for the three
months ended March 31, 2006 included compensation expense for stock options
granted prior to, but not yet vested as of December 30, 2005 based on the grant
date fair value estimated in accordance with the provisions of SFAS 123 and
compensation expense for the stock options granted subsequent to December 30,
2005 based on the grant date fair value estimated in accordance with the
provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R),
the
Company changed its method of attributing the value of stock option to expense
from the accelerated multiple-option approach to the straight-line single option
method. Compensation expense for all stock options granted on or prior to
December 30, 2005 will continue to be recognized using the accelerated
multiple-option approach while compensation expense for all stock options
granted subsequent to December 30, 2005 is recognized using the straight-line
single-option method. SFAS 123(R) requires forfeitures to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. In the Company’s pro forma information
required under SFAS 123 for the periods prior to fiscal 2006, the Company
accounted for forfeitures as they occurred.
Stock
Option
Plans
Trimble
issues new
shares upon exercises of stock options related to the following plans.
2002
Stock
Plan
In
2002, Trimble’s
Board of Directors adopted the 2002 Stock Plan (“2002 Plan”). The 2002 Plan, as
amended to date and approved by shareholders, approved by the shareholders
provides for the granting of incentive and non-statutory stock options for
up to
4,500,000 shares plus any shares currently reserved but unissued to employees,
consultants, and directors of Trimble. Incentive stock options may be granted
at
exercise prices that are not less than 100% of the fair market value of Common
Stock on the date of grant. Employee stock options granted under the 2002 Plan
have 120-month terms, and vest at a rate of 20% at the first anniversary of
grant, and monthly thereafter at an annual rate of 20%, with full vesting
occurring at the fifth anniversary of the grant. The exercise price of
non-statutory stock options issued under the 2002 Plan must be at least 85%
of
the fair market value of Common Stock on the date of grant.
1993
Stock
Option Plan
In
1992, Trimble's
Board of Directors adopted the 1993 Stock Option Plan (“1993 Plan”). The 1993
Plan, as amended to date and approved by shareholders, provided for the granting
of incentive and non-statutory stock options for up to 9,562,500 shares of
Common Stock to employees, consultants, and directors of Trimble. Incentive
stock options may be granted at exercise prices that are not less than 100%
of
the fair market value of Common Stock on the date of grant. Employee stock
options granted under the 1993 Plan have 120-month terms, and vest at a rate
of
20% at the first anniversary of grant, and monthly thereafter at an annual
rate
of 20%, with full vesting occurring at the fifth anniversary of grant. The
exercise price of non-statutory stock options issued under the 1993 Plan must
be
at least 85% of the fair market value of Common Stock on the date of grant.
1992
Management
Discount Stock Option Plan
In
1992, Trimble's
Board of Directors and shareholders approved the 1992 Management Discount Stock
Option Plan ("Discount Plan"). Employee stock options granted under the 1992
Plan have 120-month terms, and vest at a rate of 20% at the first anniversary
of
grant, and monthly thereafter at an annual rate of 20%, with full vesting
occurring at the fifth anniversary of the grant.
1990
Director
Stock Option Plan
In
December 1990,
Trimble adopted a Director Stock Option Plan under which an aggregate of 570,000
shares of Common Stock have been reserved for issuance to non-employee directors
as approved by the shareholders to date. Stock options issued under this plan
vest generally over a three year period.
Option
Activity
Activity
during the
first quarter of fiscal 2006 under the combined plans was as follows:
|
March
31, 2006
|
Fiscal
Years
Ended
|
Options
|
Weighted
average exercise price
|
(In
thousands, except for per share data)
|
|
|
|
|
|
Outstanding
at
December 30, 2005
|
6,414
|
$18.70
|
Granted
|
70
|
36.47
|
Exercised
|
(536)
|
14.51
|
Forfeited/Cancelled/Expired
|
(16)
|
25.07
|
Outstanding
at
March 31, 2006
|
5,932
|
19.27
|
Options
Outstanding and Exercisable
Exercise
prices for
options outstanding and exercisable as of March 31, 2006, ranged from $5.33
to
$43.43. Options outstanding and exercisable consist of fully vested options
and
options expected to vest at March 31, 2006. The
aggregate
intrinsic value is the total pretax intrinsic value based on the Company’s
closing stock price of $45.05 as of March 31, 2006, which would have been
received by the option holders had all option holders exercised their options
as
of that date.
|
|
|
Weighted-
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
Average
|
|
|
|
Number
|
|
Exercise
Price
|
|
Remaining
|
|
|
|
Of
Shares
|
|
per
Share
|
|
Contractual
Term
|
|
|
|
|
|
|
|
(in
years)
|
|
(in
thousands)
|
Options
Outstanding and Expected to Vest
|
5,776,734
|
|
$
19.01
|
|
5.9
|
|
$
150,413
|
Options
Exercisable
|
3,495,154
|
|
14.71
|
|
5.0
|
|
106,026
|
As
of March 31,
2006, the total unamortized stock option expense is $18.3 million with
weighted-average recognition period of 1.6 years.
Valuation
Assumptions
For
options granted
prior to October 1, 2005, the fair value for these options was estimated at
the
date of grant using the Black-Scholes option-pricing model. For stock options
granted on or after October 1, 2005, the fair value of each award is
estimated on the date of grant using a binomial valuation model. Similar to
the
Black-Scholes model, the binomial model takes into account variables such as
volatility, dividend yield rate, and risk free interest rate. In
addition, the
binomial model
incorporates actual option-pricing behavior and changes in volatility over
the
option’s contractual term. For these reasons, the Company believes that the
binomial model provides a fair value that is more representative of actual
experience and future expected experience than the value calculated using the
Black-Scholes model.
Under
the
Black-Scholes and binomial models, the estimated values of employee stock
options granted during the first quarter of fiscal 2006 and 2005 were $14.53
and
$16.21, respectively. The value of each option grant is estimated on the date
of
grant using the binomial model for options granted during the first quarter
of
fiscal 2006 and the Black-Scholes option pricing model for options granted
during the first quarter of fiscal 2005 and with the following
assumptions:
Fiscal
Years
Ended
|
March
31,
2006
|
April
1,
2005
|
Expected
dividend yield
|
--
|
--
|
Expected
stock
price volatility
|
42.0%
|
57.4%
|
Risk
free
interest rate
|
4.5%
|
4.2%
|
Expected
life
of options (in years)
|
4.6
|
4.7
|
Expected
Dividend Yield
- The
dividend yield
assumption is based on the Company’s history and expectation of dividend
payouts.
Expected
Stock
Price Volatility
- The
Company’s
computation of expected volatility is based on a combination of implied
volatilities from traded options on the Company’s stock and historical
volatility. The Company used implied and historical volatility as the
combination was more representative of future stock price trends than historical
volatility alone.
Expected
Risk
Free Interest Rate
-
The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time
of
grant for the expected term of the option.
Expected
Life Of
Option
- The
Company’s
expected term represents the period that the Company’s stock options are
expected to be outstanding and was determined based on historical experience
of
similar stock options with consideration to the contractual terms of the stock
options, vesting schedules and expectations of future employee
behavior.
EMPLOYEE
STOCK PURCHASE PLAN
Stock-based
compensation expense related to the Company’s employee stock purchase plan is
recognized during the purchase vesting period which is generally six
months.
Employee
Stock
Purchase Plan
The
Company has an
Employee Stock Purchase Plan (“Purchase Plan”) under which an aggregate of
5,325,000 shares of Common Stock have been reserved for sale to eligible
employees as approved by the shareholders to date. The plan permits full-time
employees to purchase Common Stock through payroll deductions at 85% of the
lower of the fair market value of the Common Stock at the beginning or at the
end of each six-month offering period. The Purchase Plan terminates on September
8, 2008.
Valuation
Assumptions
The
fair value of
rights granted under the Employee Stock Purchase Plan is estimated at the date
of grant using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used at March 31, 2006 and April 1,
2005:
Three
Months
Ended
|
March
31,
2006
|
April
1,
2005
|
Expected
dividend yield
|
--
|
--
|
Expected
stock
price volatility
|
34.9%
|
35.1%
|
Risk
free
interest rate
|
4.4%
|
3.4%
|
Expected
life
of purchase
|
0.5
|
0.5
|
Expected
Dividend Yield
- The
dividend yield
assumption is based on the Company’s history and expectation of dividend
payouts.
Expected
Stock
Price Volatility
- The
Company’s
computation of expected volatility is based on implied volatilities from traded
options on the Company’s stock. The Company used implied volatility because it
is representative of future stock price trends during the six month purchase
period.
Expected
Risk
Free Interest Rate
-
The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time
of
grant for the expected term of the purchase period.
Expected
Life Of
Purchase
- The
Company’s
expected life of the purchase is based on the 6 month offering period of the
purchase plan.
NOTE
4.
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. The joint venture is 50% owned by
Trimble and 50% owned by Caterpillar, with equal voting rights. The joint
venture is accounted for under the equity method of accounting. Under the equity
method, Trimble’s share of profits and losses are included in expenses for
affiliated operations, net in the non-operating income (expense), net section
of
the Condensed
Consolidated Statements
of
Income. CTCT develops advanced electronic guidance and control products for
earth moving machines in the construction and mining industries.
Trimble
acts as a
contract manufacturer for CTCT. Products are manufactured based on orders
received from CTCT and are sold at cost plus a mark up to CTCT. CTCT resells
products to both Caterpillar and Trimble for sales through their respective
distribution channels. Generally, Trimble sells products to its after market
dealer channel, and Caterpillar sells products for factory and dealer
installation. CTCT does not hold inventory in that the resale of products to
Caterpillar and Trimble occur simultaneously when the products are purchased
from Trimble.
Beginning
in the
first fiscal quarter of 2006, Trimble included the impact of certain
transactions with CTCT in revenue and cost of sales. Revenue and cost of sales
were recorded for the manufacturing of products that are sold to CTCT and then
sold through the Caterpillar distribution channel. Cost of sales transactions
include purchasing products from CTCT at a higher price than Trimble's original
manufacturing costs, partially offset by contract manufacturing fees charged
to
CTCT. Prior to the first fiscal quarter of 2006, these transactions were
included in expenses for affiliated operations, net in the non-operating income
(expense), net of the Consolidated Statements of Income. The change in
presentation resulted from the Company’s assessment of CTCT’s advancement and
ability to function as a stand-alone company. As a result of CTCT’s progression,
the Company recognized the remaining deferred gain balance of $9.2 million
in
the fourth quarter of fiscal 2005. In addition, the Company’s exclusive
manufacturing agreement with CTCT ended during the second half of fiscal 2005.
As a result, the Company deemed transactions between CTCT and Trimble to be
arms-length during the first quarter of fiscal 2006 and concluded they should
be
presented similarly to other vendor and customer relationships. The impact
of
this change in presentation during the first quarter of fiscal 2006 was a net
impact of $5.2 million decrease in gross margins. There was no impact on net
income.
Trimble
received
reimbursement of employee-related costs from CTCT for Trimble employees
dedicated to CTCT or performing work for CTCT totaling $3.4 million and $2.6
million for the three months ended March 31, 2006 and April 1, 2005,
respectively. The reimbursements were offset against operating
expenses.
|
March
31,
|
April
1,
|
Three
Months
Ended
|
2006
|
2005
|
(In
millions)
|
|
|
|
|
|
CTCT
incremental pricing effects, net
|
$
-
|
$
(3.1)
|
Trimble's
50%
share of CTCT's reported gain (loss)
|
1.6
|
0.3
|
Total
CTCT
income (expense) for affiliated operations, net (1)
|
$1.6
|
$
(2.8)
|
|
|
|
(1)
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 "Income (Expense) for affiliated operations, net."
At
March 31, 2006,
the net outstanding balance due to CTCT from Trimble was approximately $1.5
million recorded within heading of accounts payable. The net outstanding balance
due from CTCT was $0.2 million at December 30, 2005 and is included in account
receivables, net.
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., as described in Trimble’s 2005 Annual Report
on Form 10-K. Nikon-Trimble began operations in July, 2003
and is equally
owned by Trimble and Nikon, with equal voting rights.
Nikon-Trimble
is the
distributor in Japan for Nikon and Trimble products. Trimble is the exclusive
distributor outside of Japan for Nikon branded survey products. For products
sold from Trimble to the Nikon-Trimble, revenue is recognized by Trimble on
a
sell-through basis from Nikon-Trimble to the end customer. Profits from these
inter-company sales are eliminated.
The
terms and
conditions of the sales of products from Trimble to Nikon-Trimble are comparable
with those of the standard distribution agreements which Trimble maintains
with
its dealer channel and margins earned are similar to those from third party
dealers. Similarly, the purchases of product by Trimble from the Nikon-Trimble
are made on terms comparable with the arrangements which Nikon maintained with
its international distribution channel prior to the formation of the joint
venture with Trimble.
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 Condensed Consolidated Statement of Income under
the heading of “Expenses for affiliated operations, net.” For the three months
ended March 31, 2006 and April 1, 2005, Trimble reported a loss of $15,000
and
$0.2 million, respectively, as its proportionate share of the net loss of the
joint venture. At March 31, 2006 and December 30, 2005, the net payable by
Trimble to Nikon-Trimble related to the purchase and sale of products from
and
to Nikon-Trimble is $3.8 million and $2.0 million, respectively, recorded within
accounts payable on the Condensed Consolidated Balance Sheets. The
carrying amount
of the investment in Nikon Trimble was approximately $12.9 million at March
31,
2006 and $12.9 million at December 30, 2005.
NOTE
5.
GOODWILL AND
INTANGIBLE ASSETS:
Intangible
Assets
Intangible
Assets
consisted of the following:
|
|
March
31,
|
|
December
30,
|
As
of
|
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Intangible
assets:
|
|
|
|
|
Intangible
assets with definite life:
|
|
|
|
|
Existing
technology
|
$
|
49,473
|
$
|
48,100
|
Trade
names,
trademarks, patents, and other intellectual properties
|
|
27,602
|
|
26,808
|
Total
intangible assets with definite life
|
|
77,075
|
|
74,908
|
Less
accumulated amortization
|
|
(50,215)
)
|
|
(47,598)
|
Total
net
intangible assets
|
$
|
26,860
|
$
|
27,310
|
Goodwill
Goodwill,
by
reporting segment, consisted of the following:
|
|
March
31,
|
|
December
30,
|
As
of
|
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
$
|
232,762
|
$
|
229,176
|
Mobile
Solutions
|
|
43,992
|
|
44,118
|
Advanced
Devices
|
|
12,851
|
|
12,852
|
|
|
|
|
|
Total
Goodwill
|
$
|
289,605
|
$
|
286,146
|
NOTE
6. CERTAIN
BALANCE
SHEET COMPONENTS:
Inventories
consisted of the following:
|
March
31,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
Raw
materials
|
$
54,317
|
|
$
52,199
|
Work-in-process
|
7,290
|
|
7,249
|
Finished
goods
|
39,945
|
|
48,403
|
|
$
101,552
|
|
$
107,851
|
Property
and
equipment consisted of the following:
|
March
31,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
Machinery
and
equipment
|
$
70,295
|
|
$
72,273
|
Furniture
and
fixtures
|
10,844
|
|
10,110
|
Leasehold
improvements
|
9,931
|
|
8,695
|
Buildings
|
5,706
|
|
5,707
|
Land
|
1,231
|
|
1,231
|
|
98,007
|
|
98,016
|
Less
accumulated depreciation
|
(53,995)
|
|
(55,352)
|
|
$
44,012
|
|
$
42,664
|
NOTE
7.
THE COMPANY AND
SEGMENT INFORMATION:
Trimble
is a
designer and distributor of positioning products and applications enabled by
GPS, optical, laser, and wireless communications technology. Trimble provides
products for diverse applications in its targeted markets.
To
achieve
distribution, marketing, production, and technology advantages, Trimble manages
its operations in the following four segments:
· |
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 machine guidance and control.
The
applications served include surveying, road, runway, construction,
site
preparation and building construction.
|
· |
Field
Solutions — Consists of products that provide solutions in a variety of
agriculture and geographic information systems (GIS) applications.
In
agriculture these include precise land leveling and machine guidance
systems. In GIS they include handheld devices and software that enable
the
collection of data on assets for a variety of governmental and private
entities.
|
· |
Mobile
Solutions — Consists of products that enable end users to monitor and
manage their mobile assets by communicating location and activity-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, and public safety
vehicles.
|
· |
Advanced
Devices — The various operations that comprise this segment were
aggregated on the basis that no single operation accounted for more
than
10% of Trimble’s total revenue, operating income and assets. This segment
is comprised of the Component Technologies, Military and Advanced
Systems,
Applanix and Trimble Outdoors
businesses.
|
Trimble
evaluates
each of its segment's performance and allocates resources based on segment
operating income from operations before income taxes, and some corporate
allocations. Trimble and each of its segments employ the same accounting
policies.
In
the first fiscal
quarter of 2006, Trimble combined the operating results of Components
Technologies and Portfolio Technologies and included the combined operating
results in Advanced Devices. The change in presentation was made in recognition
of the small size of each of the businesses relative to the total company.
The
presentation of prior period’s segment operating results has been changed to
conform to the Company’s current segment presentation.
The
following table
presents revenues, operating income (loss), and identifiable assets for the
four
segments. Operating
income
(loss) is net revenue less operating expenses, excluding general corporate
expenses, amortization, restructuring charges, non-operating income (expense),
and income taxes. The identifiable assets that Trimble's Chief Operating
Decision Maker views by segment are accounts receivable and inventory.
|
|
Reporting
Segments
|
|
|
|
|
Engineering
and
|
|
Field
|
|
Mobile
|
|
Advanced
|
|
|
|
|
Construction
|
|
Solutions
|
|
Solutions
|
|
Devices
|
|
Total
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended March 31, 2006
|
|
|
|
|
|
|
|
|
|
External
net
revenues
|
|
$
146,733
|
|
$
43,042
|
|
$
12,607
|
|
$
23,471
|
|
$
225,853
|
|
Operating
income before corporate allocations
|
|
26,377
|
|
13,908
|
|
223
|
|
2,323
|
|
42,831
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended April 1, 2005
|
|
|
|
|
|
|
|
|
|
External
net
revenues
|
|
$
120,198
|
|
$
45,425
|
|
$
7,401
|
|
$
22,359
|
|
$
195,383
|
|
Operating
income (loss) before corporate allocations
|
|
21,490
|
|
15,577
|
|
(636)
|
|
3,232
|
|
39,663
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of March
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable (1)
|
|
$
121,517
|
|
$
30,801
|
|
$
9,883
|
|
$
17,276
|
|
$
179,477
|
|
Inventories
|
|
75,978
|
|
9,786
|
|
1,915
|
|
13,873
|
|
101,552
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable (1)
|
|
$
105,980
|
|
$
21,823
|
|
$
10,789
|
|
$
14,033
|
|
$
152,625
|
|
Inventories
|
|
80,590
|
|
11,790
|
|
1,983
|
|
13,488
|
|
107,851
|
(1) |
As
presented,
accounts receivable represents trade receivables, gross, which are
specified between segments.
|
The
following are reconciliations corresponding to totals in the accompanying
condensed consolidated financial statements:
|
March
31,
|
|
April
1,
|
Three
Months
Ended
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
Operating
income:
|
|
|
|
Total
for
reporting segments
|
$
42,831
|
|
$
39,663
|
Unallocated
corporate expenses
|
(9,766)
|
|
(9,463)
|
Operating
income from continuing operations
|
$
33,065
|
|
$
30,200
|
|
March
31,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
Assets:
|
|
|
|
Accounts
receivable total for reporting segments
|
$
179,477
|
|
$
152,625
|
Unallocated
(1)
|
(8,085)
|
|
(7,525)
|
Total
|
$
171,392
|
|
$
145,100
|
(1)
Includes trade-related accruals and cash received in advance that are not
allocated by segment.
The
distribution of
Trimble’s gross consolidated revenue by segment is summarized in the table
below. Gross consolidated revenue includes external and internal sales. Total
external consolidated revenue is reported net of eliminations of internal sales
between segments.
|
Three
Months
Ended
|
|
|
March
31,
|
|
April
1,
|
|
|
|
2006
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
$
|
147,457
|
$
|
123,290
|
|
Field
Solutions
|
|
43,042
|
|
45,425
|
|
Mobile
Solutions
|
|
12,607
|
|
7,401
|
|
Advanced
Devices
|
|
23,471
|
|
22,369
|
|
Total
Gross
Consolidated Revenue
|
$
|
226,578
|
$
|
198,485
|
|
Eliminations
|
|
(724)
|
|
(3,102)
|
|
Total
External
Consolidated Revenue
|
$
|
225,854
|
$
|
195,383
|
|
NOTE
8.
LONG-TERM DEBT:
Credit
Facilities
On
July 28, 2005,
Trimble entered into a $200 million unsecured revolving credit agreement (“2005
Credit Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as
the administrative agent. The 2005 Credit Facility replaced the Company’s $175
million secured 2003 Credit Facility. The funds available under the new 2005
Credit Facility may be used by the Company for general corporate purposes and
up
to $25 million of the 2005 Credit Facility may be used for letters of credit.
The
Company may
borrow funds under the 2005 Credit Facility in U.S. Dollars or in certain other
currencies, and will bear interest, at the Company's option, at either: (i)
a
base rate, based on the administrative agent's prime rate, plus a margin of
between 0% and 0.125%, depending on the Company's leverage ratio as of its
most
recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on LIBOR,
EURIBOR, STIBOR or other agreed-upon rate, depending on the currency borrowed,
plus a margin of between 0.625% and 1.125%, depending on the Company's leverage
ratio as of the most recently ended fiscal quarter. The Company's obligations
under the 2005 Credit Facility are guaranteed by certain of the Company's
domestic subsidiaries.
The
2005 Credit
Facility contains customary affirmative, negative and financial covenants
including, among other requirements, negative covenants that restrict the
Company's ability to dispose of assets, create liens, incur indebtedness,
repurchase stock, pay dividends, make acquisitions, make investments, enter
into
mergers and consolidations and make capital expenditures, and financial
covenants that require the maintenance of leverage and fixed charge coverage
ratios. The 2005 Credit Facility contains events of default that include, among
others, non-payment of principal, interest or fees, breach of covenants,
inaccuracy of representations and warranties, cross defaults to certain other
indebtedness, bankruptcy and insolvency events, material judgments, and events
constituting a change of control. Upon the occurrence and during the continuance
of an event of default, interest on the obligations will accrue at an increased
rate and the lenders may accelerate the Company's obligations under the 2005
Credit Facility, however that acceleration will be automatic in the case of
bankruptcy and insolvency events of default. Trimble incurs a commitment fee
if
the 2005 Credit Facility is not used. The commitment fee is not material to
the
Company’s results during all periods presented.
At
March 31, 2006,
the Company had a zero balance outstanding under the 2005 Credit Facility and
was in compliance with all financial covenants.
Promissory
Note
As
of March 31,
2006, the Company had other notes payable totaling approximately $0.6 million
consisting of government loans to foreign subsidiaries.
NOTE
9.
PRODUCT
WARRANTIES:
The
Company accrues
for warranty costs as part of its cost of sales based on associated material
product costs, technical support labor costs, and costs incurred by third
parties performing work on Trimble's behalf. The products sold are generally
covered by a warranty for periods ranging from 90 days to three years, and
in
some instances up to 5.5 years.
While
the Company
engages in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of component suppliers, its warranty
obligation is affected by product failure rates, material usage, and service
delivery costs incurred in correcting a product failure. 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
Company’s product warranty liability during the three months ended March 31,
2006 and April 1, 2005 are as follows:
|
March
31,
2006
|
|
April
1,
2005
|
Three
Months
Ended
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$
|
7,466
|
|
$
|
6,425
|
Warranties
accrued
|
|
1,492
|
|
|
2,357
|
Warranty
claims
|
|
(1,513)
|
|
|
(1,938)
|
Ending
balance
|
$
|
7,445
|
|
$
|
6,844
|
The
product warranty
liability is classified as accrued warranty in the accompanying condensed
consolidated balance sheets.
NOTE
10.
EARNINGS PER
SHARE:
The
following data
was used in computing earnings per share and the effect on the weighted-average
number of shares of potentially dilutive Common Stock.
|
|
|
|
March
31,
|
|
April
1,
|
Three
Months
Ended
|
|
2006
|
|
2005
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
Income
available to common shareholders:
|
|
|
|
|
|
|
Used
in basic
and diluted earnings per share
|
$
|
25,828
|
$
|
17,439
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
Weighted-average
number of common shares used in basic earnings per share
|
|
54,242
|
|
52,500
|
|
Effect
of
dilutive securities (using treasury stock method):
|
|
|
|
|
|
|
Common
stock
options
|
|
2,652
|
|
3,080
|
|
|
Common
stock
warrants
|
|
965
|
|
791
|
|
Weighted-average
number of common shares and dilutive potential common shares used
in
diluted earnings per share
|
|
57,859
|
|
56,371
|
|
|
|
|
|
|
|
Basic
earnings
per share
|
$
|
0.48
|
$
|
0.33
|
Diluted
earnings per share
|
$
|
0.45
|
$
|
0.31
|
NOTE
11.
RESTRUCTURING
CHARGES:
The
Company did not
record any restructuring charge during the first quarter of fiscal 2006. In
the
comparable first quarter of fiscal 2005, the Company recorded a restructuring
charge of approximately $0.3 million associated with closure of one of its
offices as a result of integration efforts of a previous acquisition. Payments
of $0.1 million and $0.1 million were made during the three months period ending
March 31, 2006 and April 1, 2005 relating to previous restructuring plans.
As of March 31, 2006, the remaining restructuring accrual balance is $0.2
million which is related to the office closure expected to be paid over the
next
several years. The restructuring accrual is included on the Condensed
Consolidated Balance Sheets under the heading of “Accrued Liabilities.”
NOTE
12.
COMPREHENSIVE INCOME:
The
components of comprehensive income, net of related tax as follows:
Three
Months
Ended
|
March
31,
2006
|
|
April
1,
2005
|
(in
thousands)
|
|
|
|
Net
income
|
25,828
|
|
$
17,439
|
Foreign
currency translation adjustments, net of tax
|
1,295
|
|
(8,828)
|
Net
gain
(loss) on hedging transactions
|
-
|
|
118
|
Net
unrealized
loss on investments
|
(10)
|
|
(24)
|
Total
comprehensive income
|
27,113
|
|
$
8,705
|
The
components of accumulated other comprehensive income, net of related tax as
follows:
|
March
31,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
Accumulated
foreign currency translation adjustments
|
$
20,799
|
|
$
19,504
|
Accumulated
net unrealized gain on investments
|
20
|
|
30
|
Total
accumulated other comprehensive income
|
$
20,819
|
|
$
19,534
|
NOTE
13.
LITIGATION:
From
time to time,
the Company is involved in litigation arising out of the ordinary course of
its
business. There are no known claims or pending litigation expected to have
a
material effect on the Company’s 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 “Risks and
Uncertainties” below and elsewhere in this report as well as in the Company's
Annual Report on Form 10-K for fiscal year 2005 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
The
discussion and
analysis of our 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 10-K
for
fiscal 2005.
RECENT
BUSINESS DEVELOPMENTS
BitWyse
Solutions, Inc.(BitWyse)
*
On May 1, 2006, we
acquired BitWyse Solutions, Inc. in an all-cash transaction. BitWyse is a
provider of engineering & construction information management software
dedicated to providing engineering companies and owner operators a competitive
advantage. BitWyse’s performance will be reported under our Engineering and
Constructions business segment.
Eleven
Technology, Inc.(Eleven)
*
On April 28, 2006,
we acquired Eleven Technology, Inc. of Cambridge, Massachusetts in an all-cash
transaction. Eleven is a mobile application software company with a leading
market and technology position in the Consumer Packaged Goods (CPG) industry.
Eleven’s performance will be reported under our Mobile Solutions business
segment.
Quantm
International, Inc. and Quantm Ltd. (Quantm)
*
On April 6, 2006,
we acquired privately-held Quantm International, Inc. and its subsidiary Quantm
Ltd. of Australia. Quantm is a leading provider of transportation route
optimization solutions used for planning highways, railways, pipelines and
canals. Quantm’s innovative software system enables infrastructure planners to
examine and select route corridors and alignments that simultaneously optimize
construction costs, environmental restrictions, existing feature avoidance
and
legislative obligations. The improved solution for the proposed route may result
in significant reductions to the customer in project planning time and cost.
Quantm’s performance
will be reported
under our Engineering and Construction business segment.
XYZ
of GPS,
Inc.. (XYZ)
*
On February 26,
2006, we acquired the assets of XYZ of Dickerson, Maryland. XYZ develops
real-time Global
Navigation
Satellite System
(GNSS) reference
station, integrity monitoring and dynamic positioning software for meter,
decimeter and centimeter applications. The purchase of XYZ’s intellectual
property is expected to extend our product portfolio of infrastructure solutions
by providing software that enhances differential GNSS correction systems used
in
marine aides to navigation, surveying, civil engineering, hydrography, mapping
and Geographic Information System (GIS), and scientific applications. XYZ’s
performance
is reported under
our Engineering and Construction business segment.
Advanced
Public
Safety, Inc. (APS)
*
On December 30,
2005, we acquired APS of Deerfield Beach, Florida. APS provides mobile and
handheld software products used by law enforcement, fire-rescue and other public
safety agencies. With the APS acquisition, we plan to leverage our rugged mobile
computing devices and our fleet management systems to provide complete mobile
resource solutions for the public safety industry. APS is reported within our
Mobile Solutions business segment.
MobileTech
Solutions, Inc.
*
On October 25,
2005, we acquired MobileTech Solutions, Inc. of Plano, Texas. MobileTech
Solutions provides field workforce automation solutions and has a leading market
position in the Direct Store Delivery (DSD) market. We expect the MobileTech
Solutions acquisition to extend our portfolio of fleet management and field
workforce applications. MobileTech Solutions’ performance is reported under our
Mobile Solutions business segment.
Apache
Technologies, Inc.
On
April 19, 2005,
we acquired Apache Technologies Inc. of Dayton, Ohio. Apache is a leading
developer of laser detection technology. With the acquisition, we extended
our laser product portfolio for handheld laser detectors and entry-level machine
displays and control systems, as well as our distribution network in the United
States. Apache’s performance is reported under our Engineering and
Construction business segment.
Pacific
Crest
Corporation
On
January 10, 2005
we acquired Pacific Crest Corporation of Santa Clara, California, a supplier
of
wireless data communication systems for positioning and environmental monitoring
applications. The Pacific Crest acquisition has enhanced our wireless data
communications capabilities in the Engineering and Construction business
segment.
The
effects of these acquisitions were not material to our results during all
periods presented.
RESULTS
OF
OPERATIONS
Overview
The
following table
is a summary of revenue and operating income for the periods indicated and
should be read in conjunction with the narrative descriptions
below.
|
Three
Months
Ended
|
|
March
31,
|
April
1,
|
|
2006
|
2005
|
(Dollars
in thousands)
|
|
|
Total
consolidated revenue
|
$
225,854
|
$
195,383
|
Gross
Margin
|
107,463
|
97,807
|
Gross
Margin
%
|
47.6%
|
50.1%
|
Total
consolidated operating income
|
33,065
|
30,200
|
Operating
Income %
|
14.6%
|
15.5%
|
Revenue
In
the fiscal
quarter ended March 31, 2006, total revenue increased by $30.5 million or 15.6%,
as compared to the same corresponding period in fiscal 2005. The increase was
primarily due to stronger performances in our Engineering and Construction
and
Mobile Solutions segments. The Engineering and Construction and Mobile Solutions
segments increased $26.5 million and $5.2 million, respectively, compared to
the
same corresponding period in fiscal 2005. Revenue growth within these segments
was primarily driven by new product introductions and increased penetration
of
existing markets. Both the Engineering and Construction and Mobile Solutions
segments also benefited from the impact of acquisitions. This was partially
offset by a $4.3 million decrease due to foreign currency fluctuations,
primarily the strengthening of the dollar versus the Euro year over
year.
During
the first
fiscal quarter of fiscal 2006, sales to customers in the United States
represented 56%, Europe represented 25%, Asia Pacific represented 10% and other
regions represented 9% of our total revenues. During the same corresponding
period in fiscal 2005, sales to customers in the United States represented
54%,
Europe represented 23%, Asia Pacific represented 11% and other regions
represented 12% of our total revenues.
Gross
Margin
Our
gross margin
varies due to a number of factors including product mix, pricing, distribution
channel used, the effects of production volumes, new product start-up costs,
and
foreign currency translations. Gross margin as a percentage of total revenues
was 47.6% and 50.1% for the first quarter of fiscal 2006 and 2005, respectively.
The decrease was primarily due to the inclusion of CTCT transactions of $5.2
million that were not present in corresponding period in fiscal 2005,
amortization of software-related acquired intangibles of $0.9 million and
stock-based compensation expense of $0.3 million that were not included in
gross
margins during the first quarter of fiscal 2005. This was partially offset
by
improvements in product mix due to stronger sales of our new, higher margin
products, and higher revenue.
Operating
Income
Operating
income as
a percentage of total revenue was 14.6% and 15.5% for the first quarter of
fiscal 2006 and 2005, respectively. The decrease is driven by the inclusion
of
CTCT transactions of $5.2 million that were not present in corresponding period
in fiscal 2005 and stock-based compensation expense of $3.2 million that were
not included in operating income during the first quarter of fiscal 2005. This
was partially offset by an increase in revenues higher underlying gross margins
and operating leverage.
Results
by
Segment
To
achieve
distribution, marketing, production, and technology advantages in our targeted
markets, we manage our operations in the following four segments: Engineering
and Construction, Field Solutions, Mobile Solutions, and Advanced Devices.
Operating
income
(loss) equals net revenue less cost of sales and operating expenses, excluding
general corporate expenses, amortization of purchased intangibles, restructuring
charges, non-operating income (expense), and income taxes.
In
the first fiscal
quarter of 2006, we combined the operating results of Components Technologies
and Portfolio Technologies and included the combined operating results in
Advanced Devices. The change in presentation was made in recognition of the
small size of each of the businesses relative to the total company. The
presentation of prior period’s segment operating results has been changed to
conform to our current segment presentation. We did not restate prior SEC
filings to reflect this change in presentation.
The
following table
is a breakdown of revenue and operating income by segment (in thousands, except
percentages):
|
Three
Months
Ended
|
|
March
31,
|
April
1,
|
|
2006
|
2005
|
|
|
|
|
|
|
Engineering
and Construction
|
|
|
Revenue
|
$
146,733
|
$
120,198
|
Segment
revenue as a percent of total revenue
|
65%
|
62%
|
Operating
income
|
$
26,377
|
$
21,490
|
Operating
income as a percent of segment revenue
|
18%
|
18%
|
Field
Solutions
|
|
|
Revenue
|
$
43,042
|
$
45,425
|
Segment
revenue as a percent of total revenue
|
19%
|
23%
|
Operating
income
|
$
13,908
|
$
15,577
|
Operating
income as a percent of segment revenue
|
32%
|
34%
|
Mobile
Solutions
|
|
|
Revenue
|
$
12,607
|
$
7,401
|
Revenue
as a
percent of total revenue
|
6%
|
4%
|
Operating
income (loss)
|
$
223
|
$
(636)
|
Operating
income (loss) as a percent of segment revenue
|
2%
|
(9%)
|
Advanced
Devices
|
|
|
Revenue
|
$
23,471
|
$
22,359
|
Segment
revenue as a percent of total revenue
|
10%
|
11%
|
Operating
income
|
$
2,323
|
$
3,232
|
Operating
income as a percent of segment revenue
|
10%
|
14%
|
A
reconciliation of
our consolidated segment operating income to consolidated income before income
taxes follows:
Three
Months
Ended
|
March
31,
2006
|
|
April
1,
2005
|
(In
thousands)
|
|
|
|
|
|
|
|
Consolidated
segment operating income
|
$
42,831
|
|
$
39,663
|
Unallocated
corporate expense
|
(7,425)
|
|
(7,165)
|
Amortization
of purchased intangible assets
|
(2,341)
|
|
(2,298)
|
Non-operating
income (expense), net
|
2,807
|
|
(3,777)
|
Consolidated
income before income taxes
|
$
35,872
|
|
$
26,423
|
Engineering
and
Construction
Engineering
and
Construction revenues increased by $26.5 million or 22.1% while segment
operating income increased $4.9 million or 22.7% for the three months ended
March 31, 2006 as compared to the same corresponding period in fiscal 2005.
The
revenue growth was driven by growth of existing products such as the Trimble
S6,
machine control products, and the Trimble R8 GPS System. Revenue growth was
also
attributed to the acquisitions during fiscal 2005. Segment operating income
increased as a result of higher revenues and increased sales of higher margin
products, partially offset by $4.9 million in net expenses related to CTCT
transactions and $1.0 million in stock-based compensation expense that were
not
present in the first quarter of fiscal 2005.
Field
Solutions
Field
Solutions
revenues decreased by $2.4 million or 5.2% while segment operating income
decreased $1.7 million or 10.7% for the three months ended March 31, 2006 as
compared to the same corresponding periods in fiscal 2005. Revenue decreased
primarily due to lower sales of our agriculture products and the absence of
strong introductory products such as the AgGPS®
EZ-Guide®
System and AgGPS®
EZ-Steer™
Systems that were introduced in the first quarter of fiscal 2005, partially
offset by increased sales of our geographic information systems products. The
decrease in segment operating income was primarily due to lower revenues, shifts
in product mix, $0.3 million in expenses related to CTCT transactions and $0.2
million in stock-based compensation expense that were not present in the first
quarter of fiscal 2005.
Mobile
Solutions
Mobile
Solutions
revenues increased by $5.2 million or 70.3% while segment operating income
increased by $0.9 million or 135.1% for the three months ended March 31, 2006
as
compared to the corresponding period in fiscal 2005. Revenues grew due to
acquisitions made in fiscal 2005 that were not present in the first quarter
of
fiscal 2005, increased subscriber growth, an increase in sales to ready-mix
suppliers, and increased sales from our dealer channel. Operating income
increased for the first three months of fiscal 2006 versus the same period
last
year due to increased revenues, particularly high margin service revenues,
partially offset by $0.2 million in stock-based compensation expense which
was
not present in the first quarter of fiscal 2005.
Advanced
Devices
Advanced
Devices
revenues increased by $1.1 million or 5.0% while operating income decreased
by
$0.9 million or 28.1% for the three months ended March 31, 2006 as compared
to
the corresponding period in fiscal 2005. The increase in revenue was primarily
due to stronger performance in our Applanix airborne products and in-vehicle
navigation businesses which were offset by lower revenue in our timing and
military advanced systems products. The decrease in operating income was
primarily due to unfavorable product mix and $0.5 million in stock-based
compensation which was not present in the first quarter of fiscal
2005.
Research
and
Development, Sales and Marketing, and General and Administrative Expenses
Research
and
development (“R&D”), sales and marketing (“S&M”), and general and
administrative (“G&A”) expenses are summarized in the following table (in
thousands, except percentages):
|
Three
Months
Ended
|
|
|
March
31,
|
|
April
1,
|
|
|
2006
|
|
2005
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
Research
and
development
|
$
|
24,446
|
$
|
21,828
|
Percentage
of
revenue
|
|
10.8%
|
|
11.2%
|
Sales
and
marketing
|
|
32,706
|
|
30,371
|
Percentage
of
revenue
|
|
14.5%
|
|
15.5%
|
General
and
administrative
|
|
15,761
|
|
12,832
|
Percentage
of
revenue
|
|
7.0%
|
|
6.6%
|
Total
|
$
|
72,913
|
$
|
65,031
|
Percentage
of
revenue
|
|
32.3%
|
|
33.3%
|
Overall,
R&D,
S&M, and G&A expense increased by approximately $7.9 million in the
first quarter of fiscal 2006 compared to the same corresponding period in fiscal
2005. Included in the increase was approximately $2.9 million of stock-based
compensation not included in the prior year period.
The
increase in
R&D expenses in the first quarter of fiscal 2006 as compared with the first
quarter of fiscal 2005 was primarily
due to the
inclusion of expenses from acquisitions not applicable in the prior year in
the
amount of $0.9 million, $0.8
million
increase in R&D equipment and materials related expenses, $0.6 million in
stock-based compensation expense which was not present in the first quarter
of
fiscal 2005, and $0.5 million increase in salaries, partially offset by $0.6
million decrease due to foreign currency fluctuations. All
of our R&D
costs have been expensed as incurred.
*
We believe that
the development and introduction of new products are critical to our future
success and we expect to continue active development of new
products.
The
increase in
S&M expenses in the first quarter of fiscal 2006 as compared with the first
quarter of fiscal 2005 was
primarily
due to
$1.0 million increase in tradeshow related expenses, $0.7
million in
stock-based compensation expense which was not present in the first quarter
of
fiscal 2005, inclusion
of
expenses from acquisitions not applicable in the prior year in the amount of
$0.6 million, and
$0.2 million
increase in salary related expenses, partially offset by $0.7 million decrease
due to foreign currency fluctuations.
*
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 develop new markets for our products.
The
increase in
G&A expenses in the first quarter of fiscal 2006 as compared with the first
quarter of fiscal 2005 was primarily
due to the
inclusion of expenses from acquisitions not applicable in the prior year in
the
amount of $1.3 million and $1.6
million in
stock-based compensation expense which was not present in the first quarter
of
fiscal 2005.
Amortization
of Purchased Intangible Assets
Amortization
of
purchased intangible assets included in operating expenses was $2.4 million,
of
which $0.9 million was recorded in cost of sales in the first quarter of fiscal
2006, compared with $2.3 million in the first quarter of fiscal 2005. The
decrease was primarily due to certain acquired intangible assets that were
fully
amortized during the third quarter of fiscal 2005.
Restructuring
Charges
We
did not record
any restructuring charge during the first quarter of fiscal 2006. In the
comparable first quarter of fiscal 2005, we recorded a restructuring charge
of
approximately $0.3 million associated with closure of one of its offices as
a
result of integration efforts of a previous acquisition. Payments of $0.1
million and $0.1 million were made during the three months period ending March
31, 2006 and April 1, 2005 relating to previous restructuring plans. As of
March 31, 2006, the remaining restructuring accrual balance is $0.2 million
which is related to the office closure expected to be paid over the next several
years. The restructuring accrual is included on the Condensed Consolidated
Balance Sheets under the heading of “Accrued Liabilities.”
Non-operating
Income (Expense), Net
The
components of non-operating income (expense), net, are as follows (in
thousands):
|
Three
Months
Ended
|
|
|
|
|
|
March
31,
|
|
April
1,
|
|
2006
|
|
2005
|
Interest
income (expense), net
|
$
434
|
|
$
(611)
|
Foreign
currency transaction gain (loss), net
|
593
|
|
(157)
|
Income
(expenses) for affiliated operations, net
|
1,616
|
|
(3,039)
|
Other
income,
net
|
164
|
|
30
|
Total
non-operating income (expense), net
|
$
2,807
|
|
$
(3,777)
|
Non-operating
income
(expense), net increased by $6.6 million or 173.7% during the first quarter
of
fiscal 2006, as compared with the corresponding period in fiscal 2005 primarily
due to an increase in net interest income of $1.0 million as a result of the
repayment of debt and interest earned on higher cash balances, an $4.6 million
increase in income for affiliated operations as a result of $1.5 million
increase in gains from our joint ventures and the absence of $3.1 million in
transfer pricing expense with CTCT that were included in the first quarter
of
fiscal 2005 but now included in operating income and an increase of $0.8 million
in foreign currency transaction gain.
Income
Tax
Provision
Our
income tax
provision reflects an effective tax rate of 28% for the three months ended
March
31, 2006 and 34% for the three months ended April 1, 2005. The 2006 first fiscal
quarter tax rate of 28% is lower than the 2005 first fiscal quarter tax rate
due
to the favorable outcome of an income tax audit which was partially offset
by
the impact of the accounting for stock based compensation in accordance with
SFAS 123R. The fiscal year 2006 tax rate without the favorable outcome of the
tax audit approximates 34%, which is the annual estimated effective tax rate
that we expect for the balance of FY 2006. The effective tax rate could be
affected by stock option activity, geographic mix of our pre-tax income,
legislative changes, or changes to our existing valuation allowance or
contingent tax liabilities.
Critical
Accounting Policies
Stock-based
Compensation
We
have adopted the
Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based
Payment” (“SFAS 123(R)”) using the modified prospective method which requires
the adoption of the accounting standard for fiscal periods beginning June
15,
2005. As a result, our financial statements for fiscal periods after December
30, 2005 will include stock-based compensation expenses that are not comparable
to financial statements of fiscal periods prior to December 30, 2005. SFAS
123(R) requires stock-based compensation to be estimated using the fair value
on
the date of grant using an option-pricing model. The value of the portion
of the
award that is expected to vest is recognized as expense over the requisite
service periods of the related employees’ in the Company’s Condensed
Consolidated Statement of Income. Prior to the adoption of SFAS 123(R), the
Company accounted for stock-based compensation to employees and directors
using
the intrinsic value method in accordance with APB Opinion No. 25 as allowed
under Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no
stock-based compensation expense had been recognized in the Company’s Condensed
Consolidated Statement of Income because the exercise price of the Company’s
stock options granted to employees and directors equaled the fair market
value
of the underlying stock at the date of grant.
For
options granted
prior to October 1, 2005, the fair value for these options was estimated
at the
date of grant using the Black-Scholes option-pricing model. For stock options
granted on or after October 1, 2005, the fair value of each award is
estimated on the date of grant using a binomial valuation model. Similar
to the
Black-Scholes model, the binomial model takes into account variables such
as
volatility, dividend yield rate, and risk free interest rate. In
addition, the
binomial model
incorporates actual option-pricing behavior and changes in volatility over
the
option’s contractual term. For these reasons, we believe that the binomial model
provides a fair value for stock options that is more representative of actual
experience and future expected experience than the value calculated using
the
Black-Scholes model. The
fair value of
rights granted under the Employee Stock Purchase Plan is estimated at the
date
of grant using the Black-Scholes option-pricing model.
For
the first
quarter of fiscal 2006, we recognized $2.9 million in net stock-based
compensation expense. This is compared to the first quarter of fiscal 2005’s pro
forma net stock-based compensation expense of $3.1 million. As of March 31,
2006, the total unamortized stock option expense is $18.3 million with a
weighted-average recognition period of 1.6 years.
See
Note 3 to the Notes to the Condensed Consolidated Financial Statements for
additional information.
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, guarantee contracts,
retained or contingent interests in transferred assets, or any obligation
arising out of a material variable interest in an unconsolidated entity. We
do
not have any majority-owned subsidiaries that are not included in the condensed
consolidated financial statements. Additionally, we do not have any interest
in,
or relationship with, any special purpose entities.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
|
March
31,
2006
|
|
December
30,
2005
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
$
97,648
|
|
$
73,853
|
Accounts
receivable days sales outstanding
|
57
|
|
66
|
Inventory
turns per year
|
4
|
|
4
|
Total
debt
|
$
603
|
|
$
649
|
|
|
|
|
Three
Months
Ended
|
March
31,
2006
|
|
April
1,
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
Net
cash
provided by (used in) operating activities
|
$
16,877
|
|
$
(2,135)
|
Net
cash used
in investing activities
|
(7,244)
|
|
(14,436)
|
Net
cash used
in financing activities
|
11,100
|
|
(4,449)
|
Net
increase
(decrease) in cash and cash equivalents
|
23,795
|
|
(21,679)
|
Cash
and Cash
Equivalents
Our
financial
condition further strengthened at March 31, 2006. Cash and cash equivalents
totaled $97.6 million compared to $73.9 million at December 30, 2005. We
essentially have no debt at March 31, 2006.
*
For the first
three months of fiscal 2006, cash provided by operating activities was $16.9
million, compared to $2.1 million in cash used in operating activities during
the first three months of fiscal 2005. This increase of $19.0 million was driven
by a $8.4 million increase in net income and a reduction in inventory of $6.3
million for the first quarter of fiscal 2006 compared to the fourth quarter
of
fiscal 2005. Our ability to continue to generate cash from operations will
depend in large part on profitability, the rate of collections of accounts
receivable, our inventory turns, and our ability to manage other areas of
working capital. Our accounts receivable days for sales outstanding improved
to
57 days at the end of the first quarter of fiscal 2006, from 66 days at the
end
of fiscal 2005. The decrease is due to increased collection efforts and
improvement in monitoring of outstanding receivables. Our inventory turns was
unchanged at four for the first three months of fiscal 2006 and at fiscal year
end 2005.
We
used $7.2 million
in net cash for investing activities during the first three months of 2006,
compared to $14.4 million in the first three months of 2005. The
$7.2 million
decrease was primarily due to a decrease of $8.9 million in cash used for
acquisitions partially offset by an increase of $1.8 million in investment
in
capital equipment.
*
We expect fiscal
2006 capital expenditures to be approximately $15 million to $20 million,
primarily for computer equipment, software, manufacturing tools and test
equipment, 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.
We
generated $11.1
million in net cash from financing activities in the first three months of
2006,
compared to $4.4 million in cash used during the first three months of 2005.
The
$15.5 million improvement was primarily due to a $10.1 million decrease in
repayment of net debt, $3.9 million in excess tax benefits relating to
stock-based compensation which was not present in the first quarter of fiscal
2005 and a $1.5 million increase in proceeds received from issuance of common
stock.
*
We believe that
our cash and cash equivalents, together with our credit facilities ($200 million
as of March 31, 2006), will be sufficient to meet our anticipated operating
cash
needs for at least the next twelve months.
Debt
At
March 31, 2006,
our total debt remained unchanged at approximately $0.6 million compared to
the
end of fiscal 2005. This relates to government
loans to
foreign subsidiaries.
On
July 28, 2005, we
entered into a $200 million unsecured revolving credit agreement (“2005 Credit
Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as the
administrative agent. The 2005 Credit Facility replaces our $175 million secured
2003 Credit Facility. The funds available under the new 2005 Credit Facility
may
be used for our general corporate purposes and up to $25 million of the 2005
Credit Facility may be used for letters of credit. We incur a commitment fee
if
the 2005 Credit Facility is not used. The commitment fee is not material to
our
results during all periods presented. At March 31, 2006 and as of the date
of
this report, the Company has a zero balance outstanding under the 2005 Credit
Facility and was in compliance with all financial covenants.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT 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
There
has been no
change to our market interest rate risk assessment. Refer to our 2005
Annual Report on Form 10-K.
Foreign
Currency Exchange Rate Risk
We
enter into
foreign exchange forward contracts to minimize the short-term impact of foreign
currency fluctuations on certain trade and inter-company receivables and
payables, primarily denominated in Australian, Canadian, New Zealand, and
Swedish currencies, the Euro, and the British pound. 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 forward contracts. These instruments are marked to market
through earnings every period and generally range from one to three months
in
original maturity. We do not enter into foreign exchange forward contract for
trading purposes.
Foreign
exchange
forward contracts outstanding as of March 31, 2006 are summarized as follows
(in
thousands):
|
March
31,
2006
|
Nominal
Amount
|
Fair
Value
|
Forward
contracts:
|
|
|
|
|
Purchased
|
$
|
(11,601)
|
$
|
(194)
|
Sold
|
$
|
29,603
|
$
|
106
|
*
We do not
anticipate any material adverse effect on our consolidated financial position
utilizing our current hedging strategy.
ITEM
4.
CONTROLS AND PROCEDURES
(a)
Disclosure 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
Control Over Financial Reporting.
The
Company
completed the implementation of a key module of its Enterprise Resource System
during the fiscal quarter to which this report relates. The Company evaluated
the potential impact to the effectiveness of the Company’s internal control over
financial reporting prior to and subsequent to implementation. The Company
has
concluded that this change does not materially affect or is reasonably like
to
affect the Company’s internal control over financial reporting.
There
were no other
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.
PART
II. OTHER
INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
From
time to time,
the Company is involved in litigation arising out of the ordinary course of
its
business. There are no known claims or pending litigation expected to have
a
material effect on the Company’s overall financial position, results of
operations, or liquidity.
ITEM
1A.
RISK FACTORS
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 reserves and allowances. 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, Weather, 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 Specific Manufacturer and Assembler for Many of Our Products and on
Specific Suppliers of Critical Parts for Our Products.
We
are substantially
dependent upon Solectron Corporation in California, China and Mexico as our
preferred 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 at least thirty calendar days in advance of
the
scheduled delivery of products to our customers depending on production lead
time. Although purchase orders placed with Solectron are cancelable, the terms
of the agreement would require us to purchase from Solectron all 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. Our current contract with Solectron
continues in effect until either party gives the other ninety days written
notice.
In
addition, we rely
on specific suppliers for a number of our critical components. We have
experienced shortages of components in the past. Our current reliance on
specific 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, and 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:
·
|
changes
in
market demand,
|
·
|
competitive
market conditions,
|
·
|
market
acceptance of existing or new products,
|
·
|
fluctuations
in foreign currency exchange rates,
|
·
|
the
cost and
availability of components,
|
·
|
our
ability to
manufacture and ship products,
|
·
|
the
mix of our
customer base and sales channels,
|
·
|
the
mix of
products sold,
|
·
|
our
ability to
expand our sales and marketing organization effectively,
|
·
|
our
ability to
attract and retain key technical and managerial employees,
|
·
|
the
timing of
shipments of products under contracts and
|
·
|
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.
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, sales of Nikon-branded products generally have lower gross margins
as
compared to our GPS survey products. Absent other factors, a shift in sales
towards Nikon-branded products would lead to a reduction in our overall gross
margins. A decline in gross margin could potentially negatively impact our
earnings per share.
Failure
to
maintain effective internal controls in compliance with Section 404 of the
Sarbanes-Oxley Act could have an adverse effect on our business and stock
price.
Section
404 of the
Sarbanes-Oxley Act requires us to include an internal control report of
management in our Annual Report on Form 10-K. For fiscal 2004 and 2005 we
satisfied the requirements of Section 404, which requires annual management
assessments of the effectiveness of our internal controls over financial
reporting and a report by our independent auditors addressing these assessments.
A
system of
controls, however well designed and operated, cannot provide absolute assurance
that the objectives of the system will be met. In addition, the design of a
control system is based in part upon certain assumptions about the likelihood
of
future events. Because of the inherent limitations of control systems, there
is
only reasonable assurance that our controls will succeed in achieving their
stated goals under all potential future conditions.
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
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 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, 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.
Our
products may
contain errors or defects, which could result in damage to our reputation,
lost
revenues, diverted development resources and increased service costs, warranty
claims and litigation.
Our
devices are
complex and must meet stringent requirements. We warrant that our products
will
be free of defect for various periods of time, depending on the product. In
addition, certain of our contracts include epidemic failure clauses. If invoked,
these clauses may entitle the customer to return or obtain credits for products
and inventory, or to cancel outstanding purchase orders even if the products
themselves are not defective.
We
must develop our
products quickly to keep pace with the rapidly changing market, and we have
a
history of frequently introducing new products. Products and services as
sophisticated as ours could contain undetected errors or defects, especially
when first introduced or when new models or versions are released. In general,
our products may not be free from errors or defects after commercial shipments
have begun, which could result in damage to our reputation, lost revenues,
diverted development resources, increased customer service and support costs
and
warranty claims and litigation which could harm our business, results of
operations and financial condition.
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 US Government’s 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. 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 and construction machine controls markets. Any regulatory changes in
spectrum allocation or in allowable operating conditions may 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.
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
result in a material adverse effect on our business and financial
condition.
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
currently in orbit 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 29 satellites in place, some have already
been in operation for 12 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
2004, a
Presidential policy affirmed a 1996 Presidential Decision Directive that marked
the first time in the evolution of GPS that access for civilian use free of
direct user fees. In addition, Presidential policy has been complemented by
corresponding legislation, that was signed into law. However, there can be
no
assurance that the US Government will remain committed to the operation and
maintenance of GPS satellites over a long period, or that the policies of the
US
Government for the use of GPS without charge will remain unchanged. Because
of
ever-increasing commercial applications of GPS, other US 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.
Many
of our products
also use signals from systems that augment GPS, such as the Wide Area
Augmentation System (WAAS) and National Differential GPS System (NDGPS). Many
of
these augmentation systems are operated by the federal government and rely
on
continued funding and maintenance of these systems. In addition, some of our
products also use satellite signals from the Russian Glonass System. Any
curtailment of the operating capability of these systems could result in
decreased user capability thereby impacting our markets.
The
European
governments have begun development of an independent satellite navigation
system, known as Galileo. We have access to the preliminary signal design,
which
is subject to change. Although an operational Galileo system is several years
away, if we are unable to timely develop a commercial product, it may have
a
materially adverse effect on our business and operating results.
We
may be
Materially Affected by New Regulatory Requirements.
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.
In
particular, 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. In addition, we face increasing
complexity in our product design and procurement operations as we adjust to
new
and upcoming requirements relating to the materials composition of many of
our
products. The European Union (“EU”) has adopted new directives to facilitate the
recycling of electrical and electronic equipment sold in the EU. One of these
is
the Restriction on the Use of Certain Hazardous Substances in Electrical and
Electronic Equipment (“RoHS”) directive. The RoHS directive restricts the use of
lead, mercury and certain other substances in electrical and electronic products
placed on the market in the European Union after July 1, 2006.
Similar
laws and
regulations have been or may be enacted in other regions, including in the
United States, China and Japan. Other environmental regulations may require
us
to reengineer our products to utilize components which are more environmentally
compatible and such reengineering and component substitution may result in
additional costs to us. Although we do not anticipate any material adverse
effects based on the nature of our operations and the effect of such laws,
there
is no assurance that such existing laws or future laws will not have a material
adverse effect on our business.
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.
We
Are Exposed
to Fluctuations in Currency Exchange Rates.
A
significant
portion of our business is conducted outside the US, and as such, we face
exposure to movements in non-US 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. Fluctuation in currency impacts
our operating results.
Currently,
we hedge
only those currency exposures associated with certain assets and liabilities
denominated in non-functional currencies. The hedging activities undertaken
by
us are intended to offset the impact of currency fluctuations on certain
non-functional 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
Face Risks in
Investing in and Integrating New Acquisitions.
We
have recently
acquired several companies and may in the future acquire other companies.
Acquisitions of companies, divisions of companies, or products entail numerous
risks, including:
·
|
potential
inability to successfully integrate acquired operations and products
or to
realize cost savings or other anticipated benefits from integration;
|
·
|
diversion
of
management’s attention;
|
·
|
loss
of key
employees of acquired operations;
|
·
|
the
difficulty
of assimilating geographically dispersed operations and personnel
of the
acquired companies;
|
·
|
the
potential
disruption of our ongoing business;
|
·
|
unanticipated
expenses related to such integration;
|
·
|
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;
|
·
|
the
impairment
of relationships with employees and customers of either an acquired
company or our own business;
|
·
|
the
potential
unknown liabilities associated with acquired business; and
|
·
|
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
May Not Be
Able to Enter Into or Maintain Important Alliances.
We
believe that in
certain business opportunities our success will depend on our ability to form
and maintain alliances with industry participants, such as Caterpillar, Nikon,
and CNH Global. Our failure to form and maintain such alliances, or the
pre-emption 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
Face
Competition in Our Markets.
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 US and non-US 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. We have recently implemented a new enterprise resource
planning software system and we may experience in our financial and order
management processing as a result of new procedures. Problems associated with
any improvement or expansion of these systems, procedures or controls may
adversely affect our operations and these systems, procedures or controls 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 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
locations 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.
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.
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.
We
Are Subject
to the Adverse Impact of Radio Frequency Congestion.
We
have certain
products, such as GPS RTK systems, and surveying and mapping systems that use
integrated radio communication technology requiring access to available radio
frequencies allocated by the FCC (or the NTIA in the case of federal government
users of this equipment) for which the end user is required to obtain a license
in order to operate their equipment. 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. To reduce congestion, the FCC announced
that it will require migration of radio technology from wideband to narrowband
operations in these bands. The rules require migration of users to narrowband
channels by 2011. In the meantime congestion could cause FCC coordinators to
restrict or refuse licenses. An inability to obtain access to these radio
frequencies by end users could have an adverse effect on our operating
results.
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 fiscal quarter of 2006, our stock price ranged from $45.05 to $35.02.
We
believe that a variety of factors could cause the price of our common stock
to
fluctuate, perhaps substantially, including:
·
|
announcements
and rumors of developments related to our business or the industry
in
which we compete;
|
·
|
quarterly
fluctuations in our actual or anticipated operating results and order
levels;
|
·
|
general
conditions in the worldwide economy, including fluctuations in interest
rates;
|
·
|
announcements
of technological innovations;
|
·
|
new
products
or product enhancements by us or our competitors;
|
·
|
developments
in patents or other intellectual property rights and
litigation;
|
·
|
developments
in our relationships with our customers and suppliers;
and
|
·
|
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.
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
6.
EXHIBITS
3.1
|
Restated
Articles of Incorporation of the Company filed June 25, 1986.
(3)
|
3.2
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed October
6,
1988. (3)
|
3.3
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed July
18, 1990.
(3)
|
3.4
|
Certificate
of
Determination of the Company filed February 19, 1999.
(3)
|
3.5
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed May
29, 2003.
(7)
|
3.6
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed March
4, 2004.
(9)
|
3.8
|
Amended
and
Restated Bylaws of the Company. (8)
|
4.1
|
Specimen
copy
of certificate for shares of Common Stock of the Company.
(1)
|
4.2
|
Preferred
Shares Rights Agreement dated as of February 18, 1999.
(2)
|
4.3
|
Agreement
of
Substitution and Amendment of Preferred Shares Rights Agreement
dated
September 10, 2004. (10)
|
4.4
|
First
Amended
and Restated Stock and Warrant Purchase Agreement between and among
the
Company and the investors thereto dated January 14, 2002.
(4)
|
4.5
|
Form
of
Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(5)
|
4.6
|
Form
of
Warrant dated April 12, 2002. (6)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated May 4, 2006. (11)
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated May 4, 2006. (11)
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
May 4,
2006. (11)
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
May 4,
2006. (11)
|
(1)
|
Incorporated
by reference to exhibit number 4.1 to the registrant's Registration
Statement on Form S-1, as amended (File No. 33-35333), which became
effective July 19, 1990.
|
(2)
|
Incorporated
by reference to exhibit number 1 to the registrant's Registration
Statement on Form 8-A, which was filed on February 18, 1999.
|
(3)
|
Incorporated
by reference to identically numbered exhibits to the registrant's
Annual
Report on Form 10-K for the fiscal year ended January 1, 1999.
|
(4)
|
Incorporated
by reference to exhibit number 4.1 to the registrant's Current
Report on
Form 8-K filed on January 16, 2002.
|
(5)
|
Incorporated
by reference to exhibit number 4.2 to the registrant's Current
Report on
Form 8-K filed on January 16, 2002.
|
(6)
|
Incorporated
by reference to exhibit number 4.1 to the registrant’s Registration
Statement on Form S-3 filed on April 19, 2002.
|
(7)
|
Incorporated
by reference to exhibit number 3.5 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended July 4, 2003.
|
(8)
|
Incorporated
by reference to exhibit number 3.8 to the registrant’s Annual Report on
Form 10-K for the year ended January 2, 2004.
|
(9)
|
Incorporated
by reference to exhibit number 3.6 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended April 2, 2004.
|
(10)
|
Incorporated
by reference to exhibit number 4.3 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 2004.
|
(11)
|
Filed
herewith.
|
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/ Rajat Bahri
Rajat
Bahri
Chief
Financial
Officer
(Authorized
Officer and Principal
Financial Officer)
DATE:
May 4,
2006
EXHIBIT
INDEX
Exhibit
No.
|
Description
|
3.1
|
Restated
Articles of Incorporation of the Company filed June 25, 1986.
(3)
|
3.2
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed October
6,
1988. (3)
|
3.3
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed July
18, 1990.
(3)
|
3.4
|
Certificate
of
Determination of the Company filed February 19, 1999.
(3)
|
3.5
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed May
29, 2003.
(7)
|
3.6
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed March
4, 2004.
(9)
|
3.8
|
Amended
and
Restated Bylaws of the Company. (8)
|
4.1
|
Specimen
copy
of certificate for shares of Common Stock of the Company.
(1)
|
4.2
|
Preferred
Shares Rights Agreement dated as of February 18, 1999.
(2)
|
4.3
|
Agreement
of
Substitution and Amendment of Preferred Shares Rights Agreement
dated
September 10, 2004. (10)
|
4.4
|
First
Amended
and Restated Stock and Warrant Purchase Agreement between and among
the
Company and the investors thereto dated January 14, 2002.
(4)
|
4.5
|
Form
of
Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(5)
|
4.6
|
Form
of
Warrant dated April 12, 2002. (6)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated May 4, 2006. (11)
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated May 4, 2006. (11)
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
May 4,
2006. (11)
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
May 4,
2006. (11)
|
(1)
|
Incorporated
by reference to exhibit number 4.1 to the registrant's Registration
Statement on Form S-1, as amended (File No. 33-35333), which became
effective July 19, 1990.
|
(2)
|
Incorporated
by reference to exhibit number 1 to the registrant's Registration
Statement on Form 8-A, which was filed on February 18, 1999.
|
(3)
|
Incorporated
by reference to identically numbered exhibits to the registrant's
Annual
Report on Form 10-K for the fiscal year ended January 1, 1999.
|
(4)
|
Incorporated
by reference to exhibit number 4.1 to the registrant's Current
Report on
Form 8-K filed on January 16, 2002.
|
(5)
|
Incorporated
by reference to exhibit number 4.2 to the registrant's Current
Report on
Form 8-K filed on January 16, 2002.
|
(6)
|
Incorporated
by reference to exhibit number 4.1 to the registrant’s Registration
Statement on Form S-3 filed on April 19, 2002.
|
(7)
|
Incorporated
by reference to exhibit number 3.5 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended July 4, 2003.
|
(8)
|
Incorporated
by reference to exhibit number 3.8 to the registrant’s Annual Report on
Form 10-K for the year ended January 2, 2004.
|
(9)
|
Incorporated
by reference to exhibit number 3.6 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended April 2, 2004.
|
(10)
|
Incorporated
by reference to exhibit number 4.3 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 2004.
|
(11)
|
Filed
herewith.
|