-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K5GoytRO2JMI47DJHfAp1Bx61pTa94973Wm7KwzafkW9PGQMKzsBWERjrFypdmV2 Z0spwyRSSOyWwIRHNM5TbA== 0000864749-04-000085.txt : 20041108 0000864749-04-000085.hdr.sgml : 20041108 20041108172454 ACCESSION NUMBER: 0000864749-04-000085 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20041001 FILED AS OF DATE: 20041108 DATE AS OF CHANGE: 20041108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRIMBLE NAVIGATION LTD /CA/ CENTRAL INDEX KEY: 0000864749 STANDARD INDUSTRIAL CLASSIFICATION: MEASURING & CONTROLLING DEVICES, NEC [3829] IRS NUMBER: 942802192 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14845 FILM NUMBER: 041126757 BUSINESS ADDRESS: STREET 1: 749 NORTH MARY AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94085 BUSINESS PHONE: 4084818000 MAIL ADDRESS: STREET 1: 749 NORTH MARY AVENUE CITY: SUNNYVALE STATE: CA ZIP: 94085 10-Q 1 form10q-110504.txt 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 OCTOBER 1, 2004 OR [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act oF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission file number: 0-18645 TRIMBLE NAVIGATION LIMITED (Exact name of registrant as specified in its charter) California 94-2802192 ---------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 749 North Mary Avenue, Sunnyvale, CA 94085 (Address of principal executive offices) (Zip Code) Telephone Number (408) 481-8000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ] As of November 4, 2004, there were 51,839,934 shares of Common Stock (no par value) outstanding. TRIMBLE NAVIGATION LIMITED FORM 10-Q for the Quarter ended October 1, 2004 INDEX PART I. Financial Information Page ITEM 1. Financial Statements (Unaudited): Condensed Consolidated Balance Sheets -- October 1, 2004 and January 2, 2004 ............................. 3 Condensed Consolidated Statements of Income -- Three and Nine Months Ended October 1, 2004 and October 3, 2003..... 4 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended October 1, 2004 and October 3, 2003............... 5 Notes to Condensed Consolidated Financial Statements.................... 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 16 ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.............. 29 ITEM 4. Controls and Procedures................................................. 30 PART II. Other Information ITEM 1. Legal Proceedings....................................................... 30 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds ............ 30 ITEM 6. Exhibits................................................................ 31 SIGNATURES ........................................................................ 33
PART I - FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TRIMBLE NAVIGATION LIMITED CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
October 1, January 2, (in thousands) 2004 2004 (1) - -------------- ---- -------- ASSETS Current assets: Cash and cash equivalents $ 59,119 $ 45,416 Accounts and other receivables, net 124,134 103,350 Inventories, net 81,751 70,826 Deferred income taxes 4,525 4,380 Other current assets 10,022 8,885 ------ ----- Total current assets 279,551 232,857 Property and equipment, net 28,974 27,379 Goodwill and other intangible assets, net 267,866 261,166 Deferred income taxes 4,145 4,173 Other assets 23,403 19,328 ------ ------ Total non-current assets 324,388 312,046 ------- ------- Total assets $ 603,939 $ 544,903 ------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 12,661 $ 12,885 Accounts payable 44,381 26,019 Accrued compensation and benefits 29,115 25,950 Accrued liabilities 12,412 15,599 Accrued warranty expense 6,370 5,147 Deferred income taxes 1,934 1,136 Income taxes payable 13,728 9,969 ------ ----- Total current liabilities 120,601 96,705 Non-current portion of long-term debt 39,610 77,601 Deferred gain on joint venture 9,489 9,845 Deferred income tax 5,088 4,229 Other non-current liabilities 10,820 8,279 ------ ----- Total liabilities 185,608 196,659 ------- ------- Commitments and contingencies -- -- Shareholders' equity: Preferred stock no par value; 3,000 shares authorized; none outstanding -- -- Common stock, no par value; 90,000 shares authorized; 51,816 and 49,988 shares issued and outstanding, respectively 322,303 303,015 Retained earnings 66,265 14,990 Accumulated other comprehensive income 29,763 30,239 ------ ------ Total shareholders' equity 418,331 348,244 ------- ------- Total liabilities and shareholders' equity $ 603,939 $ 544,903 ------------- --------------
(1) Derived from the January 2, 2004 audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2003. See accompanying Notes to the Condensed Consolidated Financial Statements. TRIMBLE NAVIGATION LIMITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- (in thousands, except per share amounts) Revenue (1) $ 170,164 $ 139,569 $ 506,125 $ 405,026 Cost of revenue 86,792 70,457 258,674 203,064 ------ ------ ------- ------- Gross margin 83,372 69,112 247,451 201,962 Operating expenses Research and development 19,177 17,346 57,962 50,463 Sales and marketing 26,576 25,015 80,238 73,572 General and administrative 10,800 10,306 33,138 28,837 Restructuring charges -- 627 327 1,733 Amortization of purchased intangible assets 2,019 1,870 6,078 5,390 ----- ----- ----- ----- Total operating expenses 58,572 55,164 177,743 159,995 ------ ------ ------- ------- Operating income 24,800 13,948 69,708 41,967 Non-operating income (expense), net Interest income 94 129 260 316 Interest expense (937) (1,188) (2,959) (10,764) Foreign currency transaction gain (loss), net (317) 166 (446) 649 Expenses for affiliated operations, net (2,284) (1,984) ( 6,336) (5,100) Other income, net 231 265 1,551 126 --- --- ----- --- Total non-operating expense, net (3,213) (2,612) (7,930) (14,773) ------ ------ ------ ------- Income before taxes 21,587 11,336 61,778 27,194 Income tax provision 3,670 1,400 10,503 3,800 ----- ----- ------ ----- Net income $ 17,917 $ 9,936 $ 51,275 $ 23,394 =========== ========== ========== =========== Basic earnings per share $ 0.35 $ 0.20 $ 1.01 $ 0.50 =========== ========== ========== =========== Shares used in calculating basic earnings per 51,412 49,109 50,882 46,764 share Diluted earnings per share $ 0.33 $ 0.19 $ 0.94 $ 0.48 =========== ========== ========== =========== Shares used in calculating diluted earnings per 55,056 51,843 54,641 48,926 share
(1) Sales to related parties for the three months and nine months periods ended October 1, 2004, were approximately $2.3 million and $6.5 million, respectively, and $2.3 million for both the three and nine months periods ended October 3, 2003. See accompanying Notes to the Condensed Consolidated Financial Statements. TRIMBLE NAVIGATION LIMITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended ----------------- October 1, October 3, 2004 2003 ---- ---- (In thousands) Cash flow from operating activities: Net income $ 51,275 $ 23,394 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 6,249 6,647 Amortization expense 6,216 5,880 Provision for doubtful accounts 909 295 Amortization of debt issuance cost 366 3,389 Deferred income taxes 1,629 1,880 Other (141) 2,002 Changes in assets and liabilities: Accounts receivable, net (22,158) (18,023) Inventories, net (10,080) (7,890) Other current and non-current assets (3,656) (2,586) Effect of foreign currency translation adjustment 747 4,332 Accounts payable 15,398 (6,040) Accrued compensation and benefits 3,463 3,900 Deferred gain on joint venture (356) (555) Accrued liabilities 558 (5,530) Income taxes payable 3,564 2,063 ----- ----- Net cash provided by operating activities 53,983 13,158 ------ ------ Cash flow from investing activities: Acquisition of property and equipment (8,909) (6,383) Proceeds from sale of assets 562 157 Cost of acquisitions, net of cash acquired (12,165) (6,953) Costs of capitalized patents (40) (652) ---- ---- Net cash used in investing activities (20,552) (13,831) -------- ------- Cash flow from financing activities: Issuance of common stock and warrants 18,389 47,015 Collection of notes receivable 218 495 Proceeds from long-term debt and revolving credit lines 14,000 138,339 Payments on long-term debt and revolving credit lines (52,110) (171,863) -------- -------- Net cash provided by (used in) financing activities (19,503) 13,986 -------- ------ Effect of exchange rate changes on cash and cash equivalents (225) 1,417 Net increase in cash and cash equivalents 13,703 14,730 Cash and cash equivalents, beginning of period 45,416 28,679 ------ ------ Cash and cash equivalents, end of period $ 59,119 $ 43,409 ----------- -----------
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 2003 was January 2, 2004 and for fiscal 2004 is December 31, 2004. Fiscal 2004 and 2003 are 52-week years. Unless otherwise stated, all dates refer to its fiscal year and fiscal periods. The accompanying financial data as of October 1, 2004 and for the three and nine months ended October 1, 2004 and October 3, 2003 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 2003 Annual Report on Form 10-K. In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of financial position as of October 1, 2004, results of operations for the three and nine months ended October 1, 2004 and October 3, 2003 and cash flows for the nine months ended October 1, 2004 and October 3, 2003, as applicable, have been made. The results of operations for the three and nine months ended October 1, 2004 are not necessarily indicative of the operating results for the full fiscal year or any future periods. Certain reclassifications have been made to prior period balances in order to conform to the current period's presentation. 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. NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS In March 2004, the FASB issued a proposed Statement, "Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95," that addresses the accounting for share-based payment transactions in which a Company receives employee services in exchange for either equity instruments of the Company or liabilities that are based on the fair value of the Company's equity instruments or that may be settled by the issuance of such equity instruments. The proposed statement would eliminate the ability to account for share-based compensation transactions using the intrinsic method currently used by the Company and generally would require that such transactions be accounted for using a fair-value-based method and recognized as expense in the Company's consolidated statement of income. The recommended effective date of the proposed standard is currently for fiscal periods beginning after June 15, 2005. Should this proposed statement be finalized in its current form, it could have a material impact on the Company's consolidated statement of income, as the Company would be required to expense the fair value of its stock option grants and stock purchases under the Company's employee stock purchase plan. 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 applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its stock option plans and stock purchase plan. Accordingly, the Company generally does not recognize compensation cost for stock options granted at fair market value. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period, and the estimated fair value of purchases under the employee stock purchase plan is expensed in the year of purchase as well as the stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value based method had been applied to all awards. The effects on pro forma disclosure of applying SFAS No. 123 are not likely to be representative of the effects on pro forma disclosure of future years. Pro forma information regarding net income and earnings per share is required by SFAS No. 123 and has been determined as if Trimble had accounted for its employee stock options and purchases under the employee stock purchase plan using the fair value method of SFAS No.123. The fair value of options granted during the quarter was estimated at the date of grant using a Black-Scholes option-pricing model with the following weighted-average assumptions at October 1, 2004 and October 3, 2003: October 1, October 3, 2004 2003 ---- ---- Expected dividend yield -- -- Expected stock price volatility 53.58% 59.71% Risk free interest rate 3.46% 3.09% Expected life of options after vesting 1.67 1.54 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because Trimble's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of its employee stock options. Trimble's pro forma information is as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- (in thousands, except per share amounts) Net income - as reported $ 17,917 $ 9,936 $ 51,275 $ 23,394 Stock-based compensation expense, net of tax 1,149 2,428 6,107 6,988 ----- ----- ----- ----- Net income - pro forma $ 16,768 $ 7,508 $ 45,168 $ 16,406 Basic earnings per share - as reported $ 0.35 $ 0.20 $ 1.01 $ 0.50 ----------- ----------- ----------- ----------- Basic earnings per share - pro forma $ 0.33 $ 0.15 $ 0.89 $ 0.35 ----------- ----------- ----------- ----------- Diluted earnings per share - as reported $ 0.33 $ 0.19 $ 0.94 $ 0.48 ----------- ----------- ----------- ----------- Diluted earnings per share - pro forma $ 0.30 $ 0.14 $ 0.83 $ 0.34 ----------- ----------- ----------- -----------
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, as described in Trimble's 2003 Annual Report on Form 10-K. The joint venture is equally owned by Trimble and Caterpillar, with equal voting rights. During the first quarter of fiscal 2002, Trimble received a special cash distribution of $11.0 million from CTCT. Trimble has recorded the cash distribution of $11.0 million as a deferred gain, being amortized to the extent that losses are attributable from CTCT under the equity method of accounting. When and if CTCT is profitable on a sustainable basis, and future operating losses are not anticipated, then Trimble will recognize as a gain, the un-amortized portion of the $11.0 million. To the extent that it is possible that the Company will have any future-funding obligation relating to CTCT, then the relevant amount of the $11.0 million will be deferred until such a time as the funding obligation no longer exists. Both Trimble's share of profits (losses) under the equity method and the amortization of the $11.0 million deferred gain are recorded under the heading of "Expense for affiliated operations, net" in Non-operating income (expense). As of October 1, 2004, the un-amortized portion of the deferred gain was approximately $9.5 million. The net expenses for affiliated operations at CTCT also includes incremental costs as a result of purchasing products from CTCT at a higher price than Trimble's original manufacturing costs, partially offset by contract manufacturing fees charged to CTCT. In addition, Trimble received reimbursement of employee-related costs from CTCT for Trimble employees dedicated to CTCT totaling $2.4 million and $1.9 million for the three months ended October 1, 2004 and October 3, 2003, respectively, and $7.3 million and $5.7 million for the nine months ended October 1, 2004 and October 3, 2003, respectively. The reimbursements were offset against operating expenses.
October 1, October 3, Three Months Ended 2004 2003 - ------------------ ---- ---- (In millions) CTCT incremental pricing effects, net $ 2.6 $ 1.8 Trimble's 50% share of CTCT's reported losses 0.2 0.1 Amortization of deferred gain (0.2) (0.1) ---- ----- Total CTCT expense for affiliated operations, net (1) $ 2.6 $ 1.8 ====== ====== October 1, October 3, Nine Months Ended 2004 2003 - ----------------- ---- ---- (In millions) CTCT incremental pricing effects, net $ 7.0 $ 4.9 Trimble's 50% share of CTCT's reported losses 0.2 0.6 Amortization of deferred gain (0.4) (0.6) ---- ---- Total CTCT expense for affiliated operations, net (1) $ 6.8 $ 4.9 ====== ======
(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 "Expense for affiliated operations, net". At October 1, 2004, the net outstanding balance due from CTCT to Trimble was approximately $0.7 million recorded under the heading of "Accounts and other 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 2003 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. 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." During the third quarter and first nine months of fiscal 2004, Nikon-Trimble reported a profit of which Trimble's share was $0.2 million and $0.4 million, respectively. During the third quarter of fiscal 2003 and the first quarter of its operations, Nikon-Trimble reported a loss of $0.4 million of which Trimble's share was $0.2 million. At October 1, 2004, the net payable by Trimble to Nikon-Trimble related to the purchase and sale of products from and to Nikon-Trimble is $2.5 million recorded under the heading of "Accounts Payable" on the Condensed Consolidated Balance Sheets. NOTE 5. GOODWILL AND INTANGIBLE ASSETS: Goodwill and purchased intangible assets consisted of the following: October 1, January 2, As of 2004 2004 - ----- ---- ---- (in thousands) Intangible assets: Intangible assets with definite life: Existing technology $ 33,547 $ 32,389 Trade names, trademarks, patents, and other intellectual property 21,935 20,911 ------ ------ Total intangible assets with definite life 55,482 53,300 Less accumulated amortization (39,800) (33,559) -------- -------- Total net intangible assets $ 15,682 $ 19,741 ========== =========== Total goodwill $ 252,184 $ 241,425 ========== =========== NOTE 6. CERTAIN BALANCE SHEET COMPONENTS: Inventories consisted of the following: October 1, January 2, As of 2004 2004 - ----- ---- ---- (in thousands) Raw materials $ 24,710 $ 20,927 Work-in-process 3,853 3,876 Finished goods 53,188 46,023 ------ ------ $ 81,751 $ 70,826 ========== =========== Property and equipment consisted of the following: October 1, January 2, As of 2004 2004 - ----- ---- ---- (in thousands) Machinery and equipment $ 67,648 $ 66,634 Furniture and fixtures 10,104 9,085 Leasehold improvements 5,215 4,502 Buildings 5,296 5,396 Land 1,231 1,231 89,494 86,848 Less accumulated depreciation (60,520) (59,469) -------- -------- $ 28,974 $ 27,379 ========== =========== Other current assets consisted of the following: October 1, January 2, As of 2004 2004 - ----- ---- ---- (in thousands) Demonstration equipment, net $ 2,440 $ 3,226 Prepaid expenses 4,986 4,566 Other 2,596 1,093 ----- ----- $ 10,022 $ 8,885 ========== =========== Other non-current assets consisted of the following: October 1, January 2, As of 2004 2004 - ----- ---- ---- (in thousands) Debt issuance costs, net $ 1,325 $ 1,691 Investment in joint venture 12,967 10,717 Other investments 2,007 553 Deposits 1,026 925 Receivables from employees 583 801 Notes receivable -- 663 Other 5,495 3,978 $ 23,403 $ 19,328 ========== =========== 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. The Company designs and markets products, by delivering integrated information solutions such as collecting, analyzing, and displaying position data to its end users. Trimble offers an integrated product line for diverse applications in its targeted markets. To achieve distribution, marketing, production, and technology advantages in Trimble's targeted markets, the Company manages its operations in the following five segments: o Engineering and Construction -- Consists of products currently used by survey and construction professionals in the field for positioning, data collection, field computing, data management, and automated machine guidance and control. These products provide solutions for numerous applications including surveying, general, road, runway and underground construction, site preparation and excavation. Trimble acquired MENSI in the fourth quarter of fiscal 2003 and MENSI's performance is reported in this business segment. o Field Solutions -- Consists of products that provide solutions in a variety of agriculture and fixed asset applications, primarily in the areas of precise land leveling, machine guidance, yield monitoring, variable-rate applications of fertilizers and chemicals, and fixed asset data collection for a variety of governmental and private entities. o Component Technologies -- Consists of products including proprietary chipsets, printed circuit boards, modules, and licenses of intellectual property. The applications into which end users currently incorporate the component products include timing applications for synchronizing wireless networks, in-vehicle navigation and telematics systems, fleet management, security systems, data collection networks, and wireless handheld consumer products. o 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, telematics, and public safety vehicles. After its acquisition in the first quarter of fiscal 2004, TracerNET's performance is reported in this business segment. o Portfolio Technologies -- The various operations that comprise this segment were aggregated on the basis that no single operation accounted for more than 10% of Trimble's total revenue. During the first two fiscal quarters of 2003, this segment was comprised solely of the Military and Advanced Systems business. During the third quarter of fiscal 2003 the Company completed the acquisition of Applanix and its performance is reported in this business segment. Trimble evaluates each of its segment's performance and allocates resources based on profit and loss from operations before income taxes, and some corporate allocations. Trimble and each of its segments employ the same accounting policies. The following table presents revenues, operating income (loss), and identifiable assets for the five 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 Component Mobile Portfolio Construction Solutions Technologies Solutions Technologies Total ------------ --------- ------------ --------- ------------ ----- (In thousands) Three Months Ended October 1, 2004 External net revenues $ 112,994 $ 26,293 $ 14,872 $ 6,353 $ 9,652 $ 170,164 Operating income (loss) before corporate allocations 24,002 5,850 2,782 (2,058) 1,462 32,038 Three Months Ended October 3, 2003 External net revenues 93,607 20,160 16,230 2,672 6,900 139,569 Operating income (loss) before corporate allocations 14,997 4,111 4,625 (2,118) (271) 21,344 Nine Months Ended October 1, 2004 External net revenues 332,711 81,837 49,903 16,840 24,833 506,124 Operating income (loss) before corporate allocations 63,336 20,930 10,759 (5,455) 3,100 92,670 Nine Months Ended October 3, 2003 External net revenues 275,067 60,791 48,916 9,491 10,761 405,026 Operating income (loss) before corporate allocations 45,860 10,980 13,038 (4,830) (1,409) 63,639 As of October 1, 2004 Accounts receivable (1) 97,697 20,690 8,921 8,086 8,419 143,813 Inventories 58,052 7,526 5,051 5,170 5,952 81,751 As of January 2, 2004 Accounts receivable (1) 84,897 16,589 10,003 4,103 7,321 122,913 Inventories 56,008 3,398 2,021 3,038 6,361 70,826
(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:
Three Months Ended Nine Months Ended October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- (In thousands) Operating income: Total for reportable segments (1) $ 32,038 $ 21,344 $ 92,670 $ 63,639 Unallocated corporate expenses (7,238) (7,396) (22,962) (21,672) ------ ------ -------- ------- Operating income $ 24,800 $ 13,948 $ 69,708 $ 41,967 =========== =========== =========== ===========
October 1, January 2, As of 2004 2004 - ----- ---- ---- (In thousands) Assets: Accounts receivable total for reportable segments $ 143,813 $ 122,913 Unallocated (1) (19,679) (19,563) ------- ------- Total $ 124,134 $ 103,350
(1) Includes cash received in advance, other receivables, and accruals that are not allocated by segment. NOTE 8. LONG-TERM DEBT: Long-term debt consisted of the following: October 1, January 2, As of 2004 2004 ----- ----- (in thousands) Credit Facilities: Term loan $ 34,375 $ 43,750 Revolving credit facility 17,000 44,000 Promissory notes and other 896 2,736 --- ----- 52,271 90,486 ------ ------ Less current portion of long-term debt (12,661) (12,885) ------- ------- Non-current portion $ 39,610 $ 77,601 =========== =========== Credit Facilities On June 25, 2003, Trimble obtained a $175 million secured Credit Facility ("2003 Credit Facility") from a syndicate of nine banks to repay a Subordinated Note and refinance $200 million of senior, secured credit facilities obtained in July of 2000. The 2003 Credit Facility is used for ongoing working capital and general corporate needs. At October 1, 2004, Trimble had approximately $51.4 million of borrowings under the 2003 Credit Facility, comprised of a $34.4 million term loan and $17 million outstanding on a $125 million revolver. The Company has access to an additional $108 million of cash under the terms of the revolving credit facility. The Company has commitment fees on the unused portion of 0.5% if the Leverage Ratio (which is defined as total indebtedness to Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA), as defined in the related agreement) is 2.0 or greater and 0.375% if the Leverage Ratio is less than 2.0. Pricing of interest for borrowings under the 2003 Credit Facility as of October 1, 2004 is at LIBOR plus a spread of 1.50%. The spread is tied to a formula based on the Leverage Ratio. The 2003 Credit Facility is secured by all of the Company's material assets, except for assets that are subject to foreign tax considerations. Financial covenants of the 2003 Credit Facility include leverage, fixed charge, and minimum net worth tests. At October 1, 2004 and as of the date of this report, Trimble was in compliance with all financial debt covenants. The amount due under the revolver loan is payable as the loan matures on June 25, 2006, and the loan commitment fees are paid on a quarterly basis. Under the terms of the 2003 Credit Facility, the Company is allowed to pay dividends and repurchase shares of common stock up to 25% of net income in the previous fiscal year. Promissory Note and Others As of October 1, 2004, the Company had other notes payable totaling approximately $0.9 million primarily consisting of government loans in its foreign subsidiaries. Weighted Average Cash Interest Rate Trimble's weighted average cash interest rate of the 2003 Credit Facility for the third quarter of fiscal 2004 was approximately 3.33%. NOTE 9. PRODUCT WARRANTIES: Changes in the Company's product warranty liability during the nine months ended October 1, 2004 and October 3, 2003 are as follows (in thousands): Nine Months Ended ----------------- October 1, October 3, 2004 2003 ---- ---- Balance at beginning of period $ 5,147 $ 6,394 Provision for warranties issued 5,713 3,802 Warranty expenses incurred (4,490) (3,708) Balance at end of period $ 6,370 6,488 The product warranty liability is classified as accrued warranty in the accompanying condensed consolidated balance sheets. NOTE 10. SHAREHOLDER'S EQUITY: 3-for-2 Stock Split Trimble's Board of Directors approved a 3-for-2 split of all outstanding shares of the Company's Common Stock, payable March 4, 2004 to stockholders of record on February 17, 2004. Cash was paid in lieu of fractional shares. All share and per share information has been adjusted to reflect the stock split on a retroactive basis for all periods presented. NOTE 11. EARNINGS PER SHARE: The following data show the amounts used in computing earnings per share and the effect on the weighted-average number of shares of potentially dilutive Common Stock.
Three Months Ended Nine Months Ended ------------------ ----------------- October October October October 1, 3, 1, 3, 2004 2003 2004 2003 ---- ---- ---- ---- (In thousands, except per share amounts) Numerator: Income available to common shareholders: Used in basic and diluted earnings per share $ 17,917 $ 9,936 $ 51,275 $ 23,394 ----------- ----------- ------------ ----------- Denominator: Weighted average number of common shares - basic earnings per share 51,503 49,109 51,013 46,764 Effect of dilutive securities (using treasury stock method): Common stock options 2,831 2,238 2,938 1,877 Common stock warrants 722 425 690 261 Denominator for diluted net income per share 55,056 51,771 54,641 48,902 ------ ------ ------ ------ Basic earnings per share $ 0.35 $ 0.20 $ 1.01 $ 0.50 ----------- ----------- ------------ ----------- Diluted earnings per share $ 0.33 $ 0.19 $ 0.94 $ 0.48 ----------- ----------- ------------ -----------
NOTE 12. COMPREHENSIVE INCOME: The components of comprehensive income, net of related tax as follows:
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- (In thousands) Net income $ 17,917 $ 9,936 $ 51,275 $ 23,394 Foreign currency translation adjustments 5,614 3,099 (431) 19,924 Net gain on hedging transactions - (14) 2 (7) Net unrealized gain (loss) on investments (26) (19) (46) 66 --- --- --- -- Comprehensive income $ 23,505 $ 13,002 $ 50,800 $ 43,377 ========== =========== =========== ==========
The components of accumulated other comprehensive income, net of related tax as follows: October 1, January 2, 2004 2004 ---- ---- (In thousands) Cumulative foreign currency translation adjustments $ 29,734 $ 30,166 Net gain on hedging transactions -- 2 Net unrealized gain on investments 27 73 -- -- Accumulated other comprehensive income $ 29,763 $ 30,239 ========== ========== NOTE 13. RELATED-PARTY TRANSACTIONS: Related-Party Lease Trimble currently leases office space in Ohio from an association of three individuals, one of whom is an employee of the Company, under a non-cancelable operating lease arrangement expiring in 2011. The annual rent is subject to adjustment based on the terms of the lease. The Condensed Consolidated Statements of Income include expenses from this operating lease of approximately $86,000 for both of the three months ended October 1, 2004 and October 3, 2003, and approximately $259,000 for both of the first nine months of fiscal 2004 and 2003. Related-Party Notes Receivable Trimble has notes receivable from officers and employees of approximately $0.4 million as of October 1, 2004 and $0.8 million as of January 2, 2004. The notes bear interest from 4.52% to 6.62% and have an average remaining life of 1.2 years as of October 1, 2004. See Note 4 to the Notes to the Condensed Consolidated Financial Statements for additional information regarding Trimble's related party transactions with joint venture partners. NOTE 14. 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 2003 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 2003. RECENT BUSINESS DEVELOPMENTS Trimble Outdoors During the fourth quarter of fiscal 2004, we announced our newest business, Trimble Outdoors. Trimble Outdoors is a consumer business utilizing GPS enabled cell phones to provide information for outdoor recreational activities. Trimble Outdoors performance will be reported under our Portfolio segment. Geo-Nav During the third quarter of fiscal 2004, we acquired GeoNav GmbH, a small provider of customized field data collection solutions for the cadastral survey market in Europe. GeoNav's performance is reported under our Engineering and Construction segment. TracerNET Corporation During the first quarter of fiscal 2004 we acquired TracerNET Corporation which we expect to augment our current fleet management capabilities, extend our customer base and provide us with increased sales. TracerNET's performance is reported under our Mobile Solutions segment. MENSI S.A. * During the fourth quarter of fiscal 2003, we acquired MENSI S.A., a French developer of terrestrial 3D laser scanning technology. The MENSI acquisition enhances our technology portfolio and expands our product offerings. MENSI's performance is reported under our Engineering and Construction segment. Applanix Corporation * During the third quarter of fiscal 2003, we acquired Applanix Corporation, a Canadian developer of systems that integrate inertial navigation and GPS technologies. We expect the Applanix acquisition to extend our technology portfolio and enable increased robustness and capabilities in our future positioning products. Applanix's performance is reported under our Portfolio Technologies segment. RESULTS OF OPERATIONS Results by Segment To achieve distribution, marketing, production, and technology advantages in our targeted markets, we manage our operations in the following five segments: Engineering and Construction, Field Solutions, Component Technologies, Mobile Solutions, and Portfolio Technologies. Operating income (loss) is net revenue less operating expenses, excluding general corporate expenses, amortization, restructuring charges, non-operating income (expense), and income taxes. The following table is a breakdown of revenue and operating income by segment (in thousands, except percentages):
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- Total consolidated revenue $ 170,164 $ 139,569 $ 506,124 $ 405,026 --------- --------- --------- --------- Total consolidated segment operating income $ 32,038 $ 21,344 $ 92,670 $ 63,639 --------- --------- --------- --------- Engineering and Construction Revenue 112,994 93,607 332,711 275,067 Segment revenue as a percent of total revenue 66% 67% 66% 68% Operating income 24,002 14,997 63,336 45,860 Operating income as a percent of segment revenue 21% 16% 19% 17% Field Solutions Revenue 26,293 20,160 81,837 60,791 Segment revenue as a percent of total revenue 15% 14% 16% 15% Operating income 5,850 4,111 20,930 10,980 Operating income as a percent of segment revenue 22% 20% 26% 18% Component Technologies Revenue 14,872 16,230 49,903 48,916 Segment revenue as a percent of total revenue 9% 12% 10% 12% Operating income 2,782 4,625 10,759 13,038 Operating income as a percent of segment revenue 19% 28% 22% 27% Mobile Solutions Revenue 6,353 2,672 16,840 9,491 Revenue as a percent of total revenue 4% 2% 3% 2% Operating loss (2,058) (2,118) (5,455) (4,830) Operating loss as a percent of segment revenue (32%) (79%) (32%) (51%) Portfolio Technologies Revenue 9,652 6,900 24,833 10,761 Segment revenue as a percent of total revenue 6% 5% 5% 3% Operating income (loss) 1,462 (271) 3,100 (1,409) Operating income (loss) as a percent of segment revenue 15% (4%) 12% (13%)
A reconciliation of our consolidated segment operating income to consolidated income before income taxes follows:
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- (In thousands) Consolidated segment operating income $ 32,038 $ 21,344 $ 92,670 $ 63,639 Unallocated corporate expense (5,219) (4,899) (16,557) (14,549) Amortization of purchased intangible assets (2,019) (1,870) (6,078) (5,390) Restructuring charges - (627) (327) (1,733) Non-operating expense, net (3,213) (2,612) (7,930) (14,773) ------- ------ ------ ------- Consolidated income before $ 21,587 $ 11,336 $ 61,778 $ 27,194 income taxes ---------- ----------- ---------- ----------
Engineering and Construction Engineering and Construction revenues increased by $19.4 million (or 20.7%) and $57.6 million (or 21.0%) while segment operating income increased $9.0 million (or 60.0%) and $17.5 million (or 38.1%) for the three and nine months ended October 1, 2004 as compared to the same corresponding periods in fiscal 2003. Demand for construction machinery and infrastructure solutions, the addition of the Nikon-branded product line in October 2003, and a strong construction season resulted in increased sales across all product categories. Segment operating income increased as a result of higher revenues. Field Solutions Field Solutions revenues increased by $6.1 million (or 30.4%) and $21.0 million (or 34.6%) while segment operating income increased $1.7 million (or 42.3%) and $10.0 million (or 90.6%) for the three and nine months ended October 1, 2004 as compared to the same corresponding periods in fiscal 2003. Revenues increased primarily as a result of higher demand for both automated and manual guidance products into the agricultural market. We saw increases in our GIS product lines due to stronger distribution in the US, Europe, and Latin America. Increases in segment operating income were primarily due to higher revenues and a more favorable product mix. Component Technologies Component Technologies revenues decreased by $1.4 million (or 8.4%) and increased by $1.0 million (or 2.0%), while segment operating income decreased by $1.8 million (or 39.8%) and $2.3 million (or 17.5%) for the three and nine months ended October 1, 2004 as compared to the same corresponding periods in fiscal 2003. The decrease in revenues for the three months ended October 1, 2004 as compared to the same period in fiscal 2003 was primarily due to the decline in demand from wireless infrastructure customers and was partially offset by an increase in our in-vehicle navigation business. The increase in revenues for the nine months ended October 1, 2004 as compared to the same period of fiscal 2003 was primarily due to higher demand from vehicle navigation and tracking customers and partially offset by the decline in demand from wireless infrastructure customers. The segment operating income decreases were primarily a result of lower margins due to product mix and an increase in spending for development of new categories of products, such as TrimTrac and Wireline products. Mobile Solutions Mobile Solutions revenues increased by $3.7 million (or 137.8%) and $7.3 million (or 77.4%), while segment operating loss decreased by $0.1 million (or 2.8%) and increased by $0.6 million (or 12.9%) for the three and nine months ended October 1, 2004 as compared to the same corresponding periods in fiscal 2003. Revenues grew due to an increase in sales into the construction materials vertical, primarily ready-mix suppliers, as well as increased sales from our dealer channel as we continue to develop and extend this channel. Losses increased for the first nine months of fiscal 2004 versus the same period last year due to additional expenses of our TracerNET integration and expenses recorded at the beginning of a significant contract, offset by increased revenues. Portfolio Technologies Portfolio Technologies revenues increased by $2.8 million (or 39.9%) and $14.1 million (or 130.8%), while operating income increased by $1.7 million (or 639.5%) and $4.5 million (or 320%) for the three and nine months ended October 1, 2004 as compared to the same corresponding periods in fiscal 2003. The increases in revenues and operating income were primarily due to the inclusion of Applanix, acquired in July 2003, and higher sales of defense products. Gross Margin Gross margin as a percentage of total revenues was 49.0% and 49.5% for the third quarter of fiscal 2004 and 2003, respectively, and 48.9% and 49.9% for the nine months ended fiscal 2004 and 2003, respectively. The decreases were primarily due to changes in the mix of products sold, principally related to increased sales of Mobile Solutions, Nikon-branded, and agriculture products combined with a decline in the higher gross margin timing business. * Gross margin could be impacted by product mix, changes in unit selling prices, fluctuations in unit manufacturing costs and foreign currencies, and alternative sourcing strategies. Revenues by Geography * Total revenue outside the United States comprised approximately 50% and 49% for the nine months ended October 1, 2004 and October 3, 2003, respectively. During the third quarter of fiscal 2004, North and South America represented 57%, Europe, the Middle East and Africa represented 30%, and Asia/Pacific Rim represented 13% of total revenues. We anticipate that these proportionate percentages of sales by geography will continue. Research and Development, Sales and Marketing, and General and Administrative Expenses Research and development ("R&D"), sales and marketing, and general and administrative ("G&A") expenses are summarized in the following table (in thousands, except percentages):
Three Months Ended Nine Months Ended -------------------------------------------------- ------------------------------------------------- October October Variance Variance October October Variance Variance 1, 3, in in 1, 3, in in 2004 2003 Dollars Percent 2004 2003 Dollars Percent ---- ---- ------- ------- ---- ---- ------- ------- Research and development $ 19,177 $ 17,346 $ 1,831 10.6% $ 57,962 $ 50,463 $ 7,499 14.9% Percentage of revenue 11.3% 12.4% 11.5% 12.5% Sales and marketing 26,576 25,015 1,561 6.2% 80,238 73,572 6,666 9.1% Percentage of revenue 15.6% 17.9% 15.9% 18.2% General and administrative 10,800 10,306 494 4.8% 33,138 28,837 4,301 14.9% Percentage of revenue 6.3% 7.4% 6.5% 7.1% Total 56,553 52,667 3,886 7.4% 171,338 152,872 18,466 12.1% Percentage of revenue 33.2% 37.7% 33.9% 37.7%
The increase in R&D expenses in the third quarter of fiscal 2004 compared with the third quarter of fiscal 2003 was primarily due to the inclusion of expenses from acquisitions of $1.0 million not applicable in the prior fiscal quarter and continued investment in next generation technologies. The increase in R&D expenses in the first nine months of fiscal 2004 compared with the first nine months of fiscal 2003 was primarily due to the inclusion of R&D expenses from recent acquisitions of $4.3 million not applicable in the prior nine month period, continued investment in next generation technologies, and the effect of 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 sales and marketing expenses in the third quarter of fiscal 2004 compared with the third quarter of fiscal 2003 was primarily due an increase in business development and key account management, and the continuing effect of foreign currency fluctuations. The increase in sales and marketing expenses in the first nine months of fiscal 2004 compared with the first nine months of fiscal 2003 was primarily due to the inclusion of expenses from recent acquisitions of $4.9 million not applicable in the prior nine-month period, and the continuing effect of 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 nine months of fiscal 2004 compared with the first nine months of fiscal 2003 was primarily due to the inclusion of G&A expenses from acquisitions of $2.5 million not applicable in the prior fiscal quarter, an increase in the provision for doubtful accounts, and the continuing effect of foreign currency fluctuations. Restructuring Charges There were no restructuring charges for the third quarter of fiscal 2004 and $0.3 million was recorded during the nine months ended October 1, 2004, which primarily related to severance costs due to the realignment of Trimble Mobile Solutions, Inc. Restructuring charges of $0.6 million and $1.7 million were recorded during the three and nine months ended October 3, 2003, respectively, which related to severance costs and our Japanese office relocation due to the Nikon-Trimble joint venture formation. As a result of these actions, our headcount of the affected operations decreased during the nine months ended October 1, 2004 by 24 individuals and in the corresponding period of fiscal 2003 by 50 individuals. As of October 1, 2004, the remaining accrual balance of $0.3 million is primarily related to lease payments on facilities exited prior to fiscal year 2004 and is expected to be paid by the end of fiscal year 2006. Amortization of Purchased Intangible Assets Amortization of purchased intangible assets included in operating expenses was $2.0 million in the third quarter of fiscal 2004, compared with $1.9 million in the third quarter of fiscal 2003. Amortization of purchased intangible assets included in operating expenses was $6.1 million in the first nine months of fiscal 2004, compared with $5.4 million in the first nine months of fiscal 2003. The increase in the amortization of purchased intangible assets in the three and nine months of fiscal 2004 compared with the three and nine months of fiscal 2003, was primarily due to the acquisition of certain technology and patent intangibles as a result of the TracerNET and MENSI acquisitions not applicable in the comparable periods of fiscal 2003. Non-operating Expense, Net The components of non-operating expense, net, are as follows (in thousands):
Three Months Ended Nine Months Ended ------------------ ----------------- October 1, October 3, October 1, October 3, 2004 2003 2004 2003 ---- ---- ---- ---- Interest income $ 94 $ 129 $ 260 $ 316 Interest expense (937) (1,188) (2,959) (10,764) Foreign currency transaction gain (loss), net (317) 166 (446) 649 Expenses for affiliated operations, net (2,284) (1,984) (6,336) (5,100) Other income, net 231 265 1,551 126 --- --- ----- --- Total non-operating expense, net $ (3,213) $ (2,612) $ (7,930) $ (14,773) --------- ---------- --------- ----------
Non-operating expense, net increased by $0.6 million (or 23%) and decreased by $6.8 million (or 46.3%) during the third quarter and first nine months of fiscal 2004, respectively, as compared with the corresponding periods in fiscal 2003. The decrease for the nine month period is primarily due to the write off of $2.3 million of debt issuance costs as a result of our debt refinancing in June 2003 and $1.3 million related to the write off of the remaining unamortized portion of the warrants issued to Spectra Physics Holdings, Inc. upon the full repayment of the principal balance of the Subordinated Note in June 2003. The remainder of the decrease is due to continued debt repayment combined with the effect of lower interest rates. The increases in expense for affiliated operations were primarily due to our higher construction machine control revenues which led to increased costs related to the pricing effects of transactions between us and the Caterpillar joint venture. Income Tax Provision Our income tax provisions reflect effective tax rates of 17.0% for the three and nine months ended October 1, 2004, respectively. The effective tax rates for the comparable periods in fiscal 2003 were 12.4% and 14.0%. These rates reflect benefits from utilizing net operating loss and tax credit carry-forwards. The 2004 third fiscal quarter tax rate of 17% is higher than the 2003 third fiscal quarter tax rate of 12.4% due to higher levels of profits. * In future years, we expect the effective tax rate to continue to increase up to the US statutory rate of 35% because of increased profits and limited remaining benefits of tax carry-forwards and other deferred tax assets. 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 October 1, January 2, As of 2004 2004 ----- ---- ---- (dollars in thousands) Cash and cash equivalents $ 59,119 $ 45,416 As a percentage of total assets 9.8% 8.3% Accounts receivable days sales outstanding 56 60 Inventory turns per year 4 4 Total debt $ 52,271 $ 90,486 October 1, October 3, Nine Months Ended 2004 2003 ----------------- ---- ---- (in thousands) Net cash provided by operating activities $ 53,983 $ 13,158 Net cash used in investing activities (20,552) (13,831) Net cash provided by (used in) financing activities (19,503) 13,986 Net increase in cash and cash equivalents 13,703 14,730 Cash and Cash Equivalents Cash and cash equivalents increased by $13.7 million or 30.2% from January 2, 2004. * For the first nine months of fiscal 2004, cash provided by operating activities was $54.0 million, compared to $13.2 million cash used in operating activities during the first nine months of fiscal 2003. This increase was driven by increased net income of $27.9 million and overall better working capital management. Our ability to continue to generate cash from operations will depend in large part on our profitability, the rate of collections of accounts receivable, inventory turns, and our ability to manage other areas of working capital. Our accounts receivable days sales outstanding decreased to 56 days from 60 days at the end of fiscal 2003. Inventory turns were four in both the third quarter of fiscal 2004 and in the fourth quarter of fiscal 2003. We used $20.6 million in net cash for investing activities during the first nine months of fiscal 2004, compared to $13.8 million in the first nine months of fiscal 2003. We continue to invest in capital expenditures, primarily to upgrade our information systems as well as add new tools and test equipment to manufacturing, and we used $12.2 million in net cash for acquisitions in the first nine months of fiscal 2004 compared to $7.0 million for the same period in fiscal 2003. * We expect fiscal 2004 capital expenditures to be approximately $12 million to $14 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 used $19.5 million in net cash for financing activities in the first nine months of fiscal 2004, compared to $14.0 million cash provided by financing activities in the first nine months of fiscal 2003. During the second quarter of fiscal 2003, we sold 3,148,000 shares of its common stock, at a price of $12.17 per share in an offering pursuant to the our shelf registration statement, resulting in net proceeds to us of approximately $36.6 million. Net debt repayments were $38.1 million for the first nine months of fiscal 2004 compared to $33.5 for the comparable period of fiscal 2003. This net debt payment was funded primarily by proceeds from cash generated from operations and the issuance of common stock to employees pursuant to our stock option plan of approximately $8.0 million. * We believe that our cash and cash equivalents, together with available funds under our credit facilities ($108 million as of October 1, 2004), will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. Debt At October 1, 2004, our total debt was approximately $52.3 million as compared with approximately $90.5 million at the end of fiscal 2003. This balance primarily consists of $34.4 million outstanding under a term loan and $17.0 million outstanding under a senior secured revolving credit facility. Our Credit Facility is secured by all material assets of our Company, except for a portion of assets that are not pledged due to foreign tax considerations. Financial covenants of the Credit Facility include leverage, fixed charge, and minimum net worth tests. At October 1, 2004 and as of the date of this report, we are in compliance with all debt covenants. The amortized principal, interest, and commitment fees due under the Credit Facility are paid quarterly. Under the four-year term loan portion of the Credit Facility, we are due to make payments (excluding interest) of approximately $12.5 million in each of the fiscal years 2004, 2005, and 2006, and $6.3 million in fiscal 2007. Under the terms of the Credit Facility, we are allowed to pay dividends and repurchase shares of our common stock up to 25% of net income in the previous fiscal year. For additional discussion of our debt, see Note 8 of Notes to the Condensed Consolidated Financial Statements. New Accounting Standards In March 2004, the FASB issued a proposed Statement, "Share-Based Payment, an amendment of FASB Statements Nos. 123 and 95," that addresses the accounting for share-based payment transactions in which a Company receives employee services in exchange for either equity instruments of the Company or liabilities that are based on the fair value of the Company's equity instruments or that may be settled by the issuance of such equity instruments. The proposed statement would eliminate the ability to account for share-based compensation transactions using the intrinsic method currently used by the Company and generally would require that such transactions be accounted for using a fair-value-based method and recognized as expense in the Company's consolidated statement of income. The recommended effective date of the proposed standard is currently for fiscal years beginning after June 15, 2005. Should this proposed statement be finalized in its current form, it could have a material impact on the Company's consolidated statement of income, as the Company would be required to expense the fair value of its stock option grants and stock purchases under the Company's employee stock purchase plan. See Note 3 of Notes to the Condensed Consolidated Financial Statements for the pro forma estimate of the impact. RISKS AND UNCERTAINTIES You should carefully consider the following risk factors, in addition to the other information contained in this Form 10-Q and in any other documents to which we refer you in this Form 10-Q, before purchasing our securities. The risks and uncertainties described below are not the only ones we face. Our Inability to Accurately Predict Orders and Shipments May Affect Our Revenue, Expenses and Earnings per Share. We have not been able in the past to consistently predict when our customers will place orders and request shipments so that we cannot always accurately plan our manufacturing requirements. As a result, if orders and shipments differ from what we predict, we may incur additional expenses and build excess inventory, which may require additional 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. Solectron is assembling certain products in China. Although this initiative in China has brought cost savings over assembling in California, we may experience quality control issues, shipping delays, or other problems associated with manufacturing in China. 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: o changes in market demand, o competitive market conditions, o market acceptance of existing or new products, o fluctuations in foreign currency exchange rates, o the cost and availability of components, o our ability to manufacture and ship products, o the mix of our customer base and sales channels, o the mix of products sold, o our ability to expand our sales and marketing organization effectively, o our ability to attract and retain key technical and managerial employees, o the timing of shipments of products under contracts and sale of licensing rights, and o general global economic conditions. In addition, demand for our products in any quarter or year may vary due to the seasonal buying patterns of our customers in the agricultural and engineering and construction industries. Due to the foregoing factors, our operating results in one or more future periods are expected to be subject to significant fluctuations. The price of our common stock could decline substantially in the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, which are based primarily on historical models that are not necessarily accurate representations of the future. 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 achieve and 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 will require us to include an internal control report of management in our Annual Report on Form 10-K for fiscal 2004. We are in the process of documenting and testing our internal control procedures in order to satisfy 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. During the course of our testing we may not complete all necessary procedures and we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. 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. If we are unable to assert that our internal control over financial reporting is effective as of December 31, 2004 (or if our auditors are unable to attest that our management's report is fairly stated or they are unable to express an opinion on our management's evaluation or on the effectiveness of the internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, which in turn could have an adverse effect on our stock price. Our Business is Subject to Disruptions and Uncertainties Caused by War or Terrorism. Acts of war or acts of terrorism could have a material adverse impact on our business, operating results, and financial condition. The threat of terrorism and war and heightened security and military response to this threat, or any future acts of terrorism, may cause further disruption to our economy and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of orders, or the manufacture or shipment of our products, our business, operating results, and financial condition could be materially and adversely affected. Our Credit Agreement Contains Financial Covenants. On June 25, 2003, we executed a Credit Agreement with Scotia Capital and certain other banks which provides for financial commitments totaling up to $175 million. This credit facility contains financial covenants regarding minimum fixed charge coverage and maximum leverage ratio which are extremely sensitive to changes in earnings before interest, taxes, depreciation and amortization, or EBITDA. In turn, EBITDA is highly correlated to revenues and costs. If we default on one or more covenants, we will have to obtain either negotiated waivers or amendments to the Credit Agreement. If we were unable to obtain such waivers or amendments, the banks would have the right to accelerate the payment of our outstanding obligations under the Credit Agreement which would have a material adverse effect on our financial condition and viability as an operating company. In addition, a default under one of our debt instruments may also trigger cross defaults under our other debt instruments. An event of default under any debt instrument, if not cured or waived, could have a material adverse effect on us. We Rely on Key Customers. We generate a portion of our revenue from large original equipment manufacturers such as Siemens VDO Automotive AG and Nortel. A reduction or loss of business with these customers could have a material adverse effect on our financial condition and results of operations. There can be no assurance that we will be able to continue to realize value from these relationships in the future. No single customer accounted for 10% or more of Trimble's total revenues in our first nine months of fiscal 2004 and fiscal 2003. 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. 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 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, McNeilus, 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 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, which would, in turn, cause a material adverse effect on our operating results. Many of our products use other radio frequency bands, together with the GPS signal, to provide enhanced GPS capabilities, such as real-time kinematic precision. The continuing availability of these non-GPS radio frequencies is essential to provide enhanced GPS products to our precision survey and construction machine controls markets. Any regulatory changes in spectrum allocation or in allowable operating conditions may materially and adversely affect the utility and reliability of our products, which would, in turn, cause a material adverse effect on our operating results. In addition, unwanted emissions from mobile satellite services and other equipment operating in adjacent frequency bands or in-band from licensed and unlicensed devices may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our operating results. The FCC continually receives proposals for novel technologies and services, such as ultra-wideband technologies, which may seek to operate in, or across, the radio frequency bands currently used by the GPS SPS and other public safety services. Adverse decisions by the FCC that result in harmful interference to the delivery of the GPS SPS and other radio frequency spectrum also used in our products may materially and adversely affect the utility and reliability of our products, which could result in a material adverse effect on our business and financial condition. We Are Subject to the Adverse Impact of Radio Frequency Congestion. We have certain products, such as GPS RTK systems, surveying and mapping systems, and Robotic Total Stations, 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, including the State of California. To reduce congestion, the FCC announced that it will require migration of radio technology from wideband to narrowband operations in these bands. In December 2003, the FCC stayed the effectiveness of its new rules until it acts on petitions requesting a reconsideration of this new requirement. The stay is indefinite at this point and the outcome of this proceeding is unknown at this time. An inability to obtain access to these radio frequencies by end users, and for new products to comply with FCC requirements, could have an adverse effect on our operating results. Many of Our Products Rely on the GPS Satellite System. The GPS satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. The satellites were originally designed to have lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. However, of the current deployment of 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 addition, 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. However, a 1996 Presidential Decision Directive marks the first time in the evolution of GPS that access for civilian use free of direct user fees is specifically recognized and supported by Presidential policy. In addition, Presidential policy has been complemented by corresponding legislation, signed into law. Because of ever-increasing commercial applications of GPS, other 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. Any curtailment of the operating capability of these systems could result in decreased user capability thereby impacting our markets. The European governments have expressed interest in building an independent satellite navigation system, known as Galileo. We believe we will have access to the signal design to develop compatible receivers. However, if access to the signal structure is delayed it may have a materially adverse effect on our business and operating results. We Face Risks in Investing in and Integrating New Acquisitions. Acquisitions of companies, divisions of companies, or products entail numerous risks, including: o potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration; o diversion of management's attention; o loss of key employees of acquired operations; o the difficulty of assimilating geographically dispersed operations and personnel of the acquired companies; o the potential disruption of our ongoing business; o unanticipated expenses related to such integration; o the correct assessment of the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount which must be amortized over the appropriate life of the asset; o the impairment of relationships with employees and customers of either an acquired company or our own business; o the potential unknown liabilities associated with acquired business; and o inability to recover strategic investments in development stage entities. As a result of such acquisitions, we have significant assets that include goodwill and other purchased intangibles. The testing of these intangibles under established accounting guidelines for impairment requires significant use of judgment and assumptions. Changes in business conditions could require adjustments to the valuation of these assets. In addition, losses incurred by a company in which we have an investment may have a direct impact on our financial statements or could result in our having to write-down the value of such investment. Any such problems in integration or adjustments to the value of the assets acquired could harm our growth strategy and have a material adverse effect on our business, financial condition and compliance with debt covenants. We Face Competition in Our Markets. 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 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. We Must Carefully Manage Our Future Growth. Growth in our sales or continued expansion in the scope of our operations could strain our current management, financial, manufacturing and other resources, and may require us to implement and improve a variety of operating, financial and other systems, procedures, and controls. Specifically we have experienced strain in our financial and order management system. We are expanding our sales, accounting, manufacturing, and other information systems to meet these challenges. 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 location is intense, and there can be no assurance that we will be able to attract, motivate, and retain enough qualified employees necessary for the future continued development of our business and products. We May Encounter Problems Associated With International Operations and Sales. Our customers are located throughout the world. Sales to unaffiliated customers in non-US locations represented approximately 50% and 49% of our revenues in our first nine months of fiscal 2004 and fiscal 2003, respectively. In addition, we have significant international operations, including manufacturing facilities, sales personnel and customer support operations. We have sales offices outside the US. Our non-US manufacturing facilities are in Sweden and Germany, and we have a regional fulfillment center in the Netherlands. Our non-US presence exposes us to risks not faced by wholly US companies. Specifically, we have experienced issues relating to integration of non-US operations, greater difficulty in accounts receivable collection, longer payment cycles, and currency fluctuations. Additionally, we face the following risks, among others: o unexpected changes in regulatory requirements; o tariffs and other trade barriers; o political, legal and economic instability in non-US markets, particularly in those markets in which we maintain manufacturing and research facilities; o difficulties in staffing and management; o language and cultural barriers; o seasonal reductions in business activities in the summer months in Europe and some other countries; o war and acts of terrorism; and o potentially adverse tax consequences. In certain non-US markets, there may be reluctance to purchase products based on GPS technology, given the control of GPS by the US Government. We Are Exposed to Fluctuations in Currency Exchange Rates. A significant portion of our business is conducted outside the United States, and as such, we face exposure to adverse movements in non-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. In the first nine months of fiscal 2004, the US dollar continued to weaken against several major currencies in which we do business, adversely impacting our financial results. The weaker US dollar negatively impacts our operating income due to significant manufacturing, distribution, research and development, and selling expenses incurred outside of the US, while the weaker US dollar positively impacts our revenues generated in foreign currencies, primarily the Euro. Currently, we hedge only those currency exposures associated with certain assets and liabilities denominated in non-functional currencies and periodically will hedge anticipated foreign currency cash flows. The hedging activities undertaken by us are intended to offset the impact of currency fluctuations on certain 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 Are Subject to the Impact of Governmental and Other Similar Certifications. We market certain products that are subject to governmental and similar certifications before they can be sold. For example, CE certification for radiated emissions is required for most GPS receiver and data communications products sold in the European Union. An inability to obtain such certifications in a timely manner could have an adverse effect on our operating results. Also, some of our products that use integrated radio communication technology require an end user to obtain licensing from the Federal Communications Commission (FCC) for frequency-band usage. These are secondary licenses that are subject to certain restrictions. During the fourth quarter of 1998, the FCC temporarily suspended the issuance of licenses for certain of our real-time kinematic products because of interference with certain other users of similar radio frequencies. An inability or delay in obtaining such certifications or changes to the rules by the FCC could adversely affect our ability to bring our products to market which could harm our customer relationships and have a material adverse effect on our business. 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 nine months of fiscal 2004, our stock price ranged from $20.64 to $32.09. We believe that a variety of factors could cause the price of our common stock to fluctuate, perhaps substantially, including: o announcements and rumors of developments related to our business or the industry in which we compete; o quarterly fluctuations in our actual or anticipated operating results and order levels; o general conditions in the worldwide economy, including fluctuations in interest rates; o announcements of technological innovations; o new products or product enhancements by us or our competitors; o developments in patents or other intellectual property rights and litigation; o developments in our relationships with our customers and suppliers; and o any significant acts of terrorism against the United States. In addition, in recent years the stock market in general and the markets for shares of "high-tech" companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common stock may decline. We are Subject to Environmental Laws and Potential Exposure to Environmental Liabilities. We are subject to various federal, state and local environmental laws and regulations that govern our operations, including the handling and disposal of non-hazardous and hazardous wastes, and emissions and discharges into the environment. Failure to comply with such laws and regulations could result in costs for corrective action, penalties, or the imposition of other liabilities. We also are subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. Under certain of these laws and regulations, a current or previous owner or operator of property may be liable for the costs of remediating hazardous substances or petroleum products on or from its property, without regard to whether the owner or operator knew of, or caused, the contamination, as well as incur liability to third parties impacted by such contamination. The presence of, or failure to remediate properly, such substances could adversely affect the value and the ability to transfer or encumber such property. Based on currently available information, although there can be no assurance, we believe that such liabilities will not have a material impact on our business. Provisions in Our Charter Documents and Under California Law Could Prevent or Delay a Change of Control, which Could Reduce the Market Price of Our Common Stock. Certain provisions of our articles of incorporation, as amended and restated, our bylaws, as amended and restated, and the California General Corporation Law may be deemed to have an anti-takeover effect and could discourage a third party from acquiring, or make it more difficult for a third party to acquire, control of us without approval of our board of directors. These provisions could also limit the price that certain investors might be willing to pay in the future for shares of our common stock. Certain provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock. We have adopted a Preferred Shares Rights Agreement, commonly known as a "poison pill." The provisions described above, our poison pill and provisions of the California General Corporation Law may discourage, delay or prevent a third party from acquiring us. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 We are exposed to market risk due to the possibility of changing interest rates under our secured Credit Facility. Our Credit Facility is comprised of a three-year, US dollar-only revolver that expires on June 25, 2006, and a four-year term loan that expires on June 25, 2007. Borrowings under the Credit Facility have interest payments based on a floating rate of LIBOR plus a number of basis points tied to a formula based on our Leverage Ratio. The revolver matures on June 25, 2006 and has an outstanding principal balance of $17 million, while the term loan matures on June 25, 2007 and has an outstanding principal balance of $34.4 million, as of October 1, 2004 (all in US currency only). The three-month LIBOR effective rate at October 1, 2004 was 1.98%. A hypothetical 10% increase in three-month LIBOR rates could result in approximately $101,500 annual increase in interest expense on the existing principal balances. We have hedged the market risk with an interest rate swap on 50% of our term loan at a fixed rate (LIBOR) of 2.517%. * The hypothetical changes and assumptions made above will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by our management should the hypothetical market changes actually occur over time. As a result, actual earnings effects in the future will differ from those quantified above. 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 contracts for trading purposes. Foreign exchange forward contracts outstanding as of October 1, 2004 are summarized as follows (in thousands): October 1, 2004 --------------- Nominal Amount Fair Value -------------- ---------- Forward contracts: Purchased $ 9,780 $ 224 Sold $ (20,257) $ (257) * 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. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 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 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Our merger agreement with LeveLite provides for us to make earn-out payments not to exceed an aggregate $3.9 million (in common stock and cash payment) based on certain future revenues and payments received. Upon a hearing before the California Department of Corporations in which the terms and conditions of the offer to the LeveLite shareholders were approved, the shares of Common Stock to be issued in the transaction were exempt from registration by reason of qualification under Section 3(a)(10) of the Securities Act of 1933, as amended. On July 28, 2004, pursuant to the merger agreement we issued 15,384 shares of common stock, valued at $23.65 per share to the former shareholders of Levelite. ITEM 6. EXHIBITS 3.1 Restated Articles of Incorporation of Trimble Navigation Limited, filed June 25, 1986. (1) 3.2 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed October 6, 1988. (1) 3.3 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed July 18, 1990. (1) 3.4 Certificate of Determination of Trimble Navigation Limited, filed February 19, 1999. (1) 3.5 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed May 29, 2003. (2) 3.6 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed March 4, 2004. (4) 3.8 Amended and Restated Bylaws of Trimble Navigation Limited. (3) 10.1 Form of Change in Control Agreement (5) 10.2 Amended and Restated 2002 Stock Plan, including forms of option agreement (5) 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) 31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) 32.1 Certification of Chief Executive Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) 32.2 Certification of Chief Financial Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) - ------------------------- (1) Incorporated by reference to identically numbered exhibits filed in response to Item 14(a), "Exhibits" of the registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1999, as filed with the SEC on March 29, 1999. (2) Incorporated by reference to exhibit number 3.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 2003. (3) Incorporated by reference to exhibit number 3.8 to the registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 2004. (4) 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. (5) 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/ Mark Harrington ----------------------- Mark Harrington Chief Financial Officer (Authorized Officer and Principal Financial Officer) DATE: November 5, 2004 EXHIBIT INDEX Exhibit No. Description 3.1 Restated Articles of Incorporation of Trimble Navigation Limited, filed June 25, 1986. (1) 3.2 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed October 6, 1988. (1) 3.3 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed July 18, 1990. (1) 3.4 Certificate of Determination of Trimble Navigation Limited, filed February 19, 1999. (1) 3.5 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed May 29, 2003. (2) 3.6 Certificate of Amendment of Articles of Incorporation of Trimble Navigation Limited, filed March 4, 2004. (4) 3.8 Amended and Restated Bylaws of Trimble Navigation Limited. (3) 10.1 Form of Change of Control Agreement. (5) 10.2 Amended and Restated 2002 Stock Plan, including forms of option agreement. (5) 31.1 Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) 31.2 Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) 32.1 Certification of Chief Executive Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) 32.2 Certification of Chief Financial Officer pursuant to section 18 U.S.C. section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November 5, 2004. (5) - ------------------------- (1) Incorporated by reference to identically numbered exhibits filed in response to Item 14(a), "Exhibits" of the registrant's Annual Report on Form 10-K for the fiscal year ended January 1, 1999, as filed with the SEC on March 29, 1999. (2) Incorporated by reference to exhibit number 3.5 to the registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 2003. (3) Incorporated by reference to exhibit number 3.8 to the registrant's Annual Report on Form 10-K for the fiscal year ended January 2, 2004. (4) 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. (5) Filed herewith. EX-10 2 ex101.txt EXHIBIT 10.1 TRIMBLE NAVIGATION LIMITED CHANGE IN CONTROL SEVERANCE AGREEMENT THIS AGREEMENT is entered into as of the ____ day of ________, 20__, by and between Trimble Navigation Limited (the "Company") and _____________________ (the "Executive"). W I T N E S S E T H WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders; and WHEREAS, the Company recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may arise and that such possibility may result in the departure or distraction of management personnel to the detriment of the Company and its shareholders; and WHEREAS, the Board of Directors of the Company has determined that it is in the best interests of the Company and its shareholders to secure the Executive's continued services and to ensure the Executive's continued and undivided dedication to his duties in the event of any threat or occurrence of a change in control of the Company; and WHEREAS, the Board of Directors of the Company has authorized the Company to enter into this Agreement. NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive hereby agree as follows: 1. Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Bonus" means the annual or quarterly bonuses payable pursuant to the Company's Management Incentive Plan or such other plan that provides for the payment of incentive bonuses as may be, from time to time, authorized by the Board. (c) "Cause" means (i) the Executive's engagement in acts of embezzlement, dishonesty or moral turpitude; (ii) the conviction of the Executive for having committed a felony; (iii) a breach by the Executive of the Executive's fiduciary duties and responsibilities to the Company having the potential to result in a material adverse effect on the Company's business, operations, prospects or reputation; or (iv) the repeated failure of the Executive to perform duties and responsibilities as an employee of the Company to the reasonable satisfaction of the Board (except in the case of death or disability) that has not been cured within thirty (30) days after a written demand for substantial performance has been delivered to the Executive by the Board. The determination of Cause shall be made by the Board. (d) "Change in Control" means the occurrence of any of the following events: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets; or (iii) the consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least sixty percent (60%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation. (iv) a change in the composition of the Board, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" shall mean directors who either (A) are directors of the Company as of the date hereof, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of those directors whose election or nomination was not in connection with any transaction described in subsections (i), (ii) or (iii) or in connection with an actual or threatened proxy contest relating to the election of directors of the Company. Notwithstanding anything in this Agreement to the contrary, if the Executive's employment is terminated prior to a Change in Control, and the Executive reasonably demonstrates that such termination was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, then for all purposes of this Agreement, the date immediately prior to the date of such termination of employment shall be deemed to be the date of a Change in Control. (e) "Company" means Trimble Navigation Limited, a California corporation. (f) "Date of Termination" means the date on which the Executive's employment by the Company terminates. (g) "Good Reason" means, without the Executive's express written consent, the occurrence of any of the following events after a Change in Control: (i) the assignment to the Executive of any duties (including a diminution of duties) inconsistent in any adverse respect with the Executive's position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control; (ii) an adverse change in the Executive's reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control; (iii) any removal or involuntary termination of the Executive from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Executive to any position with the Company held by the Executive immediately prior to such Change in Control; (iv) a reduction by the Company in the Executive's rate of annual base salary as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter; (v) any requirement of the Company that the Executive (A) be based anywhere more than twenty-five (25) miles from the facility where the Executive is located at the time of the Change in Control or (B) travel on Company business to an extent substantially more burdensome than the travel obligations of the Executive immediately prior to such Change in Control; (vi) the failure of the Company to (A) continue in effect any compensation plan in which the Executive is participating immediately prior to such Change in Control, or the taking of any action by the Company which would adversely affect the Executive's participation in or reduce the Executive's benefits under any such plan (including the failure to provide the Executive with a level of discretionary incentive award grants consistent with the past practice of the Company in granting such awards to the Executive during the three-Year period immediately preceding the Change in Control), (B) provide the Executive and the Executive's dependents with welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive immediately prior to such Change in Control, (C) provide fringe benefits in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive immediately prior to such Change in Control, or (D) provide the Executive with paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive immediately prior to such Change in Control, unless in the case of any violation of (A), (B) or (C) above, the Executive is permitted to participate in other plans, programs or arrangements which provide the Executive (and, if applicable, the Executive's dependents) with no less favorable benefits at no greater cost to the Executive; or (vii) the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 10(b) hereof. Any event or condition described in Sections 1(g)(i) through (vi) which occurs prior to a Change in Control, but was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control, shall constitute Good Reason following a Change in Control for purposes of this Agreement (as if a Change in Control had occurred immediately prior to the occurrence of such event or condition) notwithstanding that it occurred prior to the Change in Control. For purposes of this Agreement, any good faith determination of Good Reason made by the Executive shall be conclusive; provided, however, that an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company promptly after receipt of notice thereof given by an Executive shall not constitute Good Reason. The Executive's continued employment shall not constitute consent to or a waiver of rights with respect to any event or condition constituting Good Reason. The Executive must provide notice of termination within ninety (90) days of his knowledge of an event or condition constituting Good Reason hereunder or such event shall not constitute Good Reason hereunder. A transaction which results in the Company no longer being a publicly traded entity shall not in and of itself be treated as Good Reason unless and until one of the events or conditions set forth in Sections 1(g)(i) through (vii) occurs. (h) "Nonqualifying Termination" means a termination of the Executive's employment (i) by the Company for Cause, (ii) by the Executive for any reason other than Good Reason, (iii) as a result of the Executive's death, or (iv) by the Company due to the Executive's absence from his duties with the Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of the Executive's incapacity due to physical or mental illness. (i) "Projected Bonus Amount" means, with respect to any Year, the greater of (i) the Executive's Target Bonus Amount for such Year; or (ii) to the extent calculable after at least one calendar quarter of the Year, the Bonus the Executive would have earned in the Year in which the Executive's Date of Termination occurs had the Company's financial performance through the end of the fiscal quarter immediately preceding the Date of Termination continued throughout said Year (the "Earned Bonus Amount"). (l) "Subsidiary" means any corporation or other entity in which the Company has a direct or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities of such corporation or other entity. (m) "Target Bonus Amount" means, with respect to any Year, the Participant's target Bonus for such Year based upon the Company's forecasted operational plan. (n) "Termination Period" means the period of time beginning with a Change in Control and ending one (1) year following such Change in Control. (o) "Year" means the fiscal year of the Company. 2. Acceleration of Options Upon Change in Control. Upon a Change in Control each of the Executive's outstanding stock options granted under any of the Company's stock option or incentive plans shall accelerate and become vested and exercisable with respect to the total number of shares covered by all such outstanding stock options. 3. Termination of Employment. (a) If during the Termination Period the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to the Executive, within five (5) business days following the Date of Termination, as compensation for services rendered to the Company: (i) a lump-sum cash amount equal to the sum of (A) the Executive's base salary from the Company and its Subsidiaries through the Date of Termination and any outstanding Bonus for which payment is due and owing at such time, (B) any accrued vacation pay, and (C) to the extent not provided under the Company's Bonus plans, a pro-rata portion of the Executive's Projected Bonus Amount for the Year in which the Executive's Date of Termination occurs, in each case to the extent not theretofore paid; plus (ii) a lump-sum cash amount equal to the sum of (A) twelve (12) months of base salary calculated using the Executive's highest monthly rate of base salary during the 12-month period immediately preceding the Date of Termination, or if greater, immediately preceding the Change in Control and (B) the highest of (x) the Executive's average Bonus (annualized for any partial Years of employment) earned during the 3-Year period immediately preceding the Year in which the Date of Termination occurs (or shorter annualized period if the Executive had not been employed for the full three-Year period), (y) the Executive's Target Bonus Amount for the Year in which the Change in Control occurs and (z) the Executive's Target Bonus Amount for the Year in which the Date of Termination occurs; provided, that any amount paid pursuant to this Section 3(a)(ii) shall offset an equal amount of any severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under any severance plan, policy, or arrangement of the Company. (b) If during the Termination Period, the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination, for a period of one (1) year commencing on the Date of Termination, the Company shall continue to keep in full force and effect (or otherwise provide) all policies of medical, dental, accident, disability and life insurance with respect to the Executive and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent (and on the same after-tax basis), as such policies shall have been in effect immediately prior to the Date of Termination (or, if more favorable to the Executive, immediately prior to the Change in Control), and the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination. (c) If during the Termination Period, the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination, each of the Executive's outstanding stock options granted under any of the Company's stock option or incentive plans shall be exercisable by the Executive until the earlier of (A) the expiration of the term of the option or (B) one (1) year following the Date of Termination. (d) If during the Termination Period the employment of the Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to the Executive (or the Executive's beneficiary or estate) such payments and provide to the Executive such benefits, if any, as the Company customarily pays or provides to executives of the Company upon termination of employment. 4. Golden Parachute. In the event that the benefits provided for in this Agreement (together with any other benefits or amounts) otherwise constitute "parachute payments" within the meaning of Section 280G of the Code and would, but for this Section 4 be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Executive's benefits under this Agreement shall be either: (i) delivered in full, or (ii) delivered as to such lesser extent as would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt by the Executive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless the Company and the Executive otherwise agree in writing, all determinations required to be made under this Section 4, including the manner and amount of any reduction in the Executive's benefits under this Agreement, and the assumptions to be utilized in arriving at such determinations, shall be made in writing in good faith by Ernst & Young LLP (the "Consulting Firm"). In the event that the Consulting Firm (or any affiliate thereof) is unable or unwilling to act, the Executive may appoint a nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Consulting Firm hereunder). All fees and expenses of the Consulting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Consulting Firm in connection with the performance of the services hereunder. For purposes of making the calculations required by this Section 4, the Consulting Firm may make reasonable assumptions and approximations concerning the application of Sections 280G and 4999 of the Code. The Company and the Executive shall furnish to the Consulting Firm such information and documents as the Consulting Firm may reasonably request to make a determination under this Section 4. 5. Withholding Taxes. The Company may withhold from all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 6. Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving termination of the Executive's employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Executive, on a current basis, for all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute (regardless of the result thereof), together with interest in an amount equal to the prime rate of Bank of America from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives the Executive's statement for such fees and expenses through the date of payment thereof. 7. Termination of Agreement. This Agreement shall be effective on the date hereof and shall continue until the first to occur of (i) the termination of the Executive's employment with the Company prior to a Change in Control (except as otherwise provided hereunder), (ii) a Nonqualifying Termination, or (iii) the termination of the Executive's employment following the Termination Period. 8. Scope of Agreement. Nothing in this Agreement shall be deemed to entitle the Executive to continued employment with the Company or its Subsidiaries, and if the Executive's employment with the Company shall terminate prior to a Change in Control, the Executive shall have no further rights under this Agreement (except as otherwise provided hereunder); provided, however, that notwithstanding anything herein to the contrary, any termination of the Executive's employment following a Change in Control shall be subject to all of the benefit and payment provisions of this Agreement. 9. Obligations of the Executive. The Executive agrees that if a Change in Control shall occur, the Executive shall not voluntarily leave the employ of the Company without Good Reason during the 90-day period immediately following a Change in Control. 10. Successors' Binding Obligation. (a) This Agreement shall not be terminated by any merger, consolidation or corporate reorganization of the Company (a "Company Change") or transfer of assets. In the event of any Company Change or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or any person or entity to which the assets of the Company are transferred. (b) The Company agrees that concurrently with any Company Change or transfer of assets, it will cause any successor or transferee unconditionally to assume by written instrument delivered to the Executive (or his beneficiary or estate) all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such Company Change or transfer of assets that results in a Change in Control shall constitute Good Reason hereunder and shall entitle the Executive to compensation and other benefits from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive's employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such Company Change or transfer of assets becomes effective shall be deemed the date Good Reason occurs, and the Executive may terminate employment for Good Reason on or following such date. (c) This Agreement shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts would be payable to the Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive's estate. 11. Notice. (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Trimble Navigation Limited 749 N. Mary Avenue Sunnyvale, California 94085 Attention: General Counsel or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. Alternatively, notice may be deemed to have been delivered when sent by facsimile to a location provided by the other party hereto. (b) A written notice of the Executive's Date of Termination by the Company or the Executive, as the case may be, to the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) specify the termination date (which date shall not be less than fifteen (15) nor more than sixty (60) days after the giving of such notice). The failure by the Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. 12. Full Settlement; No Mitigation. The Company's obligation to make any payments provided for by this Agreement to the Executive and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. 13. Employment with Subsidiaries. Employment with the Company for purposes of this Agreement shall include employment with any Subsidiary. 14. Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of California without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which other provisions shall remain in full force and effect. 15. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 16. Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by the Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right the Executive or the Company may have hereunder, including without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as otherwise specifically provided herein, the rights of, and benefits payable to, the Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, the Executive, his estate or his beneficiaries under any other employee benefit plan or compensation program of the Company. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and the Executive has executed this Agreement as of the day and year first above written. Trimble Navigation Limited By: ________________________________ Name: ______________________________ Title: _____________________________ Executive ____________________________________ Name: ______________________________ Title: _____________________________ EX-10 3 ex102.txt EXHIBIT 10.2 AMENDED AND RESTATED TRIMBLE NAVIGATION LIMITED 2002 STOCK PLAN (as amended and restated as of July 22, 2004) 1. Purposes of the Plan. The purposes of this 2002 Stock Plan are: o to attract and retain the best available personnel for positions of substantial responsibility, o to provide additional incentive to Employees, Directors and Consultants, and o to promote the success of the Company's business. Options granted under the Plan may be Incentive Stock Options or Nonstatutory Stock Options, as determined by the Administrator at the time of grant. 2. Definitions. As used herein, the following definitions shall apply: (a) "Administrator" means the Board or any of its Committees as shall be administering the Plan, in accordance with Section 4 of the Plan. (b) "Applicable Laws" means the requirements relating to the administration of stock option plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction where Options are, or will be, granted under the Plan. (c) "Board" means the board of directors of the Company. (d) "Change in Control" means the occurrence of any of the following events: (i) Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the total voting power represented by the Company's then outstanding voting securities; or (ii) The consummation of the sale or disposition by the Company of all or substantially all of the Company's assets; (iii) A change in the composition of the Board occurring within a two-year period, as a result of which fewer than a majority of the directors are Incumbent Directors. "Incumbent Directors" means directors who either (A) are Directors as of the effective date of the Plan, or (B) are elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the Incumbent Directors at the time of such election or nomination (but will not include an individual whose election or nomination is in connection with an actual or threatened proxy contest relating to the election of directors to the Company); or (iv) The consummation of a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation. (e) "Code" means the Internal Revenue Code of 1986, as amended. (f) "Committee" means a committee of Directors appointed by the Board in accordance with Section 4 of the Plan. (g) "Common Stock" means the common stock of the Company. (h) "Company" means Trimble Navigation Limited, a California corporation. (i) "Consultant" means any natural person, including an advisor, engaged by the Company or a Parent or Subsidiary to render services to such entity. (j) "Director" means a member of the Board. (k) "Disability" means total and permanent disability as defined in Section 22(e)(3) of the Code. (l) "Employee" means any person, including Officers and Directors, employed by the Company or any Parent or Subsidiary of the Company. A Service Provider shall not cease to be an Employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its Parent, any Subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, then three (3) months following the 91st day of such leave any Incentive Stock Option held by the Optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (m) "Exchange Act" means the Securities Exchange Act of 1934, as amended. (n) "Fair Market Value" means, as of any date, the value of Common Stock determined as follows: (i) If the Common Stock is listed on any established stock exchange or a national market system, including without limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or system on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; (ii) If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be the mean between the high bid and low asked prices for the Common Stock on the day of determination, as reported in The Wall Street Journal or such other source as the Administrator deems reliable; or (iii) In the absence of an established market for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (o) "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (p) "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. (q) "Notice of Grant" means a written or electronic notice evidencing certain terms and conditions of an individual Option grant. The Notice of Grant is part of the Option Agreement. (r) "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (s) "Option" means a stock option granted pursuant to the Plan. (t) "Option Agreement" means an agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. The Option Agreement is subject to the terms and conditions of the Plan. (u) "Optioned Stock" means the Common Stock subject to an Option. (v) "Optionee" means the holder of an outstanding Option granted under the Plan. (w) "Outside Director" means a Director who is not an Employee. (x) "Parent" means a "parent corporation," whether now or hereafter existing, as defined in Section 424(e) of the Code. (y) "Plan" means this 2002 Stock Plan. (z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. (aa) "Section 16(b) " means Section 16(b) of the Exchange Act. (bb) "Service Provider" means an Employee, Director or Consultant. (cc) "Share" means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan. (dd) "Subsidiary" means a "subsidiary corporation", whether now or hereafter existing, as defined in Section 424(f) of the Code. 3. Stock Subject to the Plan. Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of Shares that may be optioned and sold under the Plan is 4,500,000 Shares plus (a) any Shares which have been previously reserved but not issued under the Company's 1993 Stock Option Plan (the "1993 Plan") as of the date of shareholder approval of this Plan, and (b) any Shares returned to the 1993 Plan as a result of termination of options granted under the 1993 Plan. The Shares may be authorized, but unissued, or reacquired Common Stock. If an Option expires, is cancelled or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or Right, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if unvested Shares of restricted stock are repurchased by the Company, such Shares shall become available for future grant under the Plan. 4. Administration of the Plan. (a) Procedure. (i) Multiple Administrative Bodies. Different Committees with respect to different groups of Service Providers may administer the Plan. (ii) Section 162(m). To the extent that the Administrator determines it to be desirable to qualify Options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Code, the Plan shall be administered by a Committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3, the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a Committee, which committee shall be constituted to satisfy Applicable Laws. (b) Powers of the Administrator. Subject to the provisions of the Plan, and in the case of a Committee, subject to the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion: (i) to select the Service Providers to whom Options may be granted hereunder; (ii) to determine the number of shares of Common Stock to be covered by each Option granted hereunder; (iii) to approve forms of agreement for use under the Plan; (iv) to determine the terms and conditions, not inconsistent with the terms of the Plan, of any Option granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when Options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any Option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (v) to construe and interpret the terms of the Plan and awards granted pursuant to the Plan; (vi) to prescribe, amend and rescind rules and regulations relating to the Plan, including rules and regulations relating to sub-plans established for the purpose of satisfying applicable foreign laws; (vii) to modify or amend each Option (subject to Section 15(c) of the Plan), including the discretionary authority to extend the post-termination exercisability period of Options longer than is otherwise provided for in the Plan; provided, however, that the Administrator shall not reduce the exercise price of Options or cancel any outstanding Option and replace it with a new Option with a lower exercise price, where the economic effect would be the same as reducing the exercise price of the cancelled Option, without the approval of the Company's shareholders; (viii) to allow Optionees to satisfy withholding tax obligations by electing to have the Company withhold from the Shares to be issued upon exercise of an Option that number of Shares having a Fair Market Value equal to the minimum amount required to be withheld. The Fair Market Value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an Optionee to have Shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (ix) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an Option previously granted by the Administrator; and (x) to make all other determinations deemed necessary or advisable for administering the Plan. (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all Optionees and any other holders of Options. 5. Eligibility. Nonstatutory Stock Options may be granted to Service Providers. Incentive Stock Options may be granted only to Employees. 6. Limitations. (a) Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designation, to the extent that the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such Options shall be treated as Nonstatutory Stock Options. For purposes of this Section 6(a), Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. (b) Neither the Plan nor any Option shall confer upon an Optionee any right with respect to continuing the Optionee's relationship as a Service Provider with the Company, nor shall they interfere in any way with the Optionee's right or the Company's right to terminate such relationship at any time, with or without cause. (c) The following limitations shall apply to grants of Options: (i) No Service Provider shall be granted, in any fiscal year of the Company, Options to purchase more than 300,000 Shares. (ii) In connection with his or her initial service, a Service Provider may be granted Options to purchase up to an additional 450,000 Shares, which shall not count against the limit set forth in subsection (i) above. (iii) The foregoing limitations shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. (iv) If an Option is cancelled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 12), the cancelled Option will be counted against the limits set forth in subsections (i) and (ii) above. 7. Term of Plan. Subject to Section 18 of the Plan, the Plan shall become effective upon its adoption by the Board. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 15 of the Plan. 8. Term of Option. The term of each Option shall be ten (10) years from the date of grant or such shorter term as may be provided in the Option Agreement. Moreover, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Option Agreement. 9. Option Exercise Price and Consideration. (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Administrator, subject to the following: (i) In the case of an Incentive Stock Option (A) granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant. (B) granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (ii) In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant. (iii) Notwithstanding the foregoing, Options may be granted with a per Share exercise price of less than 100% of the Fair Market Value per Share on the date of grant pursuant to a merger or consolidation of or by the Company with or into another corporation, the purchase or acquisition of property or stock by the Company of another corporation, any spin-off or other distribution of stock or property by the Company or another corporation, any reorganization of the Company, or any partial or complete liquidation of the Company, if such action by the Company or other corporation results in a significant number of Employees or employees being transferred to a new employer or discharged, or in the creation or severance of the Parent-Subsidiary relationship. (b) Waiting Period and Exercise Dates. At the time an Option is granted, the Administrator shall fix the period within which the Option may be exercised and shall determine any conditions that must be satisfied before the Option may be exercised. (c) Form of Consideration. The Administrator shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Administrator shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other Shares which, in the case of Shares acquired directly or indirectly from the Company, (A) have been owned by the Optionee for more than six (6) months on the date of surrender, and (B) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised; (v) consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; (vi) a reduction in the amount of any Company liability to the Optionee, including any liability attributable to the Optionee's participation in any Company-sponsored deferred compensation program or arrangement; (vii) any combination of the foregoing methods of payment; or (viii) such other consideration and method of payment for the issuance of Shares to the extent permitted by Applicable Laws. 10. Exercise of Option. (a) Procedure for Exercise; Rights as a Shareholder. Any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Administrator and set forth in the Option Agreement. Unless the Administrator provides otherwise, vesting of Options granted hereunder shall be suspended during any unpaid leave of absence. An Option may not be exercised for a fraction of a Share. An Option shall be deemed exercised when the Company receives: (i) written or electronic notice of exercise (in accordance with the Option Agreement) from the person entitled to exercise the Option or such person's authorized agent, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Administrator and permitted by the Option Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Optionee. Until the Shares are issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the Shares are issued, except as provided in Section 12 of the Plan. Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised. (b) Termination of Relationship as a Service Provider. If an Optionee ceases to be a Service Provider, other than upon the Optionee's death or Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for three (3) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified by the Administrator, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (c) Disability of Optionee. If an Optionee ceases to be a Service Provider as a result of the Optionee's Disability, the Optionee may exercise his or her Option within such period of time as is specified in the Option Agreement to the extent the Option is vested on the date of termination (but in no event later than the expiration of the term of such Option as set forth in the Option Agreement). In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following the Optionee's termination. If, on the date of termination, the Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. (d) Death of Optionee. If an Optionee dies while a Service Provider or within thirty (30) days (or such longer period of time not exceeding three (3) months as is determined by the Administrator), the Option may be exercised following the Optionee's death within such period of time as is specified in the Option Agreement to the extent that the Option is vested on the date of death (but in no event may the option be exercised later than the expiration of the term of such Option as set forth in the Option Agreement), by the personal representative of the Optionee's estate or by the person(s) to whom the Option is transferred pursuant to the Optionee's will or in accordance with the laws of descent and distribution. In the absence of a specified time in the Option Agreement, the Option shall remain exercisable for twelve (12) months following Optionee's death. If, at the time of death, Optionee is not vested as to his or her entire Option, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. 11. Transferability of Options. Unless determined otherwise by the Administrator, an Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the Optionee, only by the Optionee. If the Administrator makes an Option transferable, such Option shall contain such additional terms and conditions as the Administrator deems appropriate. 12. Adjustments; Dissolution; Merger or Change in Control. (a) Adjustments. In the event that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, or other change in the corporate structure of the Company affecting the Shares occurs, the Administrator, in order to prevent diminution or enlargement of the benefits or potential benefits intended to be made available under the Plan, may (in its sole discretion) adjust the number and class of Shares that may be delivered under the Plan and/or the number, class, and price of Shares covered by each outstanding Option and the numerical limits of Section 6. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Administrator shall notify each Optionee as soon as practicable prior to the effective date of such proposed transaction. The Administrator in its discretion may provide for an Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Optioned Stock covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Administrator may provide that any Company repurchase option applicable to any Shares purchased upon exercise of an Option shall lapse as to all such Shares, provided the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action. (c) Merger or Change in Control. In the event of a merger of the Company with or into another corporation, or a Change in Control, each outstanding Option shall be assumed or an equivalent option or right substituted by the successor corporation or a Parent or Subsidiary of the successor corporation. In the event the successor corporation does not agree to assume the Option or substitute an equivalent option or right, the Administrator shall, in lieu of such assumption or substitution, provide for the Optionee to have the right to vest in and exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not otherwise be vested or exercisable. If the Administrator makes an Option fully vested and exercisable in lieu of assumption or substitution in the event of a merger or Change in Control, the Administrator shall notify the Optionee that the Option shall be fully vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option will terminate upon the expiration of such period. If, in such a merger or Change in Control, the Option is assumed or an equivalent option or right is substituted by such successor corporation or a Parent or Subsidiary of such successor corporation, and if during a one-year period after the effective date of such merger or Change in Control, the Optionee's status as a Service Provider is terminated for any reason other than the Optionee's voluntary termination of such relationship, then the Optionee shall have the right within three (3) months thereafter to exercise the Option as to all of the Optioned Stock, including Shares as to which the Option would not be otherwise exercisable, effective as of the date of such termination. For the purposes of this subsection (c), the Option shall be considered assumed if, following the merger or Change in Control, the option or right confers the right to purchase or receive, for each Share of Optioned Stock subject to the Option immediately prior to the merger or Change in Control, the consideration (whether stock, cash, or other securities or property) received in the merger or Change in Control by holders of Common Stock for each Share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding Shares); provided, however, that if such consideration received in the merger or Change in Control is not solely common stock of the successor corporation or its Parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the Option, for each Share of Optioned Stock subject to the Option, to be solely common stock of the successor corporation or its Parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or Change in Control. 13. Date of Grant. Except for options granted to Outside Directors under Section 14 hereof, the date of grant of an Option shall be, for all purposes, the date on which the Administrator makes the determination granting such Option, or such other later date as is determined by the Administrator. Notice of the determination shall be provided to each Optionee within a reasonable time after the date of such grant. 14. Grants to Outside Directors. All grants of Options to Outside Directors shall be automatic and non-discretionary and shall be made strictly in accordance with the following provisions: (i) No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors. (ii) Each Outside Director shall be automatically granted an Option to purchase 15,000 Shares (the "First Option") upon the date on which such person first becomes a Director, whether through election by the shareholders of the Company or appointment by the Board of Directors to fill a vacancy. (iii) After a First Option has been granted to any Outside Director, each Outside Director shall thereafter be automatically granted an Option to purchase 7,500 Shares (a "Subsequent Option") on the day of each subsequent annual shareholders meeting at which such Outside Director is reelected to an additional term; provided, however, that no Subsequent Option shall be granted for the first annual shareholders meeting following the grant of a First Option to any director. (iv) In the event that the number of Shares remaining available for grant under the Plan is less than the number of Shares required for an automatic grant pursuant to either subsection (ii) or (iii) hereof, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors on the automatic grant date. Any further automatic grants shall then be deferred until such time, if any, as additional Shares become available for grant under the Plan through action to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted under the Plan. (v) The terms of an Option granted hereunder shall be consistent with the requirements set forth elsewhere in this plan, except that the Option shall become exercisable in installments cumulatively with respect to 1/36 of the Shares for each complete calendar month after the date of grant of such Option. (vi) The number of Shares granted pursuant to subsections (ii) and (iii) hereof shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 12. 15. Amendment and Termination of the Plan. (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Shareholder Approval. The Company shall obtain shareholder approval of any Plan amendment to the extent necessary and desirable to comply with Applicable Laws and Section 15(c) below. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan or any Option shall (i) impair the rights of any Optionee, unless mutually agreed otherwise between the Optionee and the Administrator, which agreement must be in writing and signed by the Optionee and the Company or (ii) permit the reduction of the exercise price of an Option after it has been granted (except for adjustments made pursuant to Section 12), unless approved by the Company's shareholders. Neither may the Administrator, without the approval of the Company's shareholders, cancel any outstanding Option and replace it with a new Option with a lower exercise price, where the economic effect would be the same as reducing the exercise price of the cancelled Option. Termination of the Plan shall not affect the Administrator's ability to exercise the powers granted to it hereunder with respect to Options granted under the Plan prior to the date of such termination. Any increase in the number of shares subject to the Plan, other than pursuant to Section 12 hereof, shall be approved by the Company's shareholders. 16. Conditions Upon Issuance of Shares. (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares shall comply with Applicable Laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. (b) Investment Representations. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required. 17. Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company's counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained. 18. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan. 19. Shareholder Approval. The Plan shall be subject to approval by the shareholders of the Company within twelve (12) months after the date the Plan is adopted. Such shareholder approval shall be obtained in the manner and to the degree required under Applicable Laws. TRIMBLE NAVIGATION LIMITED 2002 STOCK PLAN - STOCK OPTION AGREEMENT Unless otherwise defined herein, the capitalized terms used in this Stock Option Agreement shall have the same defined meanings as set forth in the Company's 2002 Stock Plan. I. NOTICE OF STOCK OPTION GRANT Name: Address: You have been granted an option to purchase shares of the Common Stock of the Company, subject to the terms and conditions of the Plan and this Stock Option Agreement, as follows: Grant Number __________________________________ Date of Grant __________________________________ Vesting Commencement Date __________________________________ Exercise Price per Share $_________________________________ Total Number of Shares Granted __________________________________ Total Exercise Price $_________________________________ Type of Option: ___ Incentive Stock Option ___ Nonstatutory Stock Option Term/Expiration Date: __________________________________ Vesting Schedule: This Option shall be exercisable, in whole or in part, in accordance with the following schedule: 20% of the Shares subject to this Option shall vest twelve months after the Vesting Commencement Date, and 1/60th of the Shares subject to this Option shall vest each month thereafter on the same day of the month as the Vesting Commencement Date, such that 100% of the Shares subject to this Option shall vest five (5) years from the Vesting Commencement Date subject to the Optionee continuing to be a Service Provider on such dates. Termination Period: This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for twelve months after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT A. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. If designated in the Notice of Grant as an Incentive Stock Option ("ISO"), this Option is intended to qualify as an Incentive Stock Option under Section 422 of the Code. However, if this Option is intended to be an Incentive Stock Option, to the extent that it exceeds the $100,000 rule of Code Section 422(d) it shall be treated as a Nonstatutory Stock Option ("NSO"). B. Exercise of Option. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by (i) electronic exercise in accordance with an approved automated exercise program or (ii) delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of the Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. C. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: 1. cash; or 2. check; or 3. consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or 4. surrender of other Shares which (i) in the case of Shares acquired either directly or indirectly from the Company, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. D. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. E. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. F. Tax Obligations. (a) Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. (b) Notice of Disqualifying Disposition of ISO Shares. If the Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the ISO on or before the later of (1) the date two years after the Date of Grant, or (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. Optionee agrees that Optionee may be subject to income tax withholding by the Company on the compensation income recognized by the Optionee. G. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of the state of California. H. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT CAUSE. By Optionee's signature and the signature of the Company's representative below, Optionee and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: TRIMBLE NAVIGATION LIMITED ____________________________ ___________________________________ Signature By ____________________________ ___________________________________ Print Name Print Name ____________________________ ___________________________________ Residence Address Title TRIMBLE NAVIGATION LIMITED 2002 STOCK PLAN - STOCK OPTION AGREEMENT (Outside Director Option) Unless otherwise defined herein, the capitalized terms used in this Stock Option Agreement shall have the same defined meanings as set forth in the Company's 2002 Stock Plan. I. NOTICE OF STOCK OPTION GRANT Name: Address: You have been granted an option to purchase shares of the Common Stock of the Company, subject to the terms and conditions of the Plan and this Stock Option Agreement, as follows: Grant Number __________________________________ Date of Grant __________________________________ Vesting Commencement Date __________________________________ Exercise Price per Share $_________________________________ Total Number of Shares Granted __________________________________ Total Exercise Price $_________________________________ Type of Option: Nonstatutory Stock Option Term/Expiration Date: __________________________________ Vesting Schedule: This Option shall be exercisable, in whole or in part, in accordance with the following schedule: This option shall vest and become exercisable cumulatively, to the extent of 1/36th of the Shares subject to the Option for each complete calendar month after the date of grant of the Option. Termination Period: This Option may be exercised for three (3) months after Optionee ceases to be a Service Provider. Upon the death or Disability of the Optionee, this Option may be exercised for twelve months after Optionee ceases to be a Service Provider. In no event shall this Option be exercised later than the Term/Expiration Date as provided above. II. AGREEMENT A. Grant of Option. The Plan Administrator of the Company hereby grants to the Optionee named in the Notice of Grant attached as Part I of this Agreement (the "Optionee") an option (the "Option") to purchase the number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the "Exercise Price"), subject to the terms and conditions of the Plan, which is incorporated herein by reference. Subject to Section 15(c) of the Plan, in the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail. B. Exercise of Option. (a) Right to Exercise. This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. (b) Method of Exercise. This Option is exercisable by (i) electronic exercise in accordance with an approved automated exercise program or (ii) delivery of an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"), which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised (the "Exercised Shares"), and such other representations and agreements as may be required by the Company pursuant to the provisions of the Plan. The Exercise Notice shall be completed by the Optionee and delivered to the Company. The Exercise Notice shall be accompanied by payment of the aggregate Exercise Price as to all Exercised Shares. This Option shall be deemed to be exercised upon receipt by the Company of the Exercise Price. No Shares shall be issued pursuant to the exercise of this Option unless such issuance and exercise complies with Applicable Laws. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to the Optionee on the date the Option is exercised with respect to such Exercised Shares. C. Method of Payment. Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of the Optionee: 1. cash; or 2. check; or 3. consideration received by the Company under a cashless exercise program implemented by the Company in connection with the Plan; or 4. surrender of other Shares which (i) in the case of Shares acquired either directly or indirectly from the Company, have been owned by the Optionee for more than six (6) months on the date of surrender, and (ii) have a Fair Market Value on the date of surrender equal to the aggregate Exercise Price of the Exercised Shares. D. Non-Transferability of Option. This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution and may be exercised during the lifetime of Optionee only by the Optionee. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of the Optionee. E. Term of Option. This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement. F. Tax Obligations. Withholding Taxes. Optionee agrees to make appropriate arrangements with the Company (or the Parent or Subsidiary employing or retaining Optionee) for the satisfaction of all Federal, state, local and foreign income and employment tax withholding requirements applicable to the Option exercise. Optionee acknowledges and agrees that the Company may refuse to honor the exercise and refuse to deliver Shares if such withholding amounts are not delivered at the time of exercise. G. Entire Agreement; Governing Law. The Plan is incorporated herein by reference. The Plan and this Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Optionee with respect to the subject matter hereof, and may not be modified adversely to the Optionee's interest except by means of a writing signed by the Company and Optionee. This agreement is governed by the internal substantive laws, but not the choice of law rules, of the state of California. By Optionee's signature and the signature of the Company's representative below, Optionee and the Company agree that this Option is granted under and governed by the terms and conditions of the Plan and this Option Agreement. Optionee has reviewed the Plan and this Option Agreement in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Plan and Option Agreement. Optionee hereby agrees to accept as binding, conclusive and final all decisions or interpretations of the Administrator upon any questions relating to the Plan and Option Agreement. Optionee further agrees to notify the Company upon any change in the residence address indicated below. OPTIONEE: TRIMBLE NAVIGATION LIMITED ___________________________ ___________________________________ Signature By ___________________________ ___________________________________ Print Name Print Name ___________________________ ___________________________________ Residence Address Title EXHIBIT A TRIMBLE NAVIGATION LIMITED 2002 STOCK PLAN EXERCISE NOTICE Trimble Navigation Limited 749 North Mary Avenue Sunnyvale, CA 94085 Attention: Stock Administrator 1. Exercise of Option. Effective as of today, ________________, _____, the undersigned ("Purchaser") hereby elects to purchase ______________ shares (the "Shares") of the Common Stock of Trimble Navigation Limited (the "Company") under and pursuant to the 2002 Stock Plan (the "Plan") and the Stock Option Agreement dated, ______________ (the "Option Agreement"). Subject to adjustment in accordance with Section 12 of the Plan, the purchase price for the Shares shall be $_____, as required by the Option Agreement. 2. Delivery of Payment. Purchaser herewith delivers to the Company the full purchase price for the Shares together with any required withholding taxes to be paid in connection with the exercise of the Option. 3. Representations of Purchaser. Purchaser acknowledges that Purchaser has received, read and understood the Plan and the Option Agreement and agrees to abide by and be bound by their terms and conditions. 4. Rights as Shareholder. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the Shares, no right to vote or receive dividends or any other rights as a shareholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. The Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date of issuance, except as provided in Section 12 of the Plan. 5. Tax Consultation. Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted with any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice. 6. Entire Agreement; Governing Law. The Plan and Option Agreement are incorporated herein by reference. This Agreement, the Plan and the Option Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and supersede in their entirety all prior undertakings and agreements of the Company and Purchaser with respect to the subject matter hereof, and may not be modified adversely to the Purchaser's interest except by means of a writing signed by the Company and Purchaser. This agreement is governed by the internal substantive laws, but not the choice of law rules, of the state of California. Submitted by: Accepted by: ______________________________ ______________________________ PURCHASER: TRIMBLE NAVIGATION LIMITED ______________________________ ______________________________ Signature By ______________________________ ______________________________ Print Name Print Name Address: ______________________________ ______________________________ ______________________________ ______________________________ Date Received EX-31 4 ex311.txt Exhibit 31.1 Certification of CEO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Steven W. Berglund, the Chief Executive Officer of Trimble Navigation Limited, certify that: 1. I have reviewed this report on Form 10-Q of Trimble Navigation Limited; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: November 5, 2004 /s/ Steven W. Berglund ---------------------- Steven W. Berglund Chief Executive Officer EX-31 5 ex312.txt Exhibit 31.2 Certification of CFO Pursuant to Securities Exchange Act Rules 13a-14 and 15d-14 as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Mark Harrington, the Chief Financial Officer of Trimble Navigation Limited, certify that: 1. I have reviewed this report on Form 10-Q of Trimble Navigation Limited; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15e and 15d-15e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: November 5, 2004 /s/ Mark Harrington ------------------- Mark Harrington Chief Financial Officer EX-32 6 ex321.txt Exhibit 32.1 Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Trimble Navigation Limited (the "Company") for the quarterly period ended October 1, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Steven W. Berglund, as Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Steven W. Berglund ---------------------- Name: Steven W. Berglund Title: Chief Executive Officer Dated: November 5, 2004 EX-32 7 ex322.txt Exhibit 32.2 Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report on Form 10-Q of Trimble Navigation Limited (the "Company") for the quarterly period ended October 1, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Mark Harrington, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Mark Harrington ------------------- Name: Mark Harrington Title: Chief Financial Officer Dated: November 5, 2004 -----END PRIVACY-ENHANCED MESSAGE-----