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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
-----
For the quarterly period ended March 31, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
------
Commission File Number 0-21323
NAVIGATION TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0170321
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
222 MERCHANDISE MART (312) 279-3390
THE MERCHANDISE MART PLAZA (Registrant's Telephone Number,
SUITE 900 Including Area Code)
CHICAGO, ILLINOIS 60654
(Address of Principal Executive Offices,
including Zip 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
----- -----
The number of shares of the Registrant's Common Stock, $.001 par value,
outstanding as of May 13, 2002 was 398,301,318.
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Certain statements in this document contain or may contain information that
is forward-looking 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. In some cases, you can identify forward-looking statements by the
terminology used - for example, words and phrases such as "may," "should,"
"expect," "anticipate," "plan," "believe," "estimate," "predict" and other
comparable terminology typically would be deemed forward-looking. Actual events
or results may differ materially from those described in the forward-looking
statements and will be affected by a variety of risks and factors, including,
without limitation, the risks described in the section of Navigation
Technologies' Registration Statement on Form 10, File No. 0-21323, as amended,
captioned "Risk Factors" under Item 1 thereof. Readers should carefully review
this document in its entirety, including, but not limited to, the financial
statements and notes thereto. Navigation Technologies undertakes no obligation
to publicly release any revisions to such forward-looking statements to reflect
events or circumstances after the date hereof. You should rely only on the
information contained in this document. We have not authorized anyone to provide
you with information that is different. The information contained herein may
only be accurate as of the date of this document.
"NAVTECH" is a trademark of Navigation Technologies Corporation.
1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
ASSETS
DECEMBER 31, MARCH 31,
----------- ---------
2001 2002
--------- ---------
(UNAUDITED)
Current assets:
Cash and cash equivalents $ 7,506 7,450
Accounts receivable, net of allowance for doubtful accounts
of $1,666 and $2,567 in 2001 and 2002, respectively 19,910 23,312
Notes receivable from affiliate 5,000 3,000
Prepaid expenses and other current assets 2,984 2,901
--------- ---------
Total current assets 35,400 36,663
Property and equipment, net 11,152 10,468
Capitalized software development costs, net 15,629 17,290
Deposits and other assets 295 346
--------- ---------
Total assets $ 62,476 64,767
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 4,872 4,441
Accrued payroll and related liabilities 13,693 13,013
Other accrued expenses 7,965 7,581
Deferred revenue 18,293 24,870
Refundable deferred licensing advances 6,965 7,229
--------- ---------
Total current liabilities 51,788 57,134
Long-term deferred revenue 5,550 4,925
Long-term source material obligations 1,567 1,732
--------- ---------
Total liabilities 58,905 63,791
--------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value; 70,000 shares authorized:
Series A cumulative convertible preferred stock, 4,006 shares
issued and outstanding in 2001 and 2002 ($51,081 aggregate liquidation
preference, including $11,021 dividends in arrears) 40,027 40,027
Series B cumulative convertible preferred stock, 42,600 shares
issued and outstanding in 2001 and 2002 ($541,020 aggregate liquidation
preference, including $115,020 dividends in arrears) 425,527 425,527
Common stock, $0.001 par value; 1,800,000 shares authorized;
398,293 and 398,301 shares issued and outstanding in
2001 and 2002, respectively 398 398
Additional paid-in capital 299,422 299,423
Note receivable for common stock (219) (219)
Accumulated other comprehensive income 4,166 4,155
Accumulated deficit (765,750) (768,335)
--------- ---------
Total stockholders' equity 3,571 976
--------- ---------
Total liabilities and stockholders' equity $ 62,476 64,767
========= =========
See accompanying notes to condensed consolidated financial statements.
2
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
QUARTER ENDED
------------------------------
APRIL 1, 2001 MARCH 31, 2002
------------- --------------
(UNAUDITED) (UNAUDITED)
Net revenue $ 22,601 30,785
Operating costs and expenses:
Database licensing and production costs 19,711 19,852
Selling, general, and administrative expenses 13,247 13,126
--------- ---------
Total operating costs and expenses 32,958 32,978
--------- ---------
Operating loss (10,357) (2,193)
Other income (expense):
Interest income 52 55
Interest expense (17,265) (265)
Other expense (261) (182)
--------- ---------
Loss before extraordinary item (27,831) (2,585)
Extraordinary loss on early extinguishment of debt (69,568) --
--------- ---------
Net loss (97,399) (2,585)
Cumulative preferred stock dividends -- (34,624)
--------- ---------
Net loss applicable to common stockholders $ (97,399) (37,209)
========= =========
Loss per share of common stock before extraordinary item -
basic and diluted $ (0.07) (0.09)
Loss per share of common stock related to extraordinary item -
basic and diluted (0.17) --
--------- ---------
Net loss per share of common stock -
basic and diluted $ (0.24) (0.09)
========= =========
Weighted average number of shares of common stock outstanding -
basic and diluted 398,061 398,297
========= =========
See accompanying notes to condensed consolidated financial statements.
3
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
QUARTER ENDED
-------------------------------
APRIL 1, 2001 MARCH 31, 2002
------------- --------------
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss $ (97,399) (2,585)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Extraordinary loss on early extinguishment of debt 69,568 --
Depreciation and amortization 873 1,366
Amortization of software development costs 467 1,011
Deferred interest expense on refundable license payments 235 264
Noncash interest expense on notes payable 17,053 --
Provision for bad debts -- 910
Noncash other (4) (4)
Changes in operating assets and liabilities:
Accounts receivable 100 (4,428)
Prepaid expenses and other current assets 341 74
Deposits and other assets 114 (49)
Accounts payable (2,526) (414)
Accrued expenses (492) (1,007)
Deferred revenue 3,493 6,041
Other long-term obligations (122) 175
--------- ---------
Net cash provided by (used in) operating activities (8,299) 1,354
--------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (997) (704)
Capitalized software development costs (2,315) (2,672)
Loan to affiliate -- (3,000)
Cash received from repayment of loan to affiliate -- 5,000
--------- ---------
Net cash used in investing activities (3,312) (1,376)
--------- ---------
Cash flows from financing activities:
Issuance of common stock 77 1
Issuance of Series A cumulative convertible preferred stock,
net of issuance costs 7,073 --
Series B cumulative convertible preferred stock issuance costs (473) --
Repayment of refundable licensing advances (6,770) --
Loans from affiliate 16,600 --
--------- ---------
Net cash provided by financing activities 16,507 1
--------- ---------
Effect of exchange rate changes on cash (207) (35)
--------- ---------
Net increase (decrease) in cash and cash equivalents 4,689 (56)
Cash and cash equivalents at beginning of period 7,516 7,506
--------- ---------
Cash and cash equivalents at end of period $ 12,205 7,450
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,506 --
========= =========
Supplemental disclosures of noncash financing activities:
Exchange of notes payable to affiliate, including accrued interest thereon,
for Series A cumulative convertible preferred stock $ 16,954 --
Exchange of notes payable to affiliate, including accrued interest thereon,
for Series B cumulative convertible preferred stock 426,000 --
========= =========
See accompanying notes to condensed consolidated financial statements.
4
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) - UNAUDITED FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements of
Navigation Technologies Corporation (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information, the instructions to United States Securities
Exchange Commission Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
of America for complete financial statements. These condensed
consolidated financial statements should be read in conjunction with the
Company's Annual Report on Form 10-K for the year ended December 31,
2001.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the interim periods are not
necessarily indicative of the results that may be expected for the fiscal
year. For further information, refer to the consolidated financial
statements and accompanying notes included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001.
The Company's fiscal quarterly periods end on the Sunday nearest the
calendar quarter end. The 2001 first quarter had 91 days and the 2002
first quarter had 90 days. The Company's fiscal year end is December 31.
Certain 2001 amounts in the condensed consolidated financial statements
have been reclassified to conform to the 2002 presentation.
(2) - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, Statement of Financial Accounting Standards ("SFAS") No.
141, "Business Combinations" and SFAS No. 142, "Goodwill and Intangible
Assets" were issued. In October 2001, SFAS No. 144 "Accounting for the
Impairment or Disposal of Long Lived Assets" was issued. SFAS No. 141
requires that all business combinations initiated after June 30, 2001, be
accounted for using the purchase method of accounting, and prohibits the
use of the pooling-of-interests method for such transactions. SFAS No.
141 also requires identified intangible assets acquired in a business
combination to be recognized as an asset apart from goodwill if they meet
certain criteria. The adoption of SFAS No. 141 had no impact on the
Company's consolidated financial statements.
SFAS No. 142 applies to all goodwill and identified intangible assets
acquired in a business combination. Under the new standard, all goodwill,
including that acquired before initial application of the standard, will
not be amortized but must be tested for impairment at least annually.
Identified intangible assets should be amortized over their estimated
useful lives and reviewed for impairment in accordance with SFAS No. 144.
Within six months of initial application of the new standard, a
transitional impairment test must be performed on all goodwill. Any
impairment loss recognized as a result of the transitional impairment
test should be reported as a change in accounting principle. In addition
to the transitional impairment test, the required annual impairment test
should be performed in the year of adoption of SFAS No. 142. SFAS No. 142
is effective for fiscal years beginning after December 15, 2001, and must
be adopted as of the beginning of a fiscal year. The adoption of SFAS No.
142 on January 1, 2002 had no impact on the Company's consolidated
financial statements.
SFAS No. 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. While SFAS No. 144
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", it retains many of
the fundamental provisions of that Statement. SFAS No. 144 also
supersedes the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of Disposal
of a
5
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions", for the disposal of a segment of a
business. However, it retains the requirement in Opinion 30 to report
separately discontinued operations and extends that reporting to a
component of an entity that either has been disposed of (by sale,
abandonment, or in a distribution to owners) or is classified as held for
sale. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. The adoption of
SFAS No. 144 on January 1, 2002 had no impact on the Company's
consolidated financial statements.
On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 rescinds SFAS No. 4, which required
all gains and losses from the extinguishment of debt to be aggregated
and, if material, classified as an extraordinary item, net of the related
income tax effect. SFAS No. 145 will be effective for fiscal years
beginning after May 15, 2002. The Company will adopt SFAS No. 145 on
January 1, 2003, at which time the extraordinary loss on early
extinguishment of debt that was incurred during 2001 will be reclassified
as a component of other income (expense) in the Company's consolidated
statement of operations presented for that period.
(3) - COMPREHENSIVE LOSS
Comprehensive loss for the quarters ended April 1, 2001 and March 31,
2002, was as follows (in thousands):
QUARTER ENDED
---------------------
APRIL 1, MARCH 31,
2001 2002
--------- --------
Net loss $ (97,399) (2,585)
Foreign currency translation adjustment 143 (11)
--------- --------
Comprehensive loss $ (97,256) (2,596)
========= ========
(4) - LOSS PER SHARE
Basic and diluted loss per share is computed based on the net loss after
deducting cumulative preferred stock dividends, divided by the weighted
average number of shares of common stock outstanding for the period, in
accordance with SFAS No. 128, "Earnings Per Share." Options to purchase
113,896,000 and 15,947,000 shares of common stock were outstanding at
April 1, 2001 and March 31, 2002, respectively. The Company expects to
grant up to 84,073,966 replacement options in connection with its stock
option exchange offer. See Note 5 - Stock Option Exchange Offer. Warrants
to purchase 47,380,000 shares of common stock were outstanding at April
1, 2001 and March 31, 2002, respectively. There were 2,405,968.805 and
4,005,968.805 shares of Series A cumulative convertible preferred stock
outstanding at April 1, 2001 and March 31, 2002, respectively. There were
42,600,002.533 shares of Series B cumulative convertible preferred stock
outstanding at April 1, 2001 and March 31, 2002, respectively. These
options, warrants and shares of preferred stock were not included in the
computation of diluted loss per share because the effect of their
inclusion would be antidilutive.
6
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(5) - STOCK OPTION EXCHANGE OFFER
On October 1, 2001, the Company completed an offer to substantially all
employees, other than employees resident in Canada, holding stock options
having an exercise price of $0.85 or $1.10, that would enable such
holders to cancel their options in return for a promise to grant new
options to purchase an equal number of shares of common stock no sooner
than six months and one day after such cancellation at an exercise price
equal to the fair market value on the date of grant. No options were
granted to the Company's employees within six months prior to the
proposed cancellation. Pursuant to the exchange offer, 61,210,174 options
with an exercise price of $0.85 and 23,199,142 options with an exercise
price of $1.10 were canceled. The Company expects to grant up to
84,073,966 replacement options to employees in the second quarter of
2002, with an exercise price equal to the fair market value of the
Company's common stock on that date. The Company has entered into no
agreements, formal or otherwise, to compensate its employees for
increases in the market price of the Company's common stock during the
period between cancellation and the grant of the replacement awards.
(6) - CREDIT FACILITY
On March 28, 2002, the Company obtained a bank line of credit maturing in
one year. Pursuant to the terms of the line of credit agreement, the
Company may borrow up to $15,000,000 at an interest rate of either LIBOR
plus 30 basis points or the bank's prime rate at the Company's option.
The line of credit is secured by an unconditional and irrevocable
guarantee issued by Koninklijke Philips Electronics N.V ("Philips"). The
Company has agreed to pay Philips $18,750 in connection with such
guarantee and made a counter guarantee in favor of Philips with respect
to any amounts incurred by Philips in connection with the guarantee.
Pursuant to the terms of the line of credit, the Company has agreed to
pay the bank a commitment fee of 13 basis points per annum on the average
daily unused amount during each quarter. As of March 31, 2002, there have
been no borrowings on the bank line of credit.
(7) - LOAN TO PHILIPS
The Company entered into a short-term loan agreement dated as of March
28, 2002, with Philips Electronics North America Corporation, a wholly
owned subsidiary of Philips. Pursuant to the terms of the short-term loan
agreement, the Company loaned $3,000,000 to Philips Electronics North
America Corporation for the purpose of cash management, at an interest
rate of LIBOR minus 1/4%. The short-term loan had a final maturity date
of April 1, 2002, at which time all amounts due and payable were paid in
full.
(8) - ENTERPRISE-WIDE DISCLOSURES
The Company operates in one business segment and therefore does not
report operating loss, identifiable assets and/or other resources related
to business segments. The Company derives its revenues from database
license fees and professional services. Database licensing revenues were
$22,062,000 and $29,995,000 for the quarters ended April 1, 2001 and
March 31, 2002, respectively. Professional services revenues were
$539,000 and $790,000 for the quarters ended April 1, 2001 and March 31,
2002, respectively. Revenues are attributed to North America United
States and Canada) and Europe based on the region where the related
products and services are sold.
7
NAVIGATION TECHNOLOGIES CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following summarizes net revenue on a geographic basis for the quarters
ended April 1, 2001 and March 31, 2002 (in thousands):
QUARTER ENDED
----------------------
APRIL 1, MARCH 31,
2001 2002
--------- --------
Net revenue:
North America $ 7,702 8,840
Europe 14,899 21,945
--------- --------
Total net revenue $ 22,601 30,785
========= ========
The following summarizes long-lived assets on a geographic basis as of
December 31, 2001 and March 31, 2002 (in thousands):
DECEMBER 31, MARCH 31,
2001 2002
------------ ---------
Property and equipment, net:
North America $ 8,450 7,969
Europe 2,702 2,499
--------- --------
Total property and equipment, net $ 11,152 10,468
========= ========
Capitalized software development costs, net:
North America $ 15,629 17,290
Europe -- --
--------- --------
Total capitalized software development costs, net $ 15,629 17,290
========= ========
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
You should read the following discussion and analysis of our financial
condition and results of operations in conjunction with our condensed
consolidated financial statements and the related notes thereto contained
elsewhere in this document. Certain information contained in this discussion and
analysis and presented elsewhere in this document, including information with
respect to our plans and strategy for our business, includes forward-looking
statements that involve risk and uncertainties. In evaluating these statements,
you should specifically consider the various risk factors identified in
Navigation Technologies' Registration Statement on Form 10, as amended, File No.
0-21323, that could cause results to differ materially from those expressed in
such forward-looking statements.
OVERVIEW.
Navigation Technologies Corporation is a leading provider of digital
map information and related software and services used in a wide range of
navigation, mapping and geographic-related applications, including products and
services that provide maps, driving directions, turn-by-turn route guidance,
fleet management and tracking and geographic information systems. These products
and services are provided to end users by our customers on various platforms,
including: self-contained hardware and software systems installed in vehicles;
personal computing devices, such as personal digital assistants and cell phones;
server-based systems, including internet and wireless services; and paper media.
We have been unprofitable since our inception and as of March 31, 2002,
we had an accumulated deficit of approximately $768.3 million. Our operating
expenses have increased as we have made investments related to the development,
improvement and commercialization of our database. We anticipate that operating
expenses will continue to increase as we continue our growth and development
activities, including further development and enhancement of the NAVTECH
database and increasing our sales and marketing efforts. Although our revenues
have grown significantly over the past three years, we may not be able to
sustain these growth rates. While we have been successful in reducing our
operating loss over the past three years, we cannot assure you that we will
achieve profitable operations in the future.
The market for products and services that use the NAVTECH database is
evolving, and we believe that our future success depends upon the development of
markets for a variety of products and services that use our database. Even if
such products and services continue to be developed and marketed by our
customers and gain market acceptance, we may not be able to license the database
at prices that will result in our achieving profitable operations. Moreover, the
market for map information is highly competitive, and competitive pressures in
this area may result in price reductions for our database that could materially
adversely affect our business and prospects.
A material portion of our revenues and expenses have been generated by
our European operations and we expect that our European operations will account
for a material portion of our revenues and expenses in the future. Substantially
all of our international expenses and revenue
9
are denominated in foreign currencies, and fluctuations in the value of
currencies in relation to the United States dollar have caused and will continue
to cause dollar-translated amounts to vary from one period to another.
Historically, we have not engaged in activities to hedge our foreign currency
exposures and have no plans to do so in the foreseeable future. Revenues derived
from our European operations during the first quarters of 2001 and 2002,
accounted for approximately 66% and 71%, respectively, of our total revenue.
CRITICAL ACCOUNTING POLICIES.
Our condensed consolidated financial statements are impacted by the
accounting policies used and the estimates and assumptions made by management
during their preparation. The significant accounting policies that most impact
our condensed consolidated financial statements are those that relate to revenue
recognition and database licensing and production costs.
We derive a substantial majority of our revenue from licensing our
database. We also generate revenue from professional services. Revenue is
recognized net of provision for estimated uncollectible amounts. Database
licensing revenue includes revenue that is associated with nonrefundable minimum
licensing fees, license fees from usage (including license fees in excess of
nonrefundable minimum fees), prepaid licensing fees from our distributors and
customers and direct sales to end users. Nonrefundable minimum licensing fees
are recognized as revenue ratably over the period of the arrangement. License
fees from usage (including license fees in excess of the nonrefundable minimum
fees) are recognized in the period in which the fees are reported by the
customer to us. Prepaid licensing fees are recognized in the period in which the
distributor or customer reports that it has shipped our database to the end
user. Multiple element license fees including upgrade rights are allocated based
on the relative fair values of the elements and recognized when Navigation
Technologies ships elements to the end users. Revenue for direct sales licensing
is recognized when the database is shipped to the end user. Revenue from the
sale of professional services provided on a time and material basis is
recognized as the services are performed.
Since our inception we have invested significant amounts in creating
and updating our database and developing related software applications for
internal use. Database licensing and production costs consist of database
creation and updating, database licensing and distribution, and database-related
software development. Database creation and updating costs are expensed as
incurred. These costs include the direct costs of database creation and
validation, costs to obtain information used to construct the database, and
ongoing costs for updating and enhancing the database content. Database
licensing and distribution costs include the direct costs related to
reproduction of the database for licensing and per-copy sales and shipping and
handling costs. Database-related software development costs consist primarily of
costs for the development of software as follows: (i) applications used
internally to improve the effectiveness of database creation and updating
activities, (ii) enhancements to internal applications that enable our core
database to operate with emerging technologies, and (iii) applications to
facilitate customer use of our database. Costs of internal-use software are
accounted for in accordance with AICPA Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Accordingly, certain application development costs relating to
internal-use software have been capitalized and are being amortized on a
straight-line basis over
10
the estimated useful lives of the assets, generally five years. Research and
development activities are expensed as incurred.
RESULTS OF OPERATIONS.
COMPARISON OF FIRST QUARTER OF 2001 TO FIRST QUARTER OF 2002
Revenues. Our total revenues increased 36.3% from $22.6 million during
the first quarter of 2001 to $30.8 million during the first quarter of 2002. The
increase in total revenues was due to a significant increase in revenues from
database licensing, which resulted primarily from increased sales to existing
customers. Growth was strong in all geographic regions in 2002, as North
American revenues increased 14.3% from $7.7 million during the first quarter of
2001 to $8.8 million during the first quarter of 2002, and European revenues
increased 47.0% from $14.9 million during the first quarter of 2001 to $21.9
million during the first quarter of 2002. Approximately 25% of our revenues
during the first quarter of 2001 came from two customers (accounting for 16% and
9% of total revenues, respectively), while approximately 20% of our revenues
during the first quarter of 2002 came from one customer.
Database Licensing and Production Costs. Database licensing and
production costs increased slightly (1.0%) from $19.7 million during the first
quarter of 2001 to $19.9 million during the first quarter of 2002. This increase
was due primarily to our continued investment in updating and improving the
coverage of our database in both North America and Europe, offset, in part, by
cost control efforts. In addition, we incurred and capitalized $2.3 million and
$2.7 million of development costs for internal-use software during the first
quarters of 2001 and 2002, respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased slightly (approximately 1.0%) from $13.2
million during the first quarter of 2001 to $13.1 million during the first
quarter of 2002. This slight decrease was due primarily to continued cost
control efforts, offset in part, by additional spending on improving our
infrastructure to support future growth.
Other Income and Expense. Interest expense decreased from $17.3 million
during the first quarter of 2001 to $0.3 million during the first quarter of
2002. The decrease was due primarily to the reduction of our indebtedness during
the first quarter of 2001 through the exchange of shares of our Series A and
Series B preferred stock for our outstanding borrowings from Koninklijke Philips
Electronics N.V. ("Philips").
Operating Loss, Net Loss and Net Loss Per Share of Common Stock. Our
operating loss decreased from $10.4 million during the first quarter of 2001 to
$2.2 million during the first quarter of 2002, due primarily to the operating
leverage generated by our revenue growth in 2002. Our net loss decreased from
$97.4 million during the first quarter of 2001 to $2.6 million during the first
quarter of 2002, as a result of the improved operating results, the
non-recurring nature of the $69.6 million extraordinary loss from the early
extinguishment of debt we incurred in the first quarter of 2001 in connection
with the exchange of the shares of our preferred stock for the cancellation of
our outstanding indebtedness to Philips and the corresponding reduction in
11
interest expense caused by the early extinguishment. Basic and diluted net loss
per share of common stock before extraordinary item was $(0.07) per share for
the first quarter of 2001 as compared to $(0.09) per share for the first quarter
of 2002. This change reflects the impact of cumulative preferred stock dividends
of $34.6 million during the first quarter of 2002 on the preferred stock issued
to Philips in exchange for the extinguishment of debt during the first quarter
of 2001. This impact was partially offset by reduced operating loss and reduced
interest expense in 2002. Including the extraordinary loss on the early
extinguishment of debt, basic and diluted net loss per share of common stock
decreased from $(0.24) for the first quarter of 2001 to $(0.09) for the first
quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES.
We historically have financed our operations through private placements
of equity securities, borrowings from Philips and, to a lesser extent, through
cash generated from operating revenue. As of March 31, 2002, cash and cash
equivalents totaled $7.5 million. Historically, we have been substantially
dependent upon Philips for funding. We entered into a stock purchase agreement
with Philips dated as of March 29, 2001, pursuant to which Philips converted an
aggregate of $443.0 million of our indebtedness to Philips into 1,695,968.805
shares of our Series A preferred stock and 42,600,002.533 shares of our Series B
preferred stock. In conjunction with the closing of the stock purchase
agreement, Philips purchased 710,000 additional shares of Series A preferred
stock for $7.1 million. The stock purchase agreement stipulates that Philips
will provide up to $50,000,000 of financing to us in exchange for the issuance
of Series A cumulative convertible stock. As of March 31, 2002, 994,031 shares
of our Series A Preferred Stock remain available, subject to call, for an
aggregate purchase price of $9.9 million.
We entered into a short-term loan agreement dated as of March 28, 2002,
with Philips Electronics North America Corporation, a wholly owned subsidiary of
Philips. Pursuant to the terms of the short-term loan agreement, Philips
Electronics North America Corporation borrowed $3,000,000 from us for the
purpose of cash management, at an interest rate of LIBOR minus 1/4%. The
short-term loan had a final maturity date of April 1, 2002, at which time all
amounts due and payable were paid in full.
We intend to continue to utilize this cash management facility
established through Philips, and entered into an additional short-term loan
agreement dated as of April 25, 2002, with Philips Electronics North America
Corporation. Pursuant to the terms of the short-term loan agreement, Philips
Electronics North America Corporation borrowed $3,000,000 from us, at an
interest rate of LIBOR minus 1/4%. The short-term loan had a final maturity date
of April 29, 2002, at which time all amounts due and payable were paid in full.
CREDIT FACILITY
On March 28, 2002 we obtained a bank line of credit maturing in one
year. Pursuant to the terms of the line of credit, we may borrow up to $15.0
million at an interest rate of either LIBOR plus 30 basis points or prime rate
at our option. The line of credit is secured by an
12
unconditional and irrevocable guarantee issued by Philips. Pursuant to the terms
of the line of credit, the Company has agreed to pay Philips $18,750 in
connection with such guarantee and made a counter guarantee in favor of Philips
with respect to any amounts incurred by Philips in connection with the Philips
guarantee. The Company is also required to pay to the bank a commitment fee of
13 basis points per annum on the average daily unused amount during each
quarter. As of March 31, 2002, there have been no borrowings on the line of
credit.
As of March 31, 2002, we believe that our current cash resources on
hand, operating revenues and available sources of financing (including amounts
that we may raise by issuing additional shares of Series A preferred stock to
Philips or by borrowing on our line of credit) will satisfy our anticipated
working capital needs and capital expenditure requirements at our current level
of operations for at least 12 months. After that, we expect that we will require
additional funds to support our working capital and other requirements at our
current level of operations and may seek to raise additional funds from public
or private equity issuances, debt financings or other sources. We cannot assure
you that additional financing will be available on a timely basis, on terms
acceptable or favorable to us, or at all. If such financing is not available, we
may be required to delay implementation of our current business plan or modify
our business plan to curtail operations.
COMPARISON OF FIRST QUARTER OF 2001 TO FIRST QUARTER OF 2002
For the first quarter of 2001, net cash used in operating activities
was $8.3 million. For the first quarter of 2002, net cash provided by operating
activities was $1.4 million. The decrease in cash used in operating activities
reflects primarily the effect of the reduced operating loss and reduced interest
expense on our outstanding borrowings from Philips, which were exchanged for
shares of our Series A and Series B preferred stock during the first quarter of
2001.
Net cash used in investing activities for the first quarter of 2001 was
$3.3 million compared with $1.4 million during the first quarter in 2002.
Increased investments in software developed for internal use were offset by
reduced investments in property and equipment and net repayment received on cash
management loans made to Philips.
For the first quarter of 2001, cash provided by financing activities
was $16.5 million while minimal cash was provided by financing activities during
the first quarter of 2002. Loans from Philips, provided $16.6 million and sales
of our Series A preferred stock to Philips accounted for $7.1 million of cash
from financing activities during the first quarter of 2001, partially offset by
financing costs. The repayment of a $6.8 million refundable licensing advance
reduced the net cash provided by financing activities during the first quarter
of 2001.
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NEW ACCOUNTING PRONOUNCEMENTS.
On April 30, 2002, the FASB issued SFAS No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 rescinds SFAS No. 4, which required all gains and
losses from the extinguishment of debt to be aggregated and, if material,
classified as an extraordinary item, net of the related income tax effect. SFAS
No. 145 will be effective for fiscal years beginning after May 15, 2002. The
Company will adopt SFAS No. 145 on January 1, 2003, at which time the
extraordinary loss on early extinguishment of debt that was incurred during 2001
will be reclassified as a component of other income (expense) in the Company's
statement of operations presented for that period.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We invest our cash in highly-liquid cash equivalents and do not
currently have investments in derivative financial instruments. We do not
believe that our exposure to interest rate risk is material to our results of
operations.
A material portion of our revenues and expenses have been generated by
our European operations and we expect that our European operations will account
for a material portion of our revenues and expenses in the future. In addition,
substantially all of our expenses and revenues related to our international
operations are denominated in foreign currencies, principally the euro.
Historically, we have not engaged in activities to hedge our foreign currency
exposure and we currently have no plans to do so in the foreseeable future. As a
result, we are and will continue to be, subject to risks related to foreign
currency fluctuations, which may have a negative effect on our earnings. Based
on our first quarter of 2002 net loss, a $0.10 change in the average U.S.
dollar/euro currency exchange rate (actual first quarter of 2002 average rate of
0.88 euro/U.S. dollar), would have increased or decreased the Company's net loss
by $0.5 million.
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PART II
OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
(b)
As of May 13, 2002 accumulated preferred stock dividends on Navigation
Technologies' Series A Preferred Stock were $12,650,775.51 and on Navigation
Technologies' Series B Preferred Stock were $130,715,720.99, each of which are
payable in additional shares of preferred stock, respectively. In accordance
with the Stock Purchase Agreement dated March 29, 2001 with respect to our
preferred stock, these dividends have not been declared by our Board of
Directors and therefore, are not due and payable at this time.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of the stockholders of Navigation Technologies was
held on March 25, 2002. Judson C. Green, Richard J.A. de Lange, T. Russell
Shields, William E. Curran, James P. Nolan and Dirk-Jan van Ommeren were elected
as directors of Navigation Technologies. The following is a tabulation of the
votes cast for, or withheld, with respect to each nominee:
For Withheld
--- --------
Judson C. Green 922,830,319 0
Richard J.A. de Lange 922,830,319 0
T. Russell Shields 922,830,319 0
William E. Curran 922,830,319 0
James P. Nolan 922,830,319 0
Dirk-Jan van Ommeren 922,830,319 0
There were no votes cast against, nor were there any abstentions or
broker non-votes with respect to any nominee.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit Number Description
3.1 Restated Bylaws, as amended as of March 26, 2002.
10.1 Promissory Note dated March 28, 2002, by Navigation Technologies
Corporation in favor of ABN AMRO Bank N.V.
10.2 Guarantee Letter Agreement dated March 28, 2002, by Navigation
Technologies Corporation in favor of Koninklijke Philips Electronics
N.V.
(b) Reports on Form 8-K
None.
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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.
Dated: May 13, 2002
NAVIGATION TECHNOLOGIES CORPORATION
By: /s/ Judson C. Green
------------------------
Judson C. Green
President, Chief Executive Officer
and Principal Financial Officer
By: /s/ Neil Smith
------------------------
Neil Smith
Vice President, Corporate Controller
and Principal Accounting Officer
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