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TRIMBLE NAVIGATION LTD /CA/ - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Edgar Glimpses Via Acquire Media NewsEdge)
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 U.
S. The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, revenue
and expense, 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,
stock-based compensation, income taxes, warranty obligations, restructuring
costs, 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 expense 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to the Company's significant accounting
polices during the first quarter of fiscal 2012 from those disclosed in the
Company's 2011 Form 10-K.
Recent Accounting Pronouncements
There are no updates to recent accounting standards as disclosed in our Annual
Report on Form 10-K for the fiscal year end 2011.
EXECUTIVE LEVEL OVERVIEW
Trimble's focus is on combining positioning technology with wireless
communication and application capabilities to create system-level solutions that
enhance productivity and accuracy for our customers. The majority of our markets
are end-user markets, including engineering and construction firms, governmental
organizations, public safety workers, farmers, and companies who must manage
fleets of mobile workers and assets. In our Advanced Devices segment, we also
provide components to original equipment manufacturers to incorporate into their
products. In the end-user markets, we provide a system that includes a hardware
platform that may contain software and customer support. Some examples of our
solutions include products that automate and simplify the process of surveying
land, products that automate the utilization of equipment such as tractors and
bulldozers, products that enable a company to manage its mobile workforce and
assets, and products that allow municipalities to manage their fixed assets. In
addition, we also provide software applications on a stand-alone basis. For
example, we provide software for project management on construction sites.
Solutions targeted at the end-user make up a significant majority of our
revenue. To create compelling products, we must attain an understanding of the
end-users' needs and work flow, and how location-based technology can enable
that end-user to work faster, more efficiently, and more accurately. We use this
knowledge to create highly innovative products that change the way work is done
by the end-user. With the exception of our Mobile Solutions and Advanced Devices
segments, our products are generally sold through a dealer channel, and it is
crucial that we maintain a proficient, global, third-party distribution channel.
We continued to execute our strategy with a series of actions that can be
summarized in three categories.
Reinforcing our position in existing markets
* We believe these markets provide us with additional, substantial potential for
substituting our technology for traditional methods. We are continuing to
develop new products and to strengthen our distribution channels in order to
expand our market.
In our Engineering and Construction segment, we introduced a new version of
Trimble AllTrak Tool and Asset Management System that provided Radio Frequency
Identification, or RFID, capabilities for the Trimble Nomad outdoor rugged
handheld computer. Our Spectra Precision group also introduced the new ProFlex
800 which was a powerful Global Navigation Satellite Systems, or GNSS, solution
with revolutionary Z-Blade GNSS centric technology, which delivers fast and
reliable Real Time Kinematic, or RTK, positioning, even in environments where
GNSS signals may be difficult to acquire. Trimble also released new mobile
solutions for the Prolog construction project management software, which provide
support for Apple iPad and Microsoft Windows mobile platforms.
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In our Field solutions segment, we introduced a new generation of GNSS devices
for GIS field applications, the Trimble Juno 3B and 3D handhelds, which allow
mobile workforces ranging from public utilities to municipalities to be
empowered with integrated GNSS handhelds that are optimized for everyday field
work, such as asset management, data collection and inspections. We also
announced the worldwide availability of high-accuracy CenterPoint RTX correction
service for agriculture customers. The GPS and GLONASS-enabled correction
service is delivered via cellular communications using the Trimble DCM-300
modem, which is currently certified for use in 38 countries on 5 continents. We
also released four new innovations designed to assist growers with planting and
spreading operations-Vehicle Sync, seed monitoring capability, application
management of up to two variable rate products and spinner speed control. These
innovations enable enhanced grower efficiency by increasing the quality of seed
placement and providing real-time wireless communication between vehicles in the
field. Furthermore, we also introduced the My Connected Farm portal, which is a
new Web-based solution for growers and agribusinesses to access and manage
mapping applications, precision farming data and vehicle performance and
movement.
In our Mobile Solutions segment, we announced that Multiband, one of the
nation's leading home service satellite TV providers, will be implementing
Trimble GeoManager Fleet Management across its fleet of vehicles. GeoManager
Fleet Management will enable Multiband to realize the benefits of integrated
vehicle tracking and automated scheduling to improve efficiency, productivity
and customer service. During the quarter, we also introduced the Connected
Community - Environmental which provides cloud-based real-time management and
deployment of SiteFID landfill gas surface monitoring data. It allows field
monitoring data to be uploaded to the cloud and stored in a secure and
replicated infrastructure designed specifically for positioning data.
In our Advanced Devices segment, we announced that Applanix's position &
orientation systems for marine vessels, or POS MV, system is now capable of
receiving Fugro's Marinestar positioning service. By integrating Marinestar
capability, the POS MV can operate off shore and without reference stations,
significantly expanding its operating environment.
All of these products and initiatives strengthened our competitive position and
created new value for our customers.
Extending our position in new and existing markets through new product
categories
* We are utilizing the strength of the Trimble brand in our markets to expand
our revenue by bringing new products to new and existing users. In our Mobile
Solutions segment, cooperation with SmartBin Corporation enabled us to
collaborate on the development of solutions that can leverage positioning
technology, wireless communications, asset monitoring and fleet management
capabilities to enhance productivity for professionals operating in the
environmental services and recycling markets. Under the agreement, Trimble will
have worldwide rights to use SmartBin's wireless monitoring and Web access
technologies to integrate and manufacture products for the industry.
Bringing existing technology to new markets
* We continue to reinforce our position in existing markets and position
ourselves in newer markets that will serve as important sources of future
growth. New initiatives are focused in emerging markets in Africa, China, India,
the Middle-East and Russia. We continue to expand our network of SITECH
Technology Dealers during the quarter by adding new dealerships to serve
geographic markets such as Laos, Cambodia, Thailand, South Korea and The
Netherlands. These dealers represent the Trimble and Caterpillar machine control
systems for the contractor's entire fleet of heavy equipment regardless of
machine brand.
In addition, our acquisition of Plancal Corporation (headquartered in Horgen,
Switzerland), a leading 3D CAD/CAE and ERP software provider for the mechanical,
electrical, and plumbing (MEP) and HVAC industries in Western Europe helps to
broaden our industry-leading BIM to Field solutions for MEP and HVAC contractors
in order to automate project estimating and management, modeling, detailing,
layout and construction.
In our Mobile Solutions segment, we introduced a new cloud-based solution that
provides on-road supply chain visibility to enhance efficiency for the transport
and logistics industry in India-Trimble trako Visual Cargo. The seamless
integration of Visual Cargo with the customers' ERP/TMS system and vehicle
location data from the Trimble trako Fleet Management solution will help
facilitate trip-based tracking of goods, transit schedule, route and safety
compliance.
RECENT BUSINESS DEVELOPMENTS
The following companies were acquired during twelve months ended March 30, 2012
and are combined in our results of operations since the date of acquisition:
Plancal
On January 12, 2012, we acquired privately-held Plancal of Horgen, Switzerland,
a leading 3D CAD/CAE and ERP software provider for the mechanical, electrical,
and plumbing (MEP) and heating, ventilation and air conditioning (HVAC)
industries in western Europe. Plancal's performance is reported under our
Engineering and Construction business segment.
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StruCad
On January 11, 2012, we acquired the StruCad and StruEngineer business from
AceCad Software based in Derby, UK to expand our construction solutions. The
addition of the software products is expected to extend Tekla's industry leading
Building Information Modeling (BIM) solutions for structural steel contractors
to automate project estimating and management, modeling and detailing. StruCad's
performance is reported under our Engineering and Construction business segment.
PeopleNet
On August 5, 2011, we acquired privately-held PeopleNet, headquartered in
Minnetonka, Minnesota, and its affiliates. PeopleNet is a leading provider of
integrated onboard computing and mobile communications systems for effective
fleet management. PeopleNet provides fleets with software and hardware solutions
that help manage regulatory compliance, fuel costs, driver safety and customer
visibility. PeopleNet's performance is reported under our Mobile Solutions
business segment.
Tekla Corporation
On July 8, 2011, we acquired Tekla Corporation, headquartered in Espoo, Finland,
and its subsidiaries. Tekla is a leading provider of BIM software and offers
model driven solutions for customers in the infrastructure and energy industries
(in particular energy distribution, public administration and civil engineering
and utilities). Tekla's building and construction performance is reported under
our Engineering and Construction business segment and Tekla's infrastructure and
energy performance is reported under our Field Solutions business segment.
Yamei
On June 7, 2011, we acquired Yamei Electronics Technology, Co. Ltd, a Chinese
wholly-owned foreign entity (WOFE) of Digisec Group which is incorporated in the
Cayman Islands. Yamei manufactures automotive electronics products used for
anti-theft GPS monitoring and tracking, RFID-based smart key and start and
on-board diagnostics systems. Yamei's performance is reported under our Mobile
Solutions business segment.
Dynamic Survey Solutions
On May 10, 2011, we acquired seismic survey software provider Dynamic Survey
Solutions, Inc. of Essex, Vermont. Dynamic Survey Solutions, Inc. is a leader in
seismic survey software. Dynamic Survey Solutions' performance is reported under
our Engineering and Construction business segment.
Ashtech
On May 3, 2011, we acquired privately-held Ashtech S.A.S., headquartered in
Carquefou, France, and its affiliates. Ashtech is a leading provider of
precision GNSS products for positioning, guidance, navigation and timing, with a
wide range of solutions for diverse applications in science, education,
government, industry and commerce. Ashtech's performance is reported under our
Engineering and Construction business segment.
Beartooth Mapping
On April 19, 2011, we acquired privately-held Beartooth Mapping, Inc. based in
Billings, Montana. Beartooth is a leading provider of print and digital maps for
outdoor enthusiasts using MyTopo software and web services. Beartooth's
performance is reported under our Advanced Devices business segment.
Seasonality of Business
* Our individual segment revenue may be affected by seasonal buying patterns.
Historically, the second fiscal quarter has been the strongest quarter for the
Company driven by the construction buying season. However, as a result of recent
acquisitions, we may experience less seasonality in the future.
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RESULTS OF OPERATIONS
Overview
The following table is a summary of revenue, gross margin, and operating income
for the periods indicated and should be read in conjunction with the narrative
descriptions below.
First Quarter of
2012 2011
(Dollars in thousands)
Revenues:
Product $ 398,538 $ 326,932
Service 57,430 33,519
Subscription 46,299 23,842
Total revenues 502,267 384,293
Gross margin $ 259,150 $ 191,530
Gross margin % 51.6 % 49.8 %
Total consolidated operating income $ 59,848 $ 43,675
Operating income % 11.9 % 11.4 %
Revenue
Beginning in the first quarter of fiscal 2012, we have presented revenues
separately for products, service, and subscriptions. Prior year amounts have
been reclassified to conform to the current year presentation. In the first
quarter of fiscal 2012, total revenue increased by $118.0 million or 31%, as
compared to the first quarter of fiscal 2011. Of this increase, product revenue
increased $71.6 million, or 22%, service revenue increased $23.9 million, or
71%, and subscription revenue increased $22.5 million, or 94%. The product
revenue increase was driven by organic growth and the Tekla and PeopleNet
acquisitions. The increase in service revenue was primarily due to organic
growth and the Tekla acquisition. Subscription revenue increased primarily due
to the PeopleNet acquisition.
On a segment basis, Engineering and Construction revenue increased $58.9
million, or 31%, Field Solutions increased $24.4 million, or 20%, Mobile
Solutions increased $34.0 million or 76%, and Advanced Devices increased $0.7
million or 3%. Revenue growth within Engineering and Construction was driven by
strong organic growth due to expanded distribution and improved end user markets
and acquisitions, including Tekla. Sales were strong for heavy and highway and
survey products. Field Solutions revenue increased primarily due to continued
strength in most products and markets. Mobile Solutions revenue increased
primarily due to the PeopleNet acquisition and to a lesser extent, growth within
the existing business.
Gross Margin
Gross margin varies due to a number of factors including product mix, pricing,
distribution channel, production volumes, and foreign currency translations.
Gross margin increased by $67.6 million for the first quarter of fiscal 2012, as
compared to the first quarter of fiscal 2011, primarily due to increased sales
in Engineering and Construction and Field Solutions. Gross margin as a
percentage of total revenue for the first quarter of fiscal 2012 was 51.6%, as
compared to 49.8% for the first quarter of fiscal 2011, primarily due to an
increase in sales of higher margin products, primarily software and service
revenue, which were partially offset by higher amortization of purchased
intangible assets.
Operating Income
Operating income increased by $16.2 million for the first quarter of fiscal
2012, as compared to the first quarter of fiscal 2011. Operating income as a
percentage of total revenue was 11.9% for the first quarter of fiscal 2012, as
compared to 11.4% for the first quarter of fiscal 2011. The increase in
operating income and operating income percentage was primarily driven by higher
revenue and gross margin expansion, partially offset by high amortization of
purchased intangible assets due to acquisitions.
Results by Segment
To achieve distribution, marketing, production, and technology advantages in our
targeted markets, we manage our operations in the following four segments:
Engineering and Construction, Field Solutions, Mobile Solutions, and Advanced
Devices. Operating income equals net revenue less cost of sales and operating
expense, excluding general corporate expense, amortization of purchased
intangible assets, amortization of inventory step-up charges, acquisition costs,
and restructuring costs.
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The following table is a summary of revenue and operating income by segment:
First Quarter of
2012 2011
(Dollars in thousands) Engineering and Construction
Revenue $ 248,885 $ 190,034
Segment revenue as a percent of total revenue 50 % 49 %
Operating income $ 40,077 $ 22,779
Operating income as a percent of segment revenue 16 % 12 %
Field Solutions
Revenue $ 147,499 $ 123,053
Segment revenue as a percent of total revenue 29 % 32 %
Operating income $ 62,361 $ 52,505
Operating income as a percent of segment revenue 42 % 43 %
Mobile Solutions
Revenue $ 78,383 $ 44,421
Segment revenue as a percent of total revenue 16 % 12 %
Operating income (loss) $ 7,358 $ (1,334 )
Operating income (loss) as a percent of segment revenue 9 % (3 %)
Advanced Devices
Revenue $ 27,500 $ 26,785
Segment revenue as a percent of total revenue 5 % 7 %
Operating income $ 3,339 $ 3,863
Operating income as a percent of segment revenue 12 % 14 %
A reconciliation of our consolidated segment operating income to consolidated
income before income taxes follows:
First Quarter of
2012 2011
(Dollars in thousands) Consolidated segment operating income $ 113,135 $ 77,813
Unallocated corporate expense (19,280 ) (15,118 )
Amortization of purchased intangible assets (28,797 ) (16,065 )
Acquisition costs (5,210 ) (2,955 )
Consolidated operating income 59,848 43,675
Non-operating income, net 479 2,606
Consolidated income before taxes $ 60,327 $ 46,281
Unallocated corporate expense includes general corporate expense, amortization
of inventory step-up charges, and restructuring costs.
Engineering and Construction
Engineering and Construction revenue increased by $58.9 million or 31% for the
first quarter of fiscal 2012, as compared to the first quarter of fiscal 2011.
Segment operating income increased $17.9 million or 79% for the first quarter of
fiscal 2012, as compared to the first quarter of fiscal 2011.
The revenue increase for the first quarter of fiscal 2012 was primarily driven
by strong organic growth due to expanded distribution and improved end user
markets and acquisitions, including Tekla. These improvements were delivered in
spite of relatively weak commercial and residential construction markets, lower
sales in China due to recent problems specific to railway construction, and
cautious decision making by users in Europe. Sales were particularly strong for
heavy and highway and survey products. Segment operating income increased
primarily due to higher revenue, improved gross margin and increased operating
leverage.
Field Solutions
Field Solutions revenue increased by $24.4 million or 20% for the first quarter
of fiscal 2012, as compared to the first quarter of fiscal 2011. Segment
operating income increased by $9.9 million or 19% for the first quarter of
fiscal 2012, as compared to the first quarter of fiscal 2011.
The revenue increase for the first quarter of fiscal 2012 was primarily due to
continued strength in most products and markets, with contributions from
Agriculture, GIS and acquisitions. The strength of our Agriculture product
portfolio and relatively strong agriculture economy around the world continued
to drive demand. Segment operating income increased primarily due to higher
revenue and associated higher gross margin.
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Mobile Solutions
Mobile Solutions revenue increased by $34.0 million or 76% for the first quarter
of fiscal 2012, as compared to the first quarter of fiscal 2011. Segment
operating income increased by $8.7 million or 652% for the first quarter of
fiscal 2012, as compared to the first quarter of fiscal 2011.
Mobile Solutions revenue and operating income increased primarily due to the
PeopleNet acquisition not applicable in the first quarter of 2011 and to a
lesser extent, growth within the existing business.
Advanced Devices
Advanced Devices revenue increased by $0.7 million or 3% for the first quarter
of fiscal 2012, as compared to the first quarter of fiscal 2011. Segment
operating income decreased by $0.5 million or 14% for the first quarter of
fiscal 2012, as compared to the first quarter of fiscal 2011.
The slight increase in revenue was primarily due to an increase in Military
Advanced Systems, partially offset by a decrease in ThingMagic. The decrease in
operating income was primarily due to increased operating expenses in Military
Advanced Systems.
Research and Development, Sales and Marketing, and General and Administrative
Expense
Research and development (R&D), sales and marketing (S&M), and general and
administrative (G&A) expense are summarized in the following table:
First Quarter of
2012 2011
(Dollars in thousands)
Research and development 60,235 43,232
Percentage of revenue 12 % 11 %
Sales and marketing 76,024 61,207
Percentage of revenue 15 % 16 %
General and administrative 46,886 33,472
Percentage of revenue 9 % 9 %
Total 183,145 137,911
Percentage of revenue 36 % 36 %
Overall, R&D, S&M, and G&A expense increased by approximately $45.2 million for
the first quarter of fiscal 2012, as compared to the first quarter of fiscal
2011.
Research and development expense increased by $17.0 million in the first quarter
of fiscal 2012, as compared to the first quarter of fiscal 2011, was primarily
due to the inclusion of expense of $13.0 million from acquisitions not
applicable in the first quarter of fiscal 2011, a $2.1 million increase in
compensation related expense due to headcount increases and higher bonus costs,
and a $1.9 million increase in other expense. The cost of software developed for
external sale subsequent to reaching technical feasibility were not considered
material and were expensed as incurred. Research and development spending
overall was at approximately 12% of revenue in the first quarter of fiscal 2012
and 11% in the first quarter of fiscal 2011.
* 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.
Sales and marketing expense increased by $14.8 million in the first quarter of
fiscal 2012, as compared to the first quarter of fiscal 2011. The increase was
primarily due to the inclusion of expense of $12.6 million from acquisitions not
applicable in the first quarter of fiscal 2011, a $3.8 million increase in
compensation related expense due to headcount increases and higher commission
costs, partially offset by a $1.6 million decrease in other expense. Sales and
marketing spending overall was at approximately 15% of revenue in the first
quarter of fiscal 2012 and 16% in the first quarter of fiscal 2011.
* 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.
General and administrative expense increased by $13.4 million in the first
quarter of fiscal 2012, as compared to the first quarter of fiscal 2011,
primarily due to the inclusion of expense of $8.6 million from acquisitions not
applicable in the first quarter of fiscal 2011, a $3.4 million increase in
compensation related expense due to headcount increases and higher bonus costs,
a $1.6 million increase in tax, legal and consulting expense, partially offset
by a $0.2 million decrease in other expense. General and administrative spending
overall was at approximately 9% of revenue in both the first quarter of fiscal
2012 and 2011.
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Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets was $28.8 million in the first
quarter of fiscal 2012, as compared to $16.1 million in the first quarter of
fiscal 2011. Of the total $28.8 million in the first quarter of fiscal 2012,
$15.7 million is presented as a separate line within Operating expense and $13.1
million is presented as a separate line within Cost of sales on our Condensed
Consolidated Statements of Income. The increase was due primarily to
acquisitions not included in the first quarter of fiscal 2011. As of the first
quarter of fiscal 2012, future amortization of intangible assets is expected to
be $86.9 million during the remaining three quarters of fiscal 2012, $109.2
million during 2013, $86.8 million during 2014, $75.0 million during 2015, $60.2
million during 2016, and $83.9 million thereafter.
Non-operating Income, Net
The components of non-operating income, net, were as follows:
First Quarter of
2012 2011
(Dollars in thousands)
Interest income $ 372 $ 285
Interest expense (4,235 ) (496 )
Foreign currency transaction gain (loss) (2,213 ) 306
Income from equity method investments, net 6,192 2,763
Other income (expense), net 363 (252 )
Total non-operating income, net $ 479 $ 2,606
Non-operating income, net decreased $2.1 million for the first quarter of fiscal
2012, as compared to the first quarter of fiscal 2011. The decrease was
primarily due to the impact of foreign currency transaction gain (loss) which
primarily was due to a loss on a hedge associated with the purchase of Plancal,
an increase in interest expense due to an increase in debt associated with
acquisitions, partially offset by higher profitability from joint ventures.
Income Tax Provision
Our effective income tax rate for first quarter of fiscal 2012 was 17.0%, as
compared to 16.0% for the first quarter of fiscal 2011 primarily due to the
expiration of federal R&D credit for 2012. The 2012 and 2011 first quarter
effective income tax rates were lower than the statutory federal income tax rate
of 35% primarily due to geographical mix of the Company's pre-tax income.
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.
In the normal course of business to facilitate sales of its products, we
indemnify other parties, including customers, lessors, and parties to other
transactions with us, with respect to certain matters. We have agreed to hold
the other party harmless against losses arising from a breach of representations
or covenants, or out of intellectual property infringement or other claims made
against certain parties. These agreements may limit the time within which an
indemnification claim can be made and the amount of the claim. In addition, we
have entered into indemnification agreements with our officers and directors,
and our bylaws contain similar indemnification obligations to our agents.
It is not possible to determine the maximum potential amount under these
indemnification agreements due to the limited history of prior indemnification
claims and the unique facts and circumstances involved in each particular
agreement. Historically, payments made by us under these agreements were not
material and no liabilities have been recorded for these obligations on the
Condensed Consolidated Balance Sheets as of the first quarter of fiscal 2012 and
fiscal year end 2011.
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LIQUIDITY AND CAPITAL RESOURCES
First Fiscal Year
Quarter End
As of 2012 2011
(Dollars in thousands)
Cash and cash equivalents $ 209,146 $ 154,621
Total debt 623,133 564,436
First Quarter of
2012 2011
(Dollars in thousands)
Cash provided by operating activities $ 67,658 $ 27,927
Cash used in investing activities (109,540 ) (43,221 )
Cash provided by financing activities 92,912 35,470
Effect of exchange rate changes on cash and cash
equivalents 3,495 3,378
Net increase in cash and cash equivalents $ 54,525 $ 23,554
Cash and Cash Equivalents
As of the first quarter of fiscal 2012, cash and cash equivalents totaled $209.1
million as compared to $154.6 million as of fiscal year end 2011. Debt was
$623.1 million as of the first quarter of fiscal 2012, as compared to $564.4
million as of fiscal year end 2011.
* Our ability to continue to generate cash from operations will depend in large
part on profitability, the rate of collections of accounts receivable, our
inventory turns, and our ability to manage other areas of working capital.
*We believe that our cash and cash equivalents, together with borrowings
under our 2011 Credit Facility as described below under the heading "Debt", will
be sufficient to meet our anticipated operating cash needs, debt service,
planned capital expenditures, and stock purchases under the stock repurchase
program for at least the next twelve months. We expect that we will have net
borrowings of an additional $100 million to $150 million under our 2011 Credit
Facility to fund acquisitions expected to close in the second quarter of 2012.
* We anticipate that planned capital expenditures primarily for the building of
a facility in Westminster, Colorado which began in 2012, as well as computer
equipment, software, manufacturing tools and test equipment, and leasehold
improvements associated with business expansion, will constitute a partial use
of our cash resources. Decisions related to how much cash is used for investing
are influenced by the expected amount of cash to be provided by operations.
Operating Activities
Cash provided by operating activities was $67.7 million for the first quarter of
fiscal 2012, as compared to $27.9 million for the first quarter of fiscal 2011.
This increase of $39.8 million was primarily driven by an increase in net income
before non-cash depreciation and amortization primarily attributable to
Engineering and Construction and Field Solutions segments' increased revenue,
offset by an increase in accounts receivable due to higher revenue from
Engineering and Construction and Field Solutions segments.
Investing Activities
Cash used in investing activities was $109.5 million for the first quarter of
fiscal 2012, as compared to $43.2 million for the first quarter of fiscal 2011.
The increase of $66.3 million was due to higher cash requirements for business
and intangible asset acquisitions.
Financing Activities
Cash provided by financing activities was $92.9 million for the first quarter of
fiscal 2012, as compared to cash used of $35.5 million for the first quarter of
fiscal 2011. The increase of $57.4 million was primarily due to an increase in
proceeds from revolving credit lines for business acquisitions and proceeds
received from issuance of common stock related to stock option exercises in the
first quarter of fiscal 2012.
Accounts Receivable and Inventory Metrics
First Quarter Fiscal Year End
As of 2012 2011 Accounts receivable days sales outstanding 59 58
Inventory turns per year 3.8 3.8
Accounts receivable days sales outstanding were 59 days as of the end of the
first quarter of fiscal 2012, as compared to 58 days as of the end of fiscal
year 2011. Our accounts receivable days sales outstanding are calculated based
on ending accounts receivable, net, divided by revenue
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for the corresponding fiscal quarter, times a quarterly average of 91 days. Our
inventory turns were both 3.8 as of the end of the first quarter of fiscal 2012
and end of fiscal year 2011. Our inventory turnover is calculated based on total
cost of sales for the most recent twelve months divided by average ending
inventory, net, for this same twelve month period.
Repatriation of Foreign Earnings and Income Taxes
* A significant portion of our foreign earnings continue to be permanently
reinvested in our foreign subsidiaries, and it is anticipated this reinvestment
will not impede cash needs at the parent company level. In our determination of
which foreign earnings are permanently reinvested, we consider numerous factors,
including the financial requirements of the U.S. parent company, the financial
requirements of the foreign subsidiaries, and the tax consequences of remitting
the foreign earnings back to the U.S. There are no other material impediments to
our ability to access sources of liquidity and our resulting ability to meet
short and long-term liquidity needs, other than in the event we are not in
compliance with the covenants under our 2011 Credit Facility or the tax costs of
remitting foreign earnings back to the U.S.
Debt
On May 6, 2011, we entered into our 2011 Credit Facility, with a group of
lenders. This credit facility provides for unsecured credit facilities in the
aggregate principal amount of $1.1 billion, comprised of a five-year revolving
loan facility of $700.0 million and a five-year $400.0 million term loan
facility. Subject to the terms of the 2011 Credit Facility, the revolving loan
facility may be increased by up to $300.0 million in the aggregate, and the term
loan facility may no longer be increased. Additionally, on July 14, 2011, we
entered into a $50 million uncommitted revolving loan facility (the "2011
Uncommitted Facility"), which is callable by the bank at any time and has no
covenants. On January 27, 2012, the facility was increased to $75 million. The
interest rate on the 2011 Uncommitted Facility is 1.00% plus either LIBOR, or
the bank's cost of funds or as otherwise agreed upon by the bank and us.
As of the first quarter of 2012, our total debt was comprised primarily of a
term loan of $380.0 million and a revolving credit line of $175.0 million under
the 2011 Credit Facility and a revolving credit line of $66.0 million under the
2011 Uncommitted Facility. Of the total outstanding balance, $360.0 million of
the term loan and $175.0 million of the revolving credit line are classified as
long-term in the Condensed Consolidated Balance Sheet. As of the first quarter
of 2012 and fiscal year end 2011, we had promissory notes and other debt
totaling approximately $2.1 million, of which $0.2 million was classified as
long-term in the Condensed Consolidated Balance Sheet. Outstanding notes payable
of $1.7 million represented most of this balance and consisted primarily of
notes payable to noncontrolling interest holders. The notes bear interest at 6%
and have undefined payment terms, but are callable with a six month
notification.
The funds available under the 2011 Credit Facility may be used for general
corporate purposes, the financing of certain acquisitions and the payment of
transaction fees and expenses related to such acquisitions. Under the 2011
Credit Facility, we may borrow, repay and reborrow funds under the revolving
loan facility until its maturity on May 6, 2016, at which time the revolving
facility will terminate, and all outstanding loans, together with all accrued
and unpaid interest, must be repaid. Amounts not borrowed under the revolving
facility will be subject to a commitment fee, to be paid in arrears on the last
day of each fiscal quarter, ranging from 0.20% to 0.40% per annum depending on
our leverage ratio as of the most recently ended fiscal quarter. The term loan
will be repaid in quarterly installments, with the last quarterly payment to be
made at April 1, 2016. On an annualized basis, the amortization of the term loan
is as follows: 5%, 5%, 10%, 10%, and 70% for years one through five
respectively. The term loan may be prepaid in whole or in part, subject to
certain minimum thresholds, without penalty or premium. Amounts repaid or
prepaid with respect to the term loan facility may not be reborrowed.
We may borrow funds under the 2011 Credit Facility in U.S. Dollars, Euros or in
certain other agreed currencies, and borrowings will bear interest, at our
option, at either: (i) a floating per annum base rate based on the
administrative agent's prime rate or other agreed-upon rate, depending on the
currency borrowed, plus a margin of between 0.25% and 1.25%, depending on our
leverage ratio as of the most recently ended fiscal quarter, or (ii) a
reserve-adjusted fixed per annum rate based on LIBOR, EURIBOR, STIBOR or other
agreed-upon rate, depending on the currency borrowed, plus a margin of between
1.25% and 2.25%, depending on our leverage ratio as of the most recently ended
fiscal quarter. Interest will be paid on the last day of each fiscal quarter
with respect to borrowings bearing interest based on a floating rate, or on the
last day of an interest period, but at least every three months, with respect to
borrowings bearing interest at a fixed rate. Our obligations under the 2011
Credit Facility are guaranteed by several of our domestic subsidiaries.
The 2011 Credit Facility contains various customary representations and
warranties by us, which include customary use of materiality, material adverse
effect and knowledge qualifiers. The 2011 Credit Facility also contains
customary affirmative and negative covenants including, among other
requirements, negative covenants that restrict our ability to dispose of assets,
create liens, incur indebtedness, repurchase stock, pay dividends, make
acquisitions and make investments. Further, the 2011 Credit Facility contains
financial covenants that require the maintenance of minimum interest coverage
and maximum leverage ratios. Specifically, we must maintain as of the end of
each fiscal quarter a ratio of (a) EBITDA (as defined in the 2011 Credit
Facility) to (b) interest expenses for the most recently ended period of four
fiscal quarters of not less than 3.5 to 1. We must also maintain, at the end of
each fiscal quarter, a ratio of (x) total indebtedness to (y) EBITDA (as defined
in the 2011 Credit Facility) for the most recently ended period of four fiscal
quarters of not greater than the applicable ratio set forth in the table below;
provided, that on the completion of a material acquisition, we may increase the
applicable ratio in the table below by 0.25 for the fiscal quarter during which
such acquisition occurred and each of the three subsequent fiscal quarters.
Fiscal Quarter Ending Maximum Leverage Ratio
Prior to March 30, 2012 3.50 to 1 On and after March 30, 2012 and prior to June 29, 2012 3.25 to 1
On and after June 29, 2012 3 to 1
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We were in compliance with these restrictive covenants as of the first quarter
of 2012.
The 2011 Credit Facility contains events of default that include, among others,
non-payment of principal, interest or fees, breach of covenants, inaccuracy of
representations and warranties, cross defaults to certain other indebtedness,
bankruptcy and insolvency events, material judgments, and events constituting a
change of control. Upon the occurrence and during the continuance of an event of
default, interest on the obligations will accrue at an increased rate and the
lenders may accelerate our obligations under the 2011 Credit Facility, however
that acceleration will be automatic in the case of bankruptcy and insolvency
events of default.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
Our non-GAAP measures are not meant to be considered in isolation or as a
substitute for comparable GAAP measures. The non-GAAP financial measures
included in the previous table as well as detailed explanations to the
adjustments to comparable GAAP measures, are set forth below:
Non-GAAP gross margin
We believe our investors benefit by understanding our non-GAAP gross margin as a
way of understanding how product mix, pricing decisions and manufacturing costs
influence our business. Non-GAAP gross margin excludes restructuring costs,
amortization of purchased intangible assets, stock-based compensation and
amortization of acquisition-related inventory step-up from GAAP gross margin. We
believe that these exclusions offer investors additional information that may be
useful to view trends in our gross margin performance.
Non-GAAP operating expenses
We believe this measure is important to investors evaluating our non-GAAP
spending in relation to revenue. Non-GAAP operating expenses exclude
restructuring costs, amortization of purchased intangible assets, stock-based
compensation and acquisition costs associated with external and incremental
costs resulting directly from merger and acquisition activities such as legal,
due diligence and integration costs from GAAP operating expenses. We believe
that these exclusions offer investors supplemental information to facilitate
comparison of our operating expenses to our prior results.
Non-GAAP operating income
We believe our investors benefit by understanding our non-GAAP operating income
trends which are driven by revenue, gross margin, and spending. Non-GAAP
operating income excludes restructuring costs, amortization of purchased
intangible assets, stock-based compensation, amortization of acquisition-related
inventory step-up and acquisition costs associated with external and incremental
costs resulting directly from merger and acquisition activities such as legal,
due diligence and integration costs. We believe that these exclusions offer an
alternative means for our investors to evaluate current operating performance
compared to results of other periods.
Non-GAAP non-operating income, net
We believe this measure helps investors evaluate our non-operating income
trends. Non-GAAP non-operating income, net excludes acquisition costs associated
with unusual acquisition related items such as an adjustment to a gain on
bargain purchase (resulting from the fair value of identifiable net assets
acquired exceeding the consideration transferred), adjustments to the fair value
of earn-out liabilities and payments made or received to settle earn-out and
holdback disputes. These costs are specific to particular acquisitions and vary
significantly in amount and timing. Non-GAAP non-operating income, net also
excludes a foreign exchange loss specifically associated with a hedge for one of
our acquisitions. We believe that these exclusions provide investors with a
supplemental view of our ongoing financial results.
Non-GAAP income tax provision
Non-GAAP items tax effected adjusts the provision for income taxes to reflect
the effect of certain non-GAAP items on non-GAAP net income. We believe this
information is useful to investors because it provides for consistent treatment
of the excluded items in our non-GAAP presentation.
Non-GAAP net income
This measure provides a supplemental view of net income trends which are driven
by non-GAAP income before taxes and our non-GAAP tax rate. Non-GAAP net income
excludes restructuring costs, amortization of purchased intangible assets,
stock-based compensation, amortization of acquisition-related inventory step-up,
acquisition costs, a foreign exchange loss from a hedge associated with an
acquisition, and non-GAAP tax adjustments from GAAP net income. We believe our
investors benefit from understanding these exclusions and from an alternative
view of our net income performance as compared to our past net income
performance.
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Non-GAAP diluted net income per share
We believe our investors benefit by understanding our non-GAAP operating
performance as reflected in a per share calculation as a way of measuring
non-GAAP operating performance by ownership in the company. Non-GAAP diluted net
income per share excludes restructuring costs, amortization of purchased
intangible assets, stock-based compensation, amortization of acquisition-related
inventory step-up, acquisition costs, a foreign exchange loss from a hedge
associated with an acquisition, and non-GAAP tax adjustments from GAAP diluted
net income per share. We believe that these exclusions offer investors a useful
view of our diluted net income per share as compared to our past diluted net
income per share.
Non-GAAP operating leverage
We believe this information is beneficial to investors as a measure of how much
incremental revenue is contributed to our operating income. Non-GAAP operating
leverage is the increase in non-GAAP operating income as a percentage of the
increase in revenue. We believe that this information offers investors
supplemental information to evaluate our current performance and to compare to
our past non-GAAP operating leverage.
Non-GAAP segment operating income
Non-GAAP segment operating income excludes stock-based compensation from GAAP
segment operating income (loss). We believe this information is useful to
investors because some may exclude stock-based compensation as an alternative
view when assessing trends in the operating income of our segments.
These non-GAAP measures can be used to evaluate our historical and prospective
financial performance, as well as our performance relative to competitors. We
believe some of our investors track our "core operating performance" as a means
of evaluating our performance in the ordinary, ongoing, and customary course of
our operations. Core operating performance excludes items that are non-cash, not
expected to recur or not reflective of ongoing financial results. Management
also believes that looking at our core operating performance provides a
supplemental way to provide consistency in period to period comparison.
Accordingly, management excludes from non-GAAP those items relating to
restructuring, amortization of purchased intangible assets, stock based
compensation, amortization of acquisition-related inventory step-up, acquisition
costs, a foreign exchange loss from a hedge associated with an acquisition, and
non-GAAP tax adjustments. For detailed explanations of the adjustments made to
comparable GAAP measures, see items (A) - (I) below,
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Table of Contents
First Quarter of
2012 2011
Dollar % of Dollar % of
Amount Revenue Amount Revenue
GROSS MARGIN:
GAAP gross margin: $ 259,150 51.6 % $ 191,530 49.8 %
Restructuring (A ) 45 0.0 % 99 0.0 %
Amortization of purchased
intangibles (B ) 13,121 2.6 % 6,888 1.9 %
Stock-based compensation (C ) 520 0.1 % 468 0.1 %
Amortization of acquisition-related
inventory step-up (D ) 8 0.0 % 508 0.1 %
Non-GAAP gross margin: $ 272,844 54.3 % $ 199,493 51.9 %
OPERATING EXPENSES:
GAAP operating expenses: $ 199,302 39.7 % $ 147,855 38.5 %
Restructuring (A ) (481 ) -0.1 % (767 ) -0.2 %
Amortization of purchased
intangibles (B ) (15,676 ) -3.2 % (9,177 ) -2.4 %
Stock-based compensation (C ) (7,269 ) -1.4 % (6,330 ) -1.6 %
Acquisition costs (E ) (4,766 ) -0.9 % (2,190 ) -0.6 %
Non-GAAP operating expenses: $ 171,110 34.1 % $ 129,391 33.7 %
OPERATING INCOME:
GAAP operating income: $ 59,848 11.9 % $ 43,675 11.4 %
Restructuring (A ) 526 0.1 % 866 0.2 %
Amortization of purchased
intangibles (B ) 28,797 5.7 % 16,065 4.2 %
Stock-based compensation (C ) 7,789 1.6 % 6,798 1.8 %
Amortization of acquisition-related
inventory step-up (D ) 8 0.0 % 508 0.1 %
Acquisition costs (E ) 4,766 1.0 % 2,190 0.5 %
Non-GAAP operating income: $ 101,734 20.3 % $ 70,102 18.2 %
NON-OPERATING INCOME, NET:
GAAP non-operating income, net: $ 479 $ 2,606
Acquisition loss (E ) 444 765
Foreign exchange loss associated
with acquisition (F ) 1,578 -
Non-GAAP non-operating income, net: $ 2,501 $ 3,371
GAAP and GAAP and
Non-GAAP Non-GAAP
Tax Rate % (H) Tax Rate % (H)
INCOME TAX PROVISION (BENEFIT):
GAAP income tax provision
(benefit): $ 10,255 17 % $ 7,409 16 %
Non-GAAP items tax effected: (G ) 7,464 4,353
Non-GAAP income tax provision
(benefit): $ 17,719 17 % $ 11,762 16 %
NET INCOME:
GAAP net income attributable to
Trimble Navigation Ltd. $ 50,818 $ 39,703
Restructuring (A ) 526 866
Amortization of purchased
intangibles (B ) 28,797 16,065
Stock-based compensation (C ) 7,789 6,798
Amortization of acquisition-related
inventory step-up (D ) 8 508
Acquisition costs (E ) 5,210 2,955
Foreign exchange loss associated
with acquisition (F ) 1,578 -
Non-GAAP tax adjustments (G ) (7,464 ) (4,353 )
Non-GAAP net income attributable to
Trimble Navigation Ltd. $ 87,262 $ 62,542
DILUTED NET INCOME PER SHARE:
GAAP diluted net income per share
attributable to Trimble Navigation
Ltd. $ 0.40 $ 0.32
Restructuring (A ) - 0.01
Amortization of purchased
intangibles (B ) 0.23 0.13
Stock-based compensation (C ) 0.06 0.05
Amortization of acquisition-related
inventory step-up (D ) - -
Acquisition costs (E ) 0.04 0.02
Foreign exchange loss associated
with acquisition (F ) 0.01 -
Non-GAAP tax adjustments (G ) (0.06 ) (0.03 )
Non-GAAP diluted net income per
share attributable to Trimble
Navigation Ltd. $ 0.68 $ 0.50
SHARES USED TO COMPUTE DILUTED NET
INCOME PER SHARE:
GAAP and Non-GAAP shares used to
compute net income per share: 127,760 125,856
OPERATING LEVERAGE:
Increase in non-GAAP operating
income $ 31,632 $ 13,048
Increase in revenue $ 117,974 $ 65,278
Operating leverage (increase in
non-GAAP operating income as a % of
increase in revenue) 26.8 % 20.0 %
28
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First Quarter of
2012 2011
(Dollars In thousands, except per % of Segment % of Segment
share data) Revenue Revenue
SEGMENT OPERATING INCOME:
Engineering and Construction
GAAP operating income before
corporate allocations: $ 40,077 16.1 % $ 22,779 12.0 %
Stock-based compensation (I ) 2,756 1.1 % 2,338 1.2 %
Non-GAAP operating income before
corporate allocations: $ 42,833 17.2 % $ 25,117 13.2 %
Field Solutions
GAAP operating income before
corporate allocations: $ 62,361 42.3 % $ 52,505 42.7 %
Stock-based compensation (I ) 643 0.4 % 512 0.4 %
Non-GAAP operating income before
corporate allocations: $ 63,004 42.7 % $ 53,017 43.1 %
Mobile Solutions
GAAP operating income (loss) before
corporate allocations: $ 7,358 9.4 % $ (1,334 ) (3.0 %)
Stock-based compensation (I ) 793 1.0 % 996 2.2 %
Non-GAAP operating income (loss)
before corporate allocations: $ 8,151 10.4 % $ (338 ) (0.8 %)
Advanced Devices
GAAP operating income before
corporate allocations: $ 3,339 12.1 % $ 3,863 14.4 %
Stock-based compensation (I ) 632 2.3 % 651 2.5 %
Non-GAAP operating income before
corporate allocations: $ 3,971 14.4 % $ 4,514 16.9 %
A. Restructuring costs. Included in our GAAP presentation of cost of sales and
operating expenses, restructuring costs recorded are primarily for employee
compensation resulting from reductions in employee headcount in connection
with our company restructurings. We exclude restructuring costs from our
non-GAAP measures because we believe they do not reflect expected future
operating expenses, they are not indicative of our core operating
performance, and they are not meaningful in comparisons to our past operating
performance.
B. Amortization of purchased intangible assets. Included in our GAAP
presentation of gross margin, operating expenses, operating income, and net
income is amortization of purchased intangible assets. US GAAP accounting
requires that intangible assets are recorded at fair value and amortized over
their useful lives. Consequently, the timing and size of our acquisitions
will cause our operating results to vary from period to period making a
comparison to past performance difficult for investors. This accounting
treatment may cause differences when comparing our results to companies that
grow internally because the fair value assigned to the intangible assets
acquired through acquisition may significantly exceed the equivalent expenses
that a company may incur for similar efforts when performed internally.
Furthermore, the useful life that we expense our intangible assets over may
be substantially different from the time period that an internal growth
company incurs and recognizes such expenses. We believe that by excluding
purchased intangibles which represents technology and/or customer
relationships already developed, it enhances comparability by allowing
investors to compare our operations pre-acquisition to those
post-acquisitions and to those of our competitors that have pursued internal
growth strategies.
C. Stock-based compensation. Included in our GAAP presentation of cost of sales
and operating expenses, stock-based compensation consists of expenses for
employee stock options and awards and purchase rights under our employee
stock purchase plan. We exclude stock-based compensation expense from our
non-GAAP measures because some investors may view it as not reflective of our
core operating performance as it is a non-cash expense. For the first
quarters of fiscal 2012 and 2011, stock-based compensation was allocated as
follows:
First Quarter of
2012 2011
(Dollars in thousands)
Cost of sales $ 520 $ 468
Research and development 1,229 1,096
Sales and Marketing 1,791 1,634
General and administrative 4,249 3,600
$ 7,789 $ 6,798
D. Amortization of acquisition-related inventory step-up. The purchase
accounting entries associated with our business acquisitions require us to
record inventory at its fair value, which is sometimes greater than the
previous book value of the inventory. Included in our GAAP presentation of cost of sales, the increase in inventory value is amortized to cost of sales
over the period that the related product is sold. We exclude inventory
step-up amortization from our non-GAAP measures because it is a non-cash
expense that we do not believe is indicative of our ongoing operating
results. We further believe that excluding this item from our non-GAAP
results is useful to investors in that it allows for period-over-period
comparability.
E. Acquisition costs. Included in our GAAP presentation of operating expenses,
acquisition costs consist of external and incremental costs resulting
directly from merger and acquisition activities such as legal, due diligence
and integration costs. Included in our GAAP presentation of non-operating
income, net, acquisition costs include unusual acquisition related items such
as an adjustment to a gain
29
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on bargain purchase (resulting from the fair value of identifiable net assets
acquired exceeding the consideration transferred), adjustments to the fair
value of earn-out liabilities and payments made or received to settle
earn-out and holdback disputes. Although we do numerous acquisitions, the
costs that have been excluded from the non-GAAP measures are costs specific
to particular acquisitions. These are one-time costs that vary significantly
in amount and timing and are not indicative of our core operating
performance.
F. Foreign exchange loss associated with acquisition. This amount represents a
loss on a foreign exchange hedge associated with one of our acquisitions. We
excluded the foreign exchange loss from our non-GAAP measures because we
believe that the exclusion of this item provides investors an enhanced view
of the cost structure of our operations and facilitates comparisons with the
results of other periods.
G. Non-GAAP items tax effected. This amount adjusts the provision for income
taxes to reflect the effect of the non-GAAP items (A) - (F) on non-GAAP net
income. We believe this information is useful to investors because it
provides for consistent treatment of the excluded items in this non-GAAP
presentation.
H. GAAP and non-GAAP tax rate %. These percentages are defined as GAAP income
tax provision as a percentage of GAAP income before taxes and non-GAAP income
tax provision as a percentage of non-GAAP income before taxes. We believe
that investors benefit from a presentation of non-GAAP tax rate percentage as
a way of facilitating a comparison to non-GAAP tax rates in prior periods.
I. Stock-based Compensation. The amounts consist of expenses for employee stock
options and awards and purchase rights under our employee stock purchase
plan. As referred to above we exclude stock-based compensation here because
investors may view it as not reflective of our core operating performance.
However, management does include stock-based compensation for budgeting and
incentive plans as well as for reviewing internal financial reporting. We
discuss our operating results by segment with and without stock-based
compensation expense, as we believe it is useful to investors. Stock-based
compensation not allocated to the reportable segments was approximately $3.0
million and $2.3 million for the first quarter of fiscal 2012 and 2011,
respectively.
Non-GAAP Operating Income
Non-GAAP operating income increased by $31.6 million for the first quarter of
fiscal 2012, as compared to the first quarter of 2011. Non-GAAP Operating income
as a percentage of total revenue was 20.3% for the first quarter of fiscal 2012,
as compared to 18.2% for the first quarter of fiscal 2011. The increase in
operating income was primarily driven by higher revenue and associated gross
margin in Engineering and Construction and Field Solutions. The increase in
operating income percentage for the three month periods was primarily due to
increased operating leverage in Field Solutions.
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