Trimble Reports First Quarter 2016 Results

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

First Quarter of

2016

2015

Revenues

        Product

\\$ 393.6

\\$ 400.6

        Service

101.6

100.9

        Subscription

87.8

81.1

Total revenues

583.0

582.6

Cost of sales

        Product

190.0

187.7

        Service

41.6

41.4

        Subscription

26.7

23.8

        Amortization of purchased intangible assets

24.1

22.5

Total cost of sales

282.4

275.4

-

Gross margin

300.6

307.2

Gross margin (%)

51.6%

52.7%

Operating expenses

    Research and development

87.7

87.2

    Sales and marketing

96.7

96.5

    General and administrative

68.3

64.7

    Restructuring charges

1.8

1.1

    Amortization of purchased intangible assets

16.2

18.2

       Total operating expenses

270.7

267.7

Operating income 

29.9

39.5

Non-operating income (expense), net

    Interest expense

(6.6)

(6.4)

    Foreign currency transaction gain (loss), net

(0.1)

1.1

    Income from equity method investments, net

2.9

3.0

    Other income, net

3.3

7.0

       Total non-operating income (expense), net

(0.5)

4.7

Income before taxes

29.4

44.2

Income tax provision

9.7

10.2

Net income

19.7

34.0

(0.1)

(0.1)

Net income attributable to Trimble Navigation Limited

\\$   19.8

\\$   34.1

Earnings per share attributable to Trimble Navigation Limited:

     Basic

\\$   0.08

\\$   0.13

     Diluted

\\$   0.08

\\$   0.13

Shares used in calculating earnings per share:

    Basic

251.0

259.4

    Diluted

254.0

262.4

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

First Quarter of

Fiscal Year End

2016

2015

Assets

Current assets:

   Cash and cash equivalents

\\$           174.7

\\$             116.0

   Accounts receivable, net

377.8

361.9

   Other receivables

15.3

14.9

   Inventories, net

255.5

261.1

   Other current assets

49.3

44.5

      Total current assets

872.6

798.4

Property and equipment, net

155.4

159.2

Goodwill

2,128.4

2,106.4

Other purchased intangible assets, net

452.5

487.1

Other non-current assets

141.0

129.6

      Total assets

\\$        3,749.9

\\$          3,680.7

Liabilities and Shareholders' Equity

Current liabilities:

   Short-term debt

\\$           135.3

\\$             118.3

   Accounts payable

112.6

99.8

   Accrued compensation and benefits

86.6

98.9

   Deferred revenue

287.2

234.6

   Accrued warranty expense

17.9

18.5

   Other current liabilities

87.2

90.8

      Total current liabilities

726.8

660.9

Long-term debt

539.6

611.4

Non-current deferred revenue

32.3

29.6

Deferred income tax liabilities

53.5

51.7

Other non-current liabilities

111.0

106.5

      Total liabilities

1,463.2

1,460.1

Shareholders' equity:

   Common stock

1,267.3

1,238.3

   Retained earnings

1,157.3

1,148.2

   Accumulated other comprehensive loss

(138.7)

(166.8)

Total Trimble Navigation Limited shareholders' equity

2,285.9

2,219.7

Noncontrolling interests 

0.8

0.9

      Total shareholders' equity

2,286.7

2,220.6

      Total liabilities and shareholders' equity

\\$        3,749.9

\\$          3,680.7

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In millions)

(Unaudited)

First Quarter of

2016

2015

Cash flow from operating activities:

    Net Income

\\$              19.7

\\$  34.0

    Adjustments to reconcile net income to net cash provided by operating activities:

         Depreciation expense

9.1

8.7

         Amortization expense

40.3

40.7

         Provision for doubtful accounts

0.6

1.0

         Deferred income taxes

(0.1)

(1.3)

         Stock-based compensation

13.7

12.5

         Income from equity method investments

(2.9)

(3.0)

         Acquisition / divestiture (gain)/loss

(3.1)

(5.8)

         Excess tax benefit for stock-based compensation

(1.2)

(0.7)

         Provision for excess and obsolete inventories

4.1

0.8

         Other non-cash items

0.7

11.0

    Add decrease (increase) in assets:

         Accounts receivables

(14.1)

(28.9)

         Other receivables

(2.2)

4.9

         Inventories

3.1

(6.4)

         Other current and non-current assets

(4.9)

(8.0)

    Add increase (decrease) in liabilities:

         Accounts payable

11.9

11.2

         Accrued compensation and benefits

(13.5)

(15.0)

         Deferred revenue

54.1

49.4

         Accrued warranty

(0.7)

(1.5)

         Accrued liabilities

(1.4)

3.6

 Net cash provided by operating activities 

113.2

107.2

 Cash flow from investing activities: 

      Acquisitions of businesses, net of cash acquired 

(15.8)

(36.9)

      Acquisitions of property and equipment 

(4.9)

(10.6)

      Purchases of equity investments 

(0.4)

(1.3)

      Net proceeds from sale of businesses 

8.1

12.6

      Dividends received from equity method investments 

5.0

-

      Other 

(0.3)

0.8

 Net cash used in investing activities 

(8.3)

(35.4)

 Cash flow from financing activities: 

      Issuance of common stock, net of tax withholdings 

16.1

14.7

      Repurchases and retirement of common stock 

(12.2)

(12.6)

      Excess tax benefit for stock-based compensation 

1.2

0.7

      Proceeds from debt and revolving credit lines 

92.0

130.0

      Payments on debt and revolving credit lines 

(147.0)

(198.0)

 Net cash used in financing activities 

(49.9)

(65.2)

 Effect of exchange rate changes on cash and cash equivalents 

3.7

(8.9)

 Net increase (decrease) in cash and cash equivalents 

58.7

(2.3)

 Cash and cash equivalents - beginning of period 

116.0

148.0

 Cash and cash equivalents - end of period 

\\$            174.7

\\$145.7

REPORTING SEGMENTS

(Dollars in millions)

(Unaudited)

Reporting Segments

and

Field

Mobile

Advanced

Construction

Solutions

Solutions

Devices

FIRST QUARTER OF FISCAL 2016 :

Revenue

\\$        309.8

\\$   106.0

\\$   136.3

\\$      30.9

Operating income before corporate allocations

\\$          44.1

\\$    33.9

\\$     18.9

\\$      10.3

Operating margin (% of segment external net revenue)

14.2%

32.0%

13.9%

33.3%

FIRST QUARTER OF FISCAL 2015 :

Revenue

\\$        299.3

\\$   115.3

\\$   128.2

\\$      39.8

Operating income before corporate allocations

\\$          37.0

\\$     40.6

\\$     20.5

\\$      15.2

Operating margin (% of segment external net revenue)

12.4%

35.2%

16.0%

38.2%

GAAP TO NON-GAAP RECONCILIATION

(Dollars in millions, except per share data)

(Unaudited)

First Quarter of

2016

2015

Dollar

% of

Dollar

% of

Amount

Revenue

Amount

Revenue

GROSS MARGIN:

GAAP gross margin:

\\$  300.6

51.6%

\\$  307.2

52.7%

Restructuring charges

( A )

0.3

0.1%

0.2

0.0%

Amortization of purchased intangible assets

( B )

24.1

4.0%

22.5

3.9%

Stock-based compensation

( C )

1.0

0.2%

0.9

0.2%

Non-GAAP gross margin: 

\\$  326.0

55.9%

\\$  330.8

56.8%

OPERATING EXPENSES:

GAAP operating expenses:

\\$  270.7

46.4%

\\$  267.7

45.9%

Restructuring charges

( A )

(1.8)

-0.3%

(1.1)

-0.2%

Amortization of purchased intangible assets

( B )

(16.2)

-2.8%

(18.2)

-3.1%

Stock-based compensation

( C )

(12.7)

-2.2%

(11.6)

-2.0%

Acquisition / divestiture items

( D )

(1.6)

-0.3%

(2.8)

-0.5%

Executive transition costs

( E )

(0.9)

-0.1%

-

0.0%

Non-GAAP operating expenses:

\\$  237.5

40.7%

\\$  234.0

40.1%

OPERATING INCOME:

GAAP operating income:

\\$   29.9

5.1%

\\$   39.5

6.8%

Restructuring charges

( A )

2.1

0.4%

1.3

0.2%

Amortization of purchased intangible assets

( B )

40.3

6.8%

40.7

7.0%

Stock-based compensation

( C )

13.7

2.4%

12.5

2.1%

Acquisition / divestiture items

( D )

1.6

0.3%

2.8

0.5%

Executive transition costs

( E )

0.9

0.1%

-

0.0%

Non-GAAP operating income: 

\\$   88.5

15.1%

\\$   96.8

16.6%

NON-OPERATING INCOME (EXPENSE), NET:

GAAP non-operating income (expense), net:

\\$    (0.5)

\\$     4.7

Acquisition / divestiture items

( D )

(3.1)

(5.8)

Debt issuance cost write-off

( F )

-

(0.1)

Non-GAAP non-operating expense, net: 

\\$    (3.6)

\\$    (1.2)

GAAP and 

GAAP and 

Non-GAAP

Non-GAAP

Tax Rate %

( I )

Tax Rate %

( I )

INCOME TAX PROVISION:

GAAP income tax provision:

\\$     9.7

33%

\\$   10.2

23%

Non-GAAP items tax effected 

( G )

18.3

11.8

Difference in GAAP and Non-GAAP tax rate

( H )

(7.5)

1.0

Non-GAAP income tax provision: 

\\$   20.5

24%

\\$   23.0

24%

NET INCOME:  

GAAP net income attributable to Trimble Navigation Limited

\\$   19.8

\\$   34.1

Restructuring charges

( A )

2.1

1.3

Amortization of purchased intangible assets

( B )

40.3

40.7

Stock-based compensation

( C )

13.7

12.5

Acquisition / divestiture items

( D )

(1.5)

(3.0)

Executive transition costs

( E )

0.9

-

Debt issuance cost write-off

( F )

-

(0.1)

Non-GAAP tax adjustments

( G ) + ( H )

(10.8)

(12.8)

Non-GAAP net income attributable to Trimble Navigation Limited

\\$   64.5

\\$   72.7

DILUTED NET INCOME PER SHARE:

GAAP diluted net income per share attributable to Trimble Navigation Limited

\\$   0.08

\\$   0.13

Restructuring charges

( A )

0.01

-

Amortization of purchased intangible assets

( B )

0.16

0.16

Stock-based compensation

( C )

0.05

0.05

Acquisition / divestiture items

( D )

(0.01)

(0.01)

Executive transition costs

( E )

-

-

Debt issuance cost write-off

( F )

-

-

Non-GAAP tax adjustments

( G ) + ( H )

(0.04)

(0.05)

Non-GAAP diluted net income per share attributable to Trimble Navigation Limited

\\$   0.25

\\$   0.28

FOOTNOTES TO GAAP TO NON-GAAP RECONCILIATION

(Unaudited)

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 and stock-based compensation 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, acquisition/divestiture costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs, and executive transition 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, acquisition/divestiture costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs, and executive transition 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 (expense), net

We believe this measure helps investors evaluate our non-operating income trends. Non-GAAP non-operating income (expense), net excludes acquisition and divestiture gains/losses associated with unusual acquisition related items such as intangible asset impairment charges and gains or losses related to the acquisition or sale of certain businesses and investments. Non-GAAP non-operating income (expense), net also excludes the write-off of debt issuance costs associated with terminated and/or modified credit facilities and costs associated with the issuance of new credit facilities and Senior Notes that were not capitalized as debt issuance costs. We believe that these exclusions provide investors with a supplemental view of our ongoing financial results.

Non-GAAP income tax provision

We believe that providing investors with the non-GAAP income tax provision is beneficial 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, acquisition and divestiture costs, executive transition costs, write-off of debt issuance costs 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.

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, acquisition and divestiture costs, executive transition costs, a write off of debt issuance costs 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. 

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 comparisons.  Accordingly, management excludes from non-GAAP those items relating to restructuring, amortization of purchased intangible assets, stock based compensation, acquisition and divestiture items, executive transition costs, write- off of debt issuance costs and non-GAAP tax adjustments.  For detailed explanations of the adjustments made to comparable GAAP measures, see items (A) - ( I ) below.

( 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.  We have incurred restructuring expense in each of the periods presented however the amount incurred can vary significantly based on whether a restructuring has occurred in the period and the timing of headcount reductions. 

( B )

Amortization of purchased intangible assets.Included in our GAAP presentation of gross margin and operating expenses 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 the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed, it provides an alternative way for investors to compare our operations pre-acquisition to those post-acquisitions and to those of our competitors that have pursued internal growth strategies. However, we note that companies that grow internally will incur costs to develop intangible assets that will be expensed in the period incurred, which may make a direct comparison more difficult.     

( 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 quarter of and fiscal years 2016 and 2015, stock-based compensation was allocated as follows: 

First Quarter of

(Dollars in millions)

2016

2015

Cost of sales

\\$                  1.0

\\$                  0.9

Research and development

2.3

2.2

Sales and Marketing

2.0

2.3

General and administrative

8.4

7.1

\\$                13.7

\\$                12.5

( D )

Acquisition / divestiture items.  Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal, due diligence, and integration costs as well as adjustments to the fair value of earn-out liabilities.  Included in our GAAP presentation of non-operating income (expense) net, acquisition / divestiture items includes unusual acquisition, investment, or divestiture gains/losses. 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.

( E )

Executive transition costs.  Included in our GAAP presentation of operating expenses are amounts paid to the Company's former CFO upon his departure under the terms of his executive severance agreement. We excluded these payments from our non-GAAP measures because they represent non-recurring expenses and are not indicative of our ongoing operating expenses. We further believe that excluding the executive transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

( F )

Debt issuance cost write-off.   Included in our GAAP non-operating income (expense), is the write-off of debt issuance costs for terminated and/or modified credit facilities and costs associated with the issuance of new credit facilities and Senior Notes in fiscal 2014 that were not capitalized as debt issuance costs.  We excluded the debt issuance cost write-off from our non-GAAP measures. We believe that investors benefit from excluding this item from our non-operating income to facilitate a more meaningful evaluation of our non-operating income trends.

( 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 )

Difference in GAAP and Non-GAAP tax rate.   This amount represents the difference between the GAAP and Non-GAAP tax rates applied to the Non-GAAP Operating Income plus the Non-GAAP Non-Operating income (expense), Net.  

( I )

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.