Attached files
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EX-31.2 - EXHIBIT 31.2 - TRIMBLE INC. | ex31_2.htm |
EX-31.1 - EXHIBIT 31.1 - TRIMBLE INC. | ex31_1.htm |
EX-32.2 - EXHIBIT 32.2 - TRIMBLE INC. | ex32_2.htm |
EX-32.1 - EXHIBIT 32.1 - TRIMBLE INC. | ex32_1.htm |
EX-10.1 - EXHIBIT 10.1 - TRIMBLE INC. | ex10_1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
T QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 2, 2009
OR
£ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission
file number: 001-14845
TRIMBLE
NAVIGATION LIMITED
(Exact
name of registrant as specified in its charter)
California
|
94-2802192
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification Number)
|
935
Stewart Drive, Sunnyvale, CA 94085
(Address
of principal executive offices) (Zip Code)
Telephone Number (408)
481-8000
(Registrant's
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes T No £
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes £ No £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated Filer T
|
Accelerated
Filer £
|
|
Non-accelerated
Filer £ (Do not
check if a smaller reporting company)
|
Smaller
Reporting Company £
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes £ No T
As of
November 5, 2009, there were 120,370,380 shares of Common Stock (no par value)
outstanding.
TRIMBLE NAVIGATION LIMITED
FORM
10-Q for the Quarter Ended October 2, 2009
TABLE
OF CONTENTS
PART
I.
|
Financial
Information
|
Page
|
||
ITEM 1.
|
Financial
Statements (Unaudited):
|
|||
3
|
||||
4
|
||||
5
|
||||
6
|
||||
ITEM 2.
|
21
|
|||
ITEM 3.
|
31
|
|||
ITEM 4.
|
32
|
|||
PART
II.
|
Other
Information
|
|||
ITEM 1.
|
32
|
|||
ITEM 1A.
|
32
|
|||
ITEM 6.
|
33
|
|||
34
|
PART I –
FINANCIAL INFORMATION
ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
October 2,
2009
|
January 2,
2009
|
|||||||
(In
thousands)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$
|
215,099
|
$
|
142,531
|
||||
Short-term
investments
|
7,000
|
5,000
|
||||||
Accounts
receivable, net
|
202,453
|
204,269
|
||||||
Other
receivables
|
10,350
|
17,540
|
||||||
Inventories,
net
|
160,420
|
160,893
|
||||||
Deferred
income taxes
|
41,720
|
41,810
|
||||||
Other
current assets
|
19,854
|
16,404
|
||||||
Total
current assets
|
656,896
|
588,447
|
||||||
Property
and equipment, net
|
46,903
|
50,175
|
||||||
Goodwill
|
765,484
|
715,571
|
||||||
Other
purchased intangible assets, net
|
216,619
|
228,901
|
||||||
Other
non-current assets
|
45,739
|
51,922
|
||||||
Total
assets
|
$
|
1,731,641
|
$
|
1,635,016
|
||||
LIABILITIES
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt
|
$
|
49
|
$
|
124
|
||||
Accounts
payable
|
50,256
|
49,611
|
||||||
Accrued
compensation and benefits
|
45,526
|
41,291
|
||||||
Deferred
revenue
|
69,946
|
55,241
|
||||||
Accrued
warranty expense
|
14,081
|
13,332
|
||||||
Other
current liabilities
|
36,099
|
63,719
|
||||||
Total
current liabilities
|
215,957
|
223,318
|
||||||
Non-current
portion of long-term debt
|
151,455
|
151,464
|
||||||
Non-current
deferred revenue
|
8,034
|
12,418
|
||||||
Deferred
income taxes
|
39,830
|
42,207
|
||||||
Other
non-current liabilities
|
64,754
|
61,553
|
||||||
Total
liabilities
|
480,030
|
490,960
|
||||||
Commitments
and contingencies
|
||||||||
EQUITY
|
||||||||
Shareholders'
equity:
|
||||||||
Preferred
stock, no par value; 3,000 shares authorized; none
outstanding
|
-
|
-
|
||||||
Common
stock, no par value; 180,000 shares authorized; 120,353 and 119,051 shares
issued and outstanding at October 2, 2009 and January 2, 2009,
respectively
|
713,593
|
684,831
|
||||||
Retained
earnings
|
481,820
|
427,921
|
||||||
Accumulated
other comprehensive income
|
51,454
|
27,649
|
||||||
Total
Trimble Navigation Ltd. shareholders' equity
|
1,246,867
|
1,140,401
|
||||||
Noncontrolling
interests
|
4,744
|
3,655
|
||||||
Total
equity
|
1,251,611
|
1,144,056
|
||||||
Total
liabilities and equity
|
$
|
1,731,641
|
$
|
1,635,016
|
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
TRIMBLE NAVIGATION LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(In
thousands, except per share data)
|
||||||||||||||||
Revenue (1)
|
$
|
269,713
|
$
|
328,087
|
$
|
848,730
|
$
|
1,061,150
|
||||||||
Cost
of sales (1)
|
137,255
|
162,464
|
429,514
|
534,052
|
||||||||||||
Gross
margin
|
132,458
|
165,623
|
419,216
|
527,098
|
||||||||||||
Operating
expenses
|
||||||||||||||||
Research
and development
|
33,250
|
35,348
|
100,844
|
112,097
|
||||||||||||
Sales
and marketing
|
47,022
|
48,664
|
141,120
|
151,727
|
||||||||||||
General
and administrative
|
23,237
|
22,072
|
75,901
|
70,051
|
||||||||||||
Restructuring
charges
|
872
|
21
|
5,797
|
2,435
|
||||||||||||
Amortization
of purchased intangible assets
|
7,912
|
5,462
|
22,411
|
15,768
|
||||||||||||
Total
operating expenses
|
112,293
|
111,567
|
346,073
|
352,078
|
||||||||||||
Operating
income
|
20,165
|
54,056
|
73,143
|
175,020
|
||||||||||||
Non-operating
income, net
|
||||||||||||||||
Interest
income
|
124
|
404
|
546
|
1,369
|
||||||||||||
Interest
expense
|
(450)
|
(214)
|
(1,408)
|
(1,389)
|
||||||||||||
Foreign
currency transaction gain, net
|
792
|
117
|
760
|
2,338
|
||||||||||||
Income
(loss) from joint ventures, net
|
(151)
|
2,163
|
369
|
6,796
|
||||||||||||
Other
income (expense), net
|
1,081
|
(907)
|
1,528
|
(1,661)
|
||||||||||||
Total
non-operating income, net
|
1,396
|
1,563
|
1,795
|
7,453
|
||||||||||||
Income
before taxes
|
21,561
|
55,619
|
74,938
|
182,473
|
||||||||||||
Income
tax provision
|
5,714
|
16,552
|
20,244
|
54,740
|
||||||||||||
Net
income
|
15,847
|
39,067
|
54,694
|
127,733
|
||||||||||||
Less:
Net income attributable to noncontrolling interests
|
270
|
-
|
795
|
-
|
||||||||||||
Net
income attributable to Trimble Navigation Ltd.
|
$
|
15,577
|
$
|
39,067
|
$
|
53,899
|
$
|
127,733
|
||||||||
Basic
earnings per share
|
$
|
0.13
|
$
|
0.32
|
$
|
0.45
|
$
|
1.05
|
||||||||
Shares
used in calculating basic earnings per share
|
120,047
|
120,603
|
119,620
|
121,171
|
||||||||||||
Diluted
earnings per share
|
$
|
0.13
|
$
|
0.31
|
$
|
0.44
|
$
|
1.02
|
||||||||
Shares
used in calculating diluted earnings per share
|
122,854
|
124,423
|
121,893
|
125,071
|
(1) Sales
to related parties, Caterpillar Trimble Control Technologies Joint Venture
(CTCT) and Nikon-Trimble Joint Venture (Nikon-Trimble), were $3.6 million and
$7.1 million for the three months ended October 2, 2009 and September 26, 2008,
respectively, with associated cost of sales to those related parties of $2.5
million and $6.2 million, respectively. Sales to CTCT and
Nikon-Trimble were $11.5 million and $22.4 million for the nine months ended
October 2, 2009 and September 26, 2008, respectively, with associated cost of
sales of $7.7 million and $17.9 million, respectively. In addition,
cost of sales associated with related party net inventory purchases were $4.7
million and $4.5 million for the three months ended October 2, 2009 and
September 26, 2008, respectively, and $15.2 million and $18.0 million for the
nine months ended October 2, 2009 and September 26, 2008,
respectively. See Note 4 regarding joint ventures for further
information about related party transactions.
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
TRIMBLE NAVIGATION LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine
Months Ended
|
||||||||
October 2,
|
September 26,
|
|||||||
2009
|
2008
|
|||||||
(Dollars
in thousands)
|
||||||||
Cash
flow from operating activities:
|
||||||||
Net
income
|
$ | 54,694 | $ | 127,733 | ||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||
Depreciation
expense
|
13,941 | 14,287 | ||||||
Amortization
expense
|
38,968 | 32,999 | ||||||
Provision
for doubtful accounts
|
2,933 | 597 | ||||||
Amortization
of debt issuance costs
|
169 | 169 | ||||||
Deferred
income taxes
|
(9,268 | ) | (14,235 | ) | ||||
Stock-based
compensation
|
13,321 | 11,603 | ||||||
Income
from joint ventures
|
(369 | ) | (6,796 | ) | ||||
Gain
on bargain purchase
|
(386 | ) | - | |||||
Excess
tax benefit for stock-based compensation
|
(1,304 | ) | (5,847 | ) | ||||
Provision
for excess and obsolete inventories
|
2,943 | 2,672 | ||||||
Other
non-cash items
|
(2,542 | ) | 179 | |||||
Add
decrease (increase) in assets:
|
||||||||
Accounts
receivable
|
2,613 | (16,230 | ) | |||||
Other
receivables
|
6,288 | 1,598 | ||||||
Inventories
|
1,300 | (16,165 | ) | |||||
Other
current and non-current assets
|
1,915 | (201 | ) | |||||
Add
increase (decrease) in liabilities:
|
||||||||
Accounts
payable
|
(1,068 | ) | (1,859 | ) | ||||
Accrued
compensation and benefits
|
2,273 | (7,426 | ) | |||||
Accrued
liabilities
|
1,947 | 725 | ||||||
Deferred
revenue
|
10,753 | 2,862 | ||||||
Income
taxes payable
|
- | 15,280 | ||||||
Net
cash provided by operating activities
|
139,121 | 141,945 | ||||||
Cash
flow from investing activities:
|
||||||||
Acquisitions
of businesses, net of cash acquired
|
(50,824 | ) | (69,310 | ) | ||||
Acquisitions
of property and equipment
|
(9,541 | ) | (11,293 | ) | ||||
Acquisitions
of intangible assets
|
(26,839 | ) | (349 | ) | ||||
Net
purchases of short-term investments
|
(2,000 | ) | - | |||||
Dividends
received
|
2,896 | 3,148 | ||||||
Other
|
(379 | ) | 195 | |||||
Net
cash used in investing activities
|
(86,687 | ) | (77,609 | ) | ||||
Cash
flow from financing activities:
|
||||||||
Issuances
of common stock
|
13,673 | 22,119 | ||||||
Excess
tax benefit for stock-based compensation
|
1,304 | 5,847 | ||||||
Repurchase
and retirement of common stock
|
- | (115,851 | ) | |||||
Proceeds
from long-term debt and revolving credit lines
|
- | 51,000 | ||||||
Payments
on long-term debt and revolving credit lines
|
(168 | ) | (60,316 | ) | ||||
Net
cash provided by (used in) financing activities
|
14,809 | (97,201 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
5,325 | 142 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
72,568 | (32,723 | ) | |||||
Cash
and cash equivalents, beginning of period
|
142,531 | 103,202 | ||||||
Cash
and cash equivalents, end of period
|
$ | 215,099 | $ | 70,479 |
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS –
UNAUDITED
NOTE 1.
OVERVIEW AND BASIS OF PRESENTATION
Trimble
Navigation Limited (the Company), incorporated in California in 1981, provides
positioning solutions to commercial and government users in a large number of
markets. These markets include surveying, agriculture, construction,
asset management, mapping, and mobile resource management.
The
Company has a 52-53 week fiscal year, ending on the Friday nearest to December
31, which for fiscal 2008 was January 2, 2009. The third quarters of fiscal 2009
and fiscal 2008 ended on October 2, 2009 and September 26, 2008,
respectively. Fiscal 2009 is a 52-week year and fiscal 2008 was a
53-week year. Unless otherwise stated, all dates refer to the
Company’s fiscal year and fiscal periods.
The
Condensed Consolidated Financial Statements include the results of the Company
and its majority-owned subsidiaries. Inter-company accounts and
transactions have been eliminated. Noncontrolling interests represent
the minority shareholders’ proportionate share of the net assets and results of
operations of the Company’s majority-owned subsidiaries.
The
accompanying financial data as of October 2, 2009 and for the three and nine
months ended October 2, 2009 and September 26, 2008 has been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements, prepared in accordance with accounting
principles generally accepted in the U.S., have been condensed or omitted
pursuant to such rules and regulations. The Condensed Consolidated
Balance Sheet as of January 2, 2009 is derived from the audited Consolidated
Financial Statements included in the Annual Report on Form 10-K of Trimble
Navigation Limited for fiscal year 2008. Certain amounts from prior periods have
been reclassified to conform to the current period presentation. The
following discussion should be read in conjunction with the Company’s 2008
Annual Report on Form 10-K.
The
preparation of financial statements in accordance with accounting principles
generally accepted in the U.S. requires management to make estimates and
assumptions that affect the amounts reported in its Condensed Consolidated
Financial Statements and accompanying notes. Management bases its
estimates on historical experience and various other assumptions believed to be
reasonable. Although these estimates are based on management’s best knowledge of
current events and actions that may impact the company in the future, actual
results may be different from the estimates.
In the
opinion of management, all adjustments necessary to present a fair statement of
financial position as of October 2, 2009, results of operations for the three
and nine months ended October 2, 2009 and September 26, 2008 and cash flows for
the nine months ended October 2, 2009 and September 26, 2008, as applicable,
have been made. The results of operations for the three and nine
months ended October 2, 2009 are not necessarily indicative of the operating
results for the full fiscal year or any future periods. Individual
segment revenue may be affected by seasonal buying patterns and general economic
conditions. The Company has evaluated all subsequent events through November 6,
2009, which is the date that these financial statements have been filed with the
Securities and Exchange Commission (“SEC”). No material subsequent events
have occurred since October 2, 2009 that required recognition or disclosure in
these financial statements.
NOTE 2.
UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
There
have been no changes to the Company’s significant accounting polices during the
nine months ended October 2, 2009 from those disclosed in the Company’s 2008
Form 10-K.
Recent
Accounting Pronouncements
Updates
to recent accounting standards as disclosed in the Company’s Annual Report on
Form 10-K for the fiscal year ended January 2, 2009 are as follows:
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
accounting guidance on fair value measurements. This standard, which is now
codified under the Fair Value Measurements
and Disclosures Topic of the FASB Accounting Standards Codification,
clarifies the definition of fair value, establishes a framework for measuring
fair value within GAAP, and expands the disclosures regarding fair value
measurements. In February 2008, the FASB deferred the effective date
of the guidance to fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The Company adopted the fair
value measurement guidance in its first quarter of fiscal 2008, except for those
items specifically deferred by the FASB, which were adopted in the first quarter
of fiscal 2009. The adoption did not have a material impact on the
Company’s financial position, results of operations, or cash flows.
In
December 2007, the FASB issued revised accounting guidance on business
combinations. This revised standard, now codified under the Business Combination
Topic of the FASB Accounting Standards Codification, establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree, and recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase. The guidance also sets forth the disclosures required to be
made in the financial statements to evaluate the nature and financial effects of
the business combination. The guidance applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, the Company adopted this guidance in its first quarter of fiscal
2009. The Company expects the implementation of the new guidance to
have an impact on the Company’s financial position, results of operations, or
cash flows, but the nature and magnitude of the specific effects will depend
largely upon the nature and size of the Company’s business
combinations. The adoption of the guidance did not have a material impact
in the first nine months of fiscal 2009.
In
December 2007, the FASB issued guidance related to the accounting for
noncontrolling interests in consolidated financial statements. The guidance, now
codified under the Consolidation Topic
of the FASB Accounting Standards Codification, changed the accounting and
reporting for minority interests, which were re-characterized as noncontrolling
interests and classified as a component of equity. This new consolidation method
significantly changed the accounting for transactions with minority interest
holders. The guidance required retroactive adoption of the
presentation and disclosure requirements for previously existing minority
interests. All other requirements of the guidance are applied
prospectively. The Company adopted this new accounting guidance in
the first quarter of fiscal 2009. The adoption of the guidance did
not have a material impact on the Company’s financial position, results of
operations, or cash flows.
In March
2008, the FASB issued accounting guidance on disclosures about derivative
instruments and hedging activities. The new accounting guidance, now codified
under the Derivatives and Hedging
Topic of the FASB Accounting Standards Codification, requires enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. The Company adopted
this new accounting guidance in the first quarter of fiscal
2009. The adoption of the guidance did not have an impact on
the Company’s financial position, results of operations, or cash
flows.
In May
2009, the FASB issued accounting guidance on subsequent events. The standard,
now codified under the Subsequent Events
Topic of the FASB Accounting Standards Codification, became effective for
and was adopted by the Company during the second quarter of fiscal 2009.
The guidance establishes the accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. Specifically, it sets forth the period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements, and the disclosures that an entity should make about
events or transactions that occurred after the balance sheet
date. The guidance is effective for interim or annual financial
periods ending after June 15, 2009. The adoption of the guidance did
not have an impact on the Company’s financial position, results of operations or
cash flows, other than the disclosures required by the guidance.
In June
2009, the FASB issued accounting guidance which changes the consolidation
guidance applicable to a variable interest entity (“VIE”). The guidance, now
codified under the Consolidation Topic
of the FASB Accounting Standards Codification, also amends the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is, therefore, required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. The qualitative
analysis will include, among other things, consideration of who has the power to
direct the activities of the entity that most significantly impact the entity’s
economic performance and who has the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant to the VIE.
This guidance also requires continuous reassessments of whether an enterprise is
the primary beneficiary of a VIE. Previously, GAAP required reconsideration of
whether an enterprise was the primary beneficiary of a VIE only when specific
events had occurred. The Company is required to adopt this guidance
beginning in fiscal 2010. The Company is evaluating the impact of the
adoption of the guidance on its financial position, results of operations and
cash flows.
In June
2009, the FASB issued guidance which establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative accounting
principles recognized by the FASB to be applied by non-governmental entities in
the preparation of financial statements in conformity with U.S. GAAP. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Codification supersedes all accounting
standards in U.S. GAAP, aside from those issued by the SEC. The Company
adopted this guidance in the third quarter of fiscal 2009. The
adoption did not have an impact on the Company’s financial position, results of
operations, or cash flows.
In
October 2009, the FASB issued revised guidance on multiple-deliverable revenue
arrangements which requires entities to allocate revenue in an arrangement,
using estimated selling prices of the delivered goods and services based on a
selling price hierarchy, and eliminates the residual method of revenue
allocation. It also requires revenue to be allocated using the
relative selling price method. The FASB also issued accounting
guidance on the applicability of software revenue accounting for certain
arrangements that include software elements, which remove tangible products from
the scope of software revenue guidance and provides guidance on determining
whether software deliverables in an arrangement that includes a tangible product
are covered by the scope of the software revenue guidance. The guidance on
both of these topics, which are now codified under the Revenue Recognition
Topic of the FASB Accounting Standards Codification, should be applied on
a prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. The Company is evaluating the expected impact of the new revenue
guidance on its financial position, results of operations and cash flows, and
when it will adopt the revised guidance.
NOTE 3.
SHAREHOLDERS’ EQUITY
Stock
Repurchase Activities
In
January 2008, the Company’s Board of Directors authorized a stock repurchase
program (“2008 Stock Repurchase Program”), authorizing the Company to repurchase
up to $250 million of Trimble’s common stock under this
program. During the nine months ended September 26, 2008, the Company
repurchased approximately 3,707,000 shares of common stock in open market
purchases at an average price of $31.23 per share, for a total of $115.9
million. No shares of common stock were repurchased during the nine months ended
October 2, 2009. In total, under the program, the Company has repurchased
approximately 4,243,000 shares of common stock in open market purchases at an
average price of $29.67 per share, for a total of $125.9 million. The purchase
price was reflected as a decrease to common stock based on the average stated
value per share with the remainder to retained earnings. Common stock
repurchases under the program were recorded based upon the trade date for
accounting purposes. All common shares repurchased under this program
have been retired. As of October 2, 2009, the 2008 Stock Repurchase Program had
remaining authorized funds of $124.1 million. The timing and actual
number of future shares repurchased will depend on a variety of factors
including price, regulatory requirements, capital availability, and other market
conditions. The program does not require the purchase of any minimum
number of shares and may be suspended or discontinued at any time without public
notice.
Stock-Based
Compensation
The
Company accounts for its employee stock options and rights to purchase shares
under its stock participation plans under the fair value method, which requires
stock-based compensation to be estimated using the fair value on the date of
grant using an option-pricing model. The value of the portion of the award that
is expected to vest is recognized as expense over the related employees’
requisite service periods in the Company’s Condensed Consolidated Statements of
Income.
The
following table summarizes stock-based compensation expense, net of tax, related
to employee stock-based compensation included in the Condensed Consolidated
Statements of Income for the three and nine months ended October 2, 2009 and
September 26, 2008.
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Cost
of sales
|
$
|
453
|
$
|
453
|
$
|
1,368
|
$
|
1,433
|
||||||||
Research
and development
|
866
|
796
|
2,504
|
2,629
|
||||||||||||
Sales
and marketing
|
1,134
|
937
|
3,200
|
2,898
|
||||||||||||
General
and administrative
|
2,088
|
1,640
|
6,249
|
4,643
|
||||||||||||
Total
operating expenses
|
4,088
|
3,373
|
11,953
|
10,170
|
||||||||||||
Total
stock-based compensation expense
|
4,541
|
3,826
|
13,321
|
11,603
|
||||||||||||
Tax
benefit (1)
|
(1,153)
|
(188)
|
(2,270)
|
(740)
|
||||||||||||
Total
stock-based compensation expense, net of tax
|
$
|
3,388
|
$
|
3,638
|
$
|
11,051
|
$
|
10,863
|
(1) Tax
benefit related to U.S. non-qualified options and restricted stock units,
applying a Federal statutory and State (Federal effected) tax rate for the
respective periods.
Options
Stock
option expense recognized during the period is based on the value of the portion
of the stock option that is expected to vest during the period. The fair value
of each stock option is estimated on the date of grant using a binomial
valuation model. The Black-Scholes model was used to value those options granted
prior to the fourth quarter of fiscal 2005. Similar to the Black-Scholes model,
the binomial model takes into account variables such as volatility, dividend
yield rate, and risk free interest rate. For options granted during the three
and nine months ended October 2, 2009 and September 26, 2008, the following
weighted average assumptions were used:
Three
Months Ended
|
Nine
Months Ended
|
|||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||
2009
|
2008
|
2009
|
2008
|
|||||
Expected
dividend yield
|
-- | -- | -- | -- | ||||
Expected
stock price volatility
|
46.8% | 39.8% | 46.7% | 39.7% | ||||
Risk
free interest rate
|
1.8% | 2.6% | 1.9% | 2.7% | ||||
Expected
life of option
|
4.1
years
|
3.9
years
|
4.2
years
|
4.1
years
|
Expected Dividend Yield – The
dividend yield assumption is based on the Company’s history and expectation of
dividend payouts.
Expected Stock Price
Volatility – The Company’s computation of expected volatility is based on
a combination of implied volatilities from traded options on the Company’s stock
and historical volatility, commensurate with the expected life of the stock
options.
Expected Risk Free Interest
Rate – The risk-free interest rate is based on the U.S. Treasury yield
curve in effect at the time of grant for the expected life of the stock
options.
Expected Life Of Option – The
Company’s expected life represents the period that the Company’s stock options
are expected to be outstanding and is determined based on historical experience
of similar stock options with consideration to the contractual terms of the
stock options, vesting schedules, and expectations of future employee
behavior.
NOTE 4.
JOINT VENTURES
Caterpillar
Trimble Control Technologies Joint Venture
On April
1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT), a joint venture
formed by the Company and Caterpillar, began operations. CTCT develops advanced
electronic guidance and control products for earth moving machines in the
construction and mining industries. The joint venture is 50% owned by the
Company and 50% owned by Caterpillar, with equal voting rights. The joint
venture is accounted for under the equity method of accounting. Under the equity
method, the Company’s share of profits and losses are included in Income (loss)
from joint ventures, net in the Non-operating income, net section of the
Condensed Consolidated Statements of Income. During the three and
nine months ended October 2, 2009, the Company recorded $0.6 million and $2.2
million, respectively, as its proportionate share of CTCT net
income. During the comparable period of 2008, the Company recorded
$2.0 million and $6.7 million, respectively, as its proportionate share of CTCT
net income. During the nine months ended October 2, 2009 and
September 26, 2008, there were $2.9 million and $3.0 million of dividends
received from CTCT. The carrying amount of the investment in CTCT was
$6.3 million at October 2, 2009 and $7.0 million at January 2, 2009 and is
included in Other non-current assets on the Condensed Consolidated Balance
Sheets.
The
Company acts as a contract manufacturer for CTCT. Products are
manufactured based on orders received from CTCT and are sold at direct cost,
plus a mark-up for the Company’s overhead costs to CTCT. CTCT then
resells products at cost, plus a mark-up in consideration for CTCT’s research
and development efforts to both Caterpillar and to the Company for sales through
their respective distribution channels. Generally, the Company sells products
through its dealer channel, and Caterpillar sells products for factory
installation. CTCT does not have net inventory on its balance sheet
in that the resale of products to Caterpillar and the Company occur
simultaneously when the products are purchased from the
Company. During the three and nine months ended October 2, 2009, the
Company recorded $0.4 million and $1.9 million of revenue, respectively, and
$0.4 million and $1.8 million of cost of sales, respectively, for the
manufacturing of products sold by the Company to CTCT and then sold through the
Caterpillar distribution channel. During the comparable three and
nine months ended September 26, 2008, the Company recorded $2.9 million and $9.1
million of revenue, respectively, and $2.7 million and $8.1 million of cost of
sales, respectively, for the manufacturing of products sold by the Company to
CTCT and then sold through the Caterpillar distribution channel. In
addition, during the three and nine months ended October 2, 2009, the Company
recorded $4.7 million and $15.2 million in net cost of sales for the
manufacturing of products sold by the Company to CTCT and then repurchased by
the Company upon sale through the Company’s distribution channel. The
comparable net cost of sales recorded by the Company for the three and nine
months ended September 26, 2008 were $4.5 million and $18.0 million,
respectively.
In
addition, the Company received reimbursement of employee-related costs from CTCT
for company employees dedicated to CTCT or performance of work for CTCT totaling
$2.5 million and $7.8 million for the three and nine
months ended October 2, 2009, respectively, and totaling
$3.2 million and $10.7 million for the three and nine months ended September 26,
2008, respectively. The reimbursements were offset against operating
expense.
At
October 2, 2009 and January 2, 2009, the Company had amounts due to and from
CTCT. Receivables and payables to CTCT are settled individually with
terms comparable to other non-related parties. The amounts due to and
from CTCT are presented on a gross basis in the Condensed Consolidated Balance
Sheets. At October 2, 2009 and January 2, 2009, the receivables from
CTCT were $4.3 million and $4.1 million, respectively, and are
included within Accounts receivable, net, on the Condensed Consolidated Balance
Sheets. As of the same dates, the payables due to CTCT were
$4.7 million and $3.1 million, respectively, and are included within
Accounts payable on the Condensed Consolidated Balance Sheets.
Nikon-Trimble
Joint Venture
On March
28, 2003, Nikon-Trimble Co., Ltd (Nikon-Trimble), a joint venture, was formed by
the Company and Nikon Corporation. The joint venture began operations
in July 2003 and is 50% owned by the Company and 50% owned by Nikon, with equal
voting rights. It focuses on the design and manufacture of surveying instruments
including mechanical total stations and related products.
The joint
venture is accounted for under the equity method of accounting. Under
the equity method, the Company’s share of profits and losses are included in
Income (loss) from joint ventures, net in the Non-operating income, net section
of the Condensed Consolidated Statements of Income. During the three
and nine months ended October 2, 2009, the Company recorded a loss of
$0.7 million and $1.8 million, respectively, and during the three and
nine months ended September 26, 2008, the Company recorded a profit of $0.2
million and $0.1 million, respectively, as its proportionate share of
Nikon-Trimble net income. During the nine months ended October 2,
2009, there were no dividends received from Nikon-Trimble. During the nine
months ended September 26, 2008, dividends received from Nikon-Trimble, amounted
to $0.2 million, and were recorded against Other non-current assets on the
Condensed Consolidated Balance Sheets. The carrying amount of the
investment in Nikon-Trimble was $12.1 million at October 2, 2009 and $13.9
million at January 2, 2009, and is included in Other non-current assets on the
Condensed Consolidated Balance Sheets.
Nikon-Trimble
is the distributor in Japan for Nikon and the Company’s products. The
Company is the exclusive distributor outside of Japan for Nikon branded survey
products. For products sold by the Company to Nikon-Trimble, revenue is
recognized by the Company on a sell-through basis from Nikon-Trimble to the end
customer.
The terms
and conditions of the sales of products from the Company to Nikon-Trimble are
comparable with those of the standard distribution agreements which the Company
maintains with its dealer channel and margins earned are similar to those from
third party dealers. Similarly, the purchases of product by the Company from
Nikon-Trimble are made on terms comparable with the arrangements which Nikon
maintained with its international distribution channel prior to the formation of
the joint venture with the Company. During the three and nine months
ended October 2, 2009, the Company recorded $3.2 million and $9.6 million of
revenue and $2.1 million and $5.9 million of cost of sales for the manufacturing
of products sold by the Company to Nikon-Trimble for distribution in Japan.
During the three and nine months ended September 26, 2008, the Company recorded
$4.2 million and $13.3 million of revenue and $3.5 million and $9.8 million of
cost of sales for the manufacturing of products sold by the Company to
Nikon-Trimble. The Company also purchases product from Nikon-Trimble
for future sales to third party customers. Purchases of inventory from
Nikon-Trimble were $2.1 million and $6.1 million during the three and nine
months ended October 2, 2009, respectively, and $5.2 million and $12.2 million
during the three and nine months ended September 26, 2008,
respectively.
At
October 2, 2009 and January 3, 2009, the Company had amounts due to and from
Nikon-Trimble. Receivables and payables to Nikon-Trimble are settled
individually with terms comparable to other non-related parties. The
amounts due to and from Nikon-Trimble are presented on a gross basis in the
Condensed Consolidated Balance Sheets. At October 2, 2009 and January 2, 2009,
the amounts due from Nikon-Trimble were $3.3 million and $2.0 million,
respectively, and are included within Accounts receivable, net on the Condensed
Consolidated Balance Sheets. As of the same dates, the amounts due to
Nikon-Trimble were $2.1 million and $2.3 million, respectively, and are included
within Accounts payable on the Condensed Consolidated Balance
Sheets.
NOTE 5.
GOODWILL AND INTANGIBLE ASSETS
Intangible
Assets
Intangible
Assets consisted of the following:
October 2,
2009
|
||||||||||||
(Dollars
in thousands)
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Carrying Amount
|
|||||||||
Developed
product technology
|
$ | 213,850 | $ | (107,217 | ) | $ | 106,633 | |||||
Trade
names and trademarks
|
20,879 | (14,570 | ) | 6,309 | ||||||||
Customer
relationships
|
127,809 | (51,183 | ) | 76,626 | ||||||||
Distribution
rights and other intellectual properties *
|
40,105 | (13,054 | ) | 27,051 | ||||||||
$ | 402,643 | $ | (186,024 | ) | $ | 216,619 |
January 2,
2009
|
||||||||||||
(Dollars
in thousands)
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Carrying Amount
|
|||||||||
Developed
product technology
|
$ | 188,391 | $ | (78,867 | ) | $ | 109,524 | |||||
Trade
names and trademarks
|
20,254 | (13,100 | ) | 7,154 | ||||||||
Customer
relationships
|
124,596 | (40,263 | ) | 84,333 | ||||||||
Distribution
rights and other intellectual properties *
|
37,913 | (10,023 | ) | 27,890 | ||||||||
$ | 371,154 | $ | (142,253 | ) | $ | 228,901 |
(*)
Included within Distribution rights and other intellectual properties is a $25.0
million distribution right that the Company purchased from Caterpillar, a
related party for accounting purposes, during fiscal 2008. The
fair value of the distribution right was estimated using a discounted cash flow
analysis. The distribution right is being amortized over its
estimated economic life of eight years. The $25.0 million
distribution right was accrued in the fourth quarter of fiscal 2008 and paid in
the first quarter of fiscal 2009.
The
estimated future amortization expense of intangible assets as of October 2,
2009, was as follows:
(Dollars
in thousands)
|
||||
2009
(Remaining)
|
$ | 13,637 | ||
2010
|
53,032 | |||
2011
|
47,714 | |||
2012
|
39,951 | |||
2013
|
35,190 | |||
Thereafter
|
27,095 | |||
Total
|
$ | 216,619 |
Goodwill
The
changes in the carrying amount of goodwill by operating segment for the nine
months ended October 2, 2009, were as follows:
Engineering
and Construction
|
Field
Solutions
|
Mobile
Solutions
|
Advanced
Devices
|
Total
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Balance
as of January 2, 2009
|
$
|
363,908
|
$
|
10,651
|
$
|
328,721
|
$
|
12,291
|
$
|
715,571
|
||||||||||
Additions
due to acquisitions
|
10,017
|
16,392
|
1,152
|
-
|
27,561
|
|||||||||||||||
Purchase
price adjustments
|
5,103
|
(266)
|
1,147
|
-
|
5,984
|
|||||||||||||||
Foreign
currency translation adjustments
|
12,775
|
32
|
1,894
|
1,667
|
16,368
|
|||||||||||||||
Balance
as of October 2, 2009
|
$
|
391,803
|
$
|
26,809
|
$
|
332,914
|
$
|
13,958
|
$
|
765,484
|
The
purchase price adjustments relate primarily to previous business acquisitions
which closed prior to fiscal 2009. Of the total purchase price
adjustments of $6.0 million recorded during the nine months ended October 2,
2009, earn-out payments of $7.5 million were offset by a decrease of $1.1
million in tax adjustments and $0.4 million in other purchase price allocation
adjustments.
NOTE 6.
CERTAIN BALANCE SHEET COMPONENTS
Inventories,
net consisted of the following:
October 2,
|
January 2,
|
|||||||
As
of
|
2009
|
2009
|
||||||
(Dollars
in thousands)
|
||||||||
Raw
materials
|
$
|
67,203
|
$
|
71,319
|
||||
Work-in-process
|
5,001
|
5,551
|
||||||
Finished
goods
|
88,216
|
84,023
|
||||||
Total
inventories, net
|
$
|
160,420
|
$
|
160,893
|
Deferred
costs of revenue are included within finished goods and were $20.9 million
at October 2, 2009 and $15.4 million at January 2, 2009.
Other
non-current liabilities consisted of the following:
October 2,
|
January 2,
|
|||||||
As
of
|
2009
|
2009
|
||||||
(Dollars
in thousands)
|
||||||||
Deferred
compensation
|
$
|
8,061
|
$
|
6,631
|
||||
Unrecognized
tax benefits
|
36,134
|
34,275
|
||||||
Other
non-current liabilities
|
20,559
|
20,647
|
||||||
Total
other non-current liabilities
|
$
|
64,754
|
$
|
61,553
|
As of
October 2, 2009 and January 2, 2009, the Company had $36.1 million and $34.3
million, respectively, of unrecognized tax benefits included in Other
non-current liabilities that, if recognized, would favorably affect the
effective income tax rate in future periods and interest and/or penalties
related to income tax matters.
NOTE 7.
SEGMENT INFORMATION
The
Company is a designer and distributor of positioning solutions enabled by GPS,
optical, laser, and wireless communications technology. The Company provides
products for diverse applications in its targeted markets.
To
achieve distribution, marketing, production, and technology advantages, the
Company manages its operations in the following four segments:
·
|
Engineering
and Construction — Consists of products currently used by survey and
construction professionals in the field for positioning, data collection,
field computing, data management, and machine guidance and control. The
applications served include surveying, road, runway, construction, site
preparation, and building
construction.
|
·
|
Field
Solutions — Consists of products that provide solutions in a variety of
agriculture and geographic information systems (GIS) applications. In
agriculture, these include precise land leveling and machine guidance
systems. In GIS, these include handheld devices and software that enable
the collection of data on assets for a variety of governmental and private
entities.
|
·
|
Mobile
Solutions — Consists of products that enable end-users to monitor and
manage their mobile assets by communicating location and activity-relevant
information from the field to the office. The Company offers a range of
products that address a number of sectors of this market including truck
fleets, security, and public safety
vehicles.
|
·
|
Advanced
Devices — The various operations that comprise this segment are aggregated
on the basis that no single operation accounts for more than 10% of the
Company’s total revenue, operating income, and assets. This segment is
comprised of the Component Technologies, Military and Advanced Systems,
Applanix, and Trimble Outdoors
businesses.
|
The
Company evaluates each of its segment's performance and allocates resources
based on segment operating income from operations before income taxes and some
corporate allocations. The Company and each of its segments employ consistent
accounting policies.
The
following table presents revenue, operating income, and identifiable assets for
the four segments. Operating income is revenue less cost of sales and operating
expense, excluding general corporate expense, amortization of purchased
intangibles, amortization of inventory step-up charges, in-process research and
development expense, non-recurring acquisition costs, restructuring charges,
non-operating income, net, and income tax provision. The identifiable assets
that the Company's Chief Operating Decision Maker, its Chief Executive Officer,
views by segment are accounts receivable and inventories.
Reporting
Segments
|
||||||||||||||||||||
Engineering
and Construction
|
Field
Solutions
|
Mobile
Solutions
|
Advanced
Devices
|
Total
|
||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||
Three
Months Ended October 2, 2009
|
||||||||||||||||||||
Segment
revenue
|
$ | 149,384 | $ | 55,654 | $ | 39,572 | $ | 25,103 | $ | 269,713 | ||||||||||
Operating
income
|
21,131 | 16,286 | 3,367 | 4,488 | 45,272 | |||||||||||||||
Three
Months Ended September 26, 2008
|
||||||||||||||||||||
Segment
revenue
|
$ | 191,858 | $ | 64,354 | $ | 40,822 | $ | 31,053 | $ | 328,087 | ||||||||||
Operating
income
|
41,560 | 22,058 | 3,602 | 6,835 | 74,055 | |||||||||||||||
Nine
Months Ended October 2, 2009
|
||||||||||||||||||||
Segment
revenue
|
$ | 424,275 | $ | 234,598 | $ | 116,925 | $ | 72,932 | $ | 848,730 | ||||||||||
Operating
income
|
42,800 | 88,637 | 10,163 | 13,633 | 155,233 | |||||||||||||||
Nine
Months Ended September 26, 2008
|
||||||||||||||||||||
Segment
revenue
|
$ | 599,057 | $ | 242,461 | $ | 127,118 | $ | 92,514 | $ | 1,061,150 | ||||||||||
Operating
income
|
123,675 | 91,961 | 7,997 | 18,105 | 241,738 | |||||||||||||||
As
of October 2, 2009
|
||||||||||||||||||||
Accounts
receivable
|
$ | 120,163 | $ | 38,796 | $ | 27,942 | $ | 15,552 | $ | 202,453 | ||||||||||
Inventories
|
101,832 | 23,975 | 18,251 | 16,362 | 160,420 | |||||||||||||||
As
of January 2, 2009
|
||||||||||||||||||||
Accounts
receivable
|
$ | 125,734 | $ | 37,791 | $ | 23,736 | $ | 17,008 | $ | 204,269 | ||||||||||
Inventories
|
104,934 | 21,778 | 16,391 | 17,790 | 160,893 |
Unallocated
corporate expense includes general corporate expense, amortization of inventory
step-up charges, in-process research and development expense, and non-recurring
acquisition costs. A reconciliation of the Company’s consolidated
segment operating income to consolidated income before income taxes is as
follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October
2,
|
September
26,
|
October
2,
|
September
26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Consolidated
segment operating income
|
$ | 45,272 | $ | 74,055 | $ | 155,233 | $ | 241,738 | ||||||||
Unallocated
corporate expense
|
(10,345 | ) | (8,405 | ) | (33,992 | ) | (30,058 | ) | ||||||||
Amortization
of purchased intangible assets
|
(13,620 | ) | (11,143 | ) | (38,968 | ) | (32,865 | ) | ||||||||
Restructuring
charges
|
(1,142 | ) | (451 | ) | (9,130 | ) | (3,795 | ) | ||||||||
Consolidated
operating income
|
20,165 | 54,056 | 73,143 | 175,020 | ||||||||||||
Non-operating
income, net
|
1,396 | 1,563 | 1,795 | 7,453 | ||||||||||||
Consolidated
income before taxes
|
$ | 21,561 | $ | 55,619 | $ | 74,938 | $ | 182,473 |
NOTE 8.
LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES
Long-term
debt consisted of the following:
October 2,
|
January 2,
|
|||||||
As
of
|
2009
|
2009
|
||||||
(Dollars
in thousands)
|
||||||||
Credit
Facilities:
|
||||||||
Revolving
credit facility
|
$ | 151,000 | $ | 151,000 | ||||
Promissory
notes and other
|
504 | 588 | ||||||
Total
debt
|
151,504 | 151,588 | ||||||
Less
current portion of long-term debt
|
49 | 124 | ||||||
Non-current
portion
|
$ | 151,455 | $ | 151,464 |
Credit
Facilities
On July
28, 2005, the Company entered into a $200 million unsecured revolving credit
agreement (the 2005 Credit Facility) with a syndicate of 10 banks with The Bank
of Nova Scotia as the administrative agent. On February 16, 2007, the
Company amended its existing $200 million unsecured revolving credit agreement
with a syndicate of 11 banks with The Bank of Nova Scotia as the administrative
agent (the 2007 Credit Facility). Under the 2007 Credit Facility, the Company
exercised the option in the existing credit agreement to increase the
availability under the revolving credit line by $100 million, for an aggregate
availability of up to $300 million, and extended the maturity date of the
revolving credit line by 18 months, from July 2010 to February
2012. Up to $25 million of the availability under the revolving
credit line may be used to issue letters of credit, and up to $20 million may be
used to pay off other debts or loans. The maximum leverage ratio
under the 2007 Credit Facility is 3.00:1.00. The funds
available under the 2007 Credit Facility may be used by the Company for
acquisitions, stock repurchases, and general corporate purposes. As of August
20, 2008, the Company amended its 2007 Credit Facility
to allow it to redeem, retire or purchase common stock of the Company
without limitation so long as no default or unmatured default then existed, and
leverage ratio for the two most recently completed periods was less than
2.00:1.00. In addition, the definition of the fixed charge was amended to
exclude the impact of redemptions, retirements, or purchases common stock
of the Company from the fixed charges coverage ratio.
In
addition, during the first quarter of fiscal 2007 the Company incurred a
five-year term loan under the 2007 Credit Facility in an aggregate principal
amount of $100 million, which was repaid in full during fiscal
2008. As of October 2, 2009, the Company had an outstanding balance
on the revolving credit line of $151.0 million which was drawn down in the third
and the fourth quarters of fiscal 2008.
The
Company may borrow funds under the 2007 Credit Facility in U.S. Dollars or in
certain other currencies, and borrowings will bear interest, at the Company's
option, at either: (i) a base rate, based on the administrative agent's prime
rate, plus a margin of between 0% and 0.125%, depending on the Company's
leverage ratio as of its most recently ended fiscal quarter, or (ii) a
reserve-adjusted rate based on the London Interbank Offered Rate (LIBOR), Euro
Interbank Offered Rate (EURIBOR), Stockholm Interbank Offered Rate (STIBOR),
or other agreed-upon rate, depending on the currency borrowed, plus a
margin of between 0.625% and 1.125%, depending on the Company's leverage ratio
as of the most recently ended fiscal quarter. The Company's obligations under
the 2007 Credit Facility are guaranteed by certain of the Company's domestic
subsidiaries.
The 2007
Credit Facility contains customary affirmative, negative, and financial
covenants including, among other requirements, negative covenants that restrict
the Company's ability to dispose of assets, create liens, incur indebtedness,
repurchase stock, pay dividends, make acquisitions, make investments, enter into
mergers and consolidations, and make capital expenditures, within certain
limitations, and financial covenants that require the maintenance of leverage
and fixed charge coverage ratios. The 2007 Credit Facility contains events of
default that include, among others, non-payment of principal, interest or fees,
breach of covenants, inaccuracy of representations and warranties, cross
defaults to certain other indebtedness, bankruptcy and insolvency events,
material judgments, and events constituting a change of control. Upon the
occurrence and during the continuance of an event of default, interest on the
obligations will accrue at an increased rate and the lenders may accelerate the
Company's obligations under the 2007 Credit Facility, however that acceleration
will be automatic in the case of bankruptcy and insolvency events of default. As
of October 2, 2009, the Company was in compliance with all financial debt
covenants.
Notes
Payable
As of
October 2, 2009 and January 2, 2009, the Company had notes payable totaling
approximately $504,000 and $588,000, respectively, primarily consisting of
government loans to foreign subsidiaries.
Leases
and other commitments
The
estimated future minimum operating lease commitments as of October 2, 2009, were
as follows:
(Dollars
in thousands)
|
||||
2009
(Remaining)
|
$ | 4,926 | ||
2010
|
16,204 | |||
2011
|
10,502 | |||
2012
|
7,784 | |||
2013
|
2,730 | |||
Thereafter
|
970 | |||
Total
|
$ | 43,116 |
Additionally,
as of October 2, 2009, the Company had acquisition-related earn-outs of $2.2
million and holdbacks of $20.3 million recorded in Other current liabilities and
Other non-current liabilities. The maximum remaining payments, including the
$2.2 million and $20.3 million recorded, will not exceed $48.2
million. The remaining payments are based upon targets achieved or
events occurring over time that would result in amounts paid that may be lower
than the maximum remaining payments. The remaining earn-outs and
holdbacks are payable through 2012.
At
October 2, 2009, the Company had unconditional purchase obligations of
approximately $46.7 million. These unconditional purchase obligations primarily
represent open non-cancelable purchase orders for material purchases with the
Company’s vendors. Purchase obligations exclude agreements that are cancelable
without penalty. These unconditional purchase obligations are related primarily
to inventory and other items.
NOTE
9. FAIR VALUE
As
discussed in Note 2, the Company adopted in the first quarter of 2008,
guidance on fair value measurements, which defines fair value, establishes a
framework for measuring fair value, and requires enhanced disclosures about
assets and liabilities measured at fair value, except for those items deferred
which the Company adopted in the first quarter of fiscal 2009. Fair value is
defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties. A liability’s fair value is
defined as the amount that would be paid to transfer the liability to a new
obligor, not the amount that would be paid to settle the liability with the
creditor. Where available, fair value is based on observable market prices or
parameters or derived from such prices or parameters. Where observable prices or
inputs are not available, valuation models are applied. These valuation
techniques involve some level of management estimation and judgment, the degree
of which is dependent on the price transparency for the instruments or market,
and the instruments’ complexity.
Assets
and liabilities, recorded at fair value on a recurring basis in the Condensed
Consolidated Balance Sheets, are categorized based upon the level of judgment
associated with the inputs used to measure their fair value. Hierarchical
levels, defined by the guidance on fair value measurements are directly related
to the amount of subjectivity associated with the inputs to fair valuation of
these assets and liabilities, and are as follows:
Level I –
Observable inputs such as unadjusted, quoted prices in active markets for
identical assets or liabilities at the measurement date.
Level II
– Inputs (other than quoted prices included in Level I) are either directly or
indirectly observable for the asset or liability. These include
quoted prices for similar assets or liabilities in active markets and quoted
prices for identical or similar assets or liabilities in markets that are not
active.
Level III
– Unobservable inputs that reflect management’s best estimate of what market
participants would use in pricing the asset or liability at the measurement
date. Consideration is given to the risk inherent in the valuation technique and
the risk inherent in the inputs to the model.
Fair
Value on a Recurring Basis
Assets
and liabilities measured at fair value on a recurring basis are categorized in
the tables below based upon the lowest level of significant input to the
valuations.
Fair
Values as of October 2, 2009
|
||||||||||||||||
(Dollars
in thousands)
|
Level
I
|
Level
II
|
Level
III
|
Total
|
||||||||||||
Assets
|
||||||||||||||||
Money
market funds(1)
|
$ | 51,007 | $ | - | $ | - | $ | 51,007 | ||||||||
U.S.
Treasury bills (1)
|
7,000 | - | - | 7,000 | ||||||||||||
Deferred
compensation plan assets (2)
|
- | 8,312 | - | 8,312 | ||||||||||||
Derivative
assets (3)
|
- | 960 | - | 960 | ||||||||||||
Total
|
$ | 58,007 | $ | 9,272 | $ | - | $ | 67,279 | ||||||||
Liabilities
|
||||||||||||||||
Deferred
compensation plan liabilities (2)
|
$ | - | $ | 8,060 | $ | - | $ | 8,060 | ||||||||
Derivative
liabilities (3)
|
- | 92 | - | 92 | ||||||||||||
Contingent
consideration liability (4)
|
- | - | 2,200 | 2,200 | ||||||||||||
Total
|
$ | - | $ | 8,152 | $ | 2,200 | $ | 10,352 |
(1)
|
The
Company may invest in highly liquid investments such as money market funds
and U.S. Treasury bills. The fair values are determined using observable
quoted prices in active markets. Money market funds are included in Cash
and cash equivalents on the Company’s Condensed Consolidated Balance
Sheets. U.S. Treasury bills are included in Short-term investments on the
Company’s Condensed Consolidated Balance Sheets. The Company classifies
these investments as available for sale and the unrealized gain or loss on
these investments is not material. The U.S. Treasury bills held by the
Company as of October 2, 2009 will mature in the fourth quarter of fiscal
2009.
|
(2)
|
The
Company maintains a self-directed, non-qualified deferred compensation
plan for certain executives and other highly compensated employees. The
investment assets and liabilities included in Level II are valued using
quoted prices for similar assets or liabilities in active markets and
quoted prices for identical or similar assets or liabilities in markets
that are not active. Deferred compensation plan assets and liabilities are
included in Other non-current assets and Other non-current liabilities on
the Company’s Condensed Consolidated Balance
Sheets.
|
(3)
|
Derivative
assets and liabilities included in Level II primarily represent
forward currency exchange contracts. The Company enters into these
contracts to minimize the short-term impact of foreign currency
fluctuations on certain trade and inter-company receivables and payables.
The derivatives are not designated as hedging instruments. The fair values
are determined using inputs based on observable quoted prices. Derivative
assets and liabilities are included in Other current assets and Other
current liabilities, respectively, on the Company’s Condensed Consolidated
Balance Sheets.
|
(4)
|
A
contingent consideration arrangement requires the Company to pay the
former owner of one of the companies it acquired during fiscal 2009 up to
an undiscounted maximum amount of $4.5 million, based on future revenues
over a 3 year period. The potential undiscounted amount of all
future payments that the Company could be required to make under the
contingent consideration arrangement is between $0 and $4.5
million. The Company estimated the fair value of this liability
using probability-weighted revenue projections and discount rates ranging
from 0.37% to 1.38%. Of the total contingent
consideration liability, $0.3 million and $1.9 million were included in
Other current liabilities and Other non-current liabilities, respectively,
on the Company’s Condensed Consolidated Balance
Sheets.
|
The table
below sets forth a summary of changes in the fair value of the Level III
contingent consideration liability for the nine month ended October 2,
2009.
Level
III liabilities
|
||||
As
of
|
October 2,
2009
|
|||
(Dollars
in thousands)
|
||||
Balance
as of January 2, 2009
|
$ | - | ||
Acquisitions
|
2,200 | |||
Balance
as of October 2, 2009
|
$ | 2,200 |
Additional
Fair Value Information
The
following table provides additional fair value information relating to the
Company’s financial instruments outstanding:
Carrying
Amount
|
Fair
Value
|
Carrying
Amount
|
Fair
Value
|
|||||||||||||
As
of
|
October 2,
2009
|
January 2,
2009
|
||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Assets:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 215,099 | $ | 215,099 | $ | 142,531 | $ | 142,531 | ||||||||
Short-term
investments
|
7,000 | 7,000 | 5,000 | 5,000 | ||||||||||||
Forward
foreign currency exchange contracts
|
960 | 960 | 627 | 627 | ||||||||||||
Liabilities:
|
||||||||||||||||
Credit
facility
|
$ | 151,000 | $ | 146,965 | $ | 151,000 | $ | 127,754 | ||||||||
Forward
foreign currency exchange contracts
|
92 | 92 | 1,775 | 1,775 | ||||||||||||
Promissory
note and other
|
504 | 500 | 588 | 554 |
The fair
value of the bank borrowings and promissory notes has been calculated using an
estimate of the interest rate the Company would have had to pay on the issuance
of notes with a similar maturity and discounting the cash flows at that rate.
The fair values do not give an indication of the amount that Trimble would
currently have to pay to extinguish any of this debt.
NOTE 10.
PRODUCT WARRANTIES
The
Company accrues for warranty costs as part of its cost of sales based on
associated material product costs, technical support labor costs, and costs
incurred by third parties performing work on the Company's
behalf. The Company’s expected future costs are primarily estimated
based upon historical trends in the volume of product returns within the
warranty period and the costs to repair or replace the equipment. The products
sold are generally covered by a warranty for periods ranging from 90 days to
three years, and in some instances up to 5.5 years.
While the
Company engages in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of component suppliers, its
warranty obligation is affected by product failure rates, material usage, and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage, or service delivery costs differ from the
estimates, revisions to the estimated warranty accrual and related costs may be
required.
Changes
in the Company’s product warranty liability during the nine months ended October
2, 2009 were as follows:
(Dollars
in thousands)
|
||||
Balance
as of January 2, 2009
|
$ | 13,332 | ||
Accruals
for warranties issued
|
14,552 | |||
Changes
in estimates
|
2,779 | |||
Warranty
settlements (in cash or in kind)
|
(16,582 | ) | ||
Balance
as of October 2, 2009
|
$ | 14,081 |
NOTE 11.
EARNINGS PER SHARE
The
following data was used in computing earnings per share and the effect on the
weighted-average number of shares of potentially dilutive common
stock.
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands, except per share amounts)
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Net
income attributable to Trimble Navigation Ltd.
|
$ | 15,577 | $ | 39,067 | $ | 53,899 | $ | 127,733 | ||||||||
Denominator:
|
||||||||||||||||
Weighted
average number of common shares used in basic earnings per
share
|
120,047 | 120,603 | 119,620 | 121,171 | ||||||||||||
Effect
of dilutive securities (using treasury stock method):
|
||||||||||||||||
Common
stock options and restricted stock units
|
2,807 | 3,820 | 2,273 | 3,893 | ||||||||||||
Common
stock warrants
|
- | - | - | 7 | ||||||||||||
Weighted
average number of common shares and dilutive potential common shares used
in diluted earnings per share
|
122,854 | 124,423 | 121,893 | 125,071 | ||||||||||||
Basic
earnings per share
|
$ | 0.13 | $ | 0.32 | $ | 0.45 | $ | 1.05 | ||||||||
Diluted
earnings per share
|
$ | 0.13 | $ | 0.31 | $ | 0.44 | $ | 1.02 |
For the
three months ended October 2, 2009 and September 26, 2008, the Company excluded
4.9 million and 1.7 million shares of outstanding stock options, respectively,
from the calculation of diluted earnings per share. For the nine months ended
October 2, 2009 and September 26, 2008, the Company excluded 4.9 million and 1.5
million shares of outstanding stock options, respectively, from the calculation
of diluted earnings per share. These shares were excluded from the three and
nine month periods because the exercise prices of these stock options were
greater than or equal to the average market value of the common shares during
the respective periods. Inclusion of these shares would be
antidilutive. These options could be included in the calculation in the
future if the average market value of the common shares increases and is greater
than the exercise price of these options.
NOTE 12:
RESTRUCTURING CHARGES:
Restructuring
expense for the three and nine months ended October 2, 2009 and September 26,
2008 was as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
(Dollars
in thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Severance
and benefits
|
$ | 1,142 | $ | 451 | $ | 9,130 | $ | 3,795 |
During
the three and nine months ended October 2, 2009, restructuring expense of $1.1
million and $9.1 million , respectively, was related to decisions to
streamline processes and reduce the cost structure of the Company, with
approximately 300 positions eliminated. As a result of the decisions
made through the third quarter of fiscal 2009, the Company expects restructuring
activities to result in additional restructuring expense totaling approximately
$0.3 million through the fourth quarter of fiscal 2009. During the three and
nine months ended October 2, 2009, of the total restructuring
expense, $0.9 million and $5.8 million, respectively, was
shown as a separate line within Operating expense, and $0.2 million
and $3.3 million, respectively, was included within Cost of sales on
the Company’s Condensed Consolidated Statements of Income.
During
the three and nine months ended September 26, 2008, restructuring expense of
$0.5 million and $3.8 million, respectively, was related to decisions to
streamline processes and reduce the cost structure of the Company, with
approximately 90 positions eliminated. During the three and nine months ended
September 26, 2008, of the total restructuring expense, $0.1 million and $2.4
million, respectively, was shown as a separate line within Operating expense,
and $0.4 million and $1.4 million, respectively, was included within Cost of
sales on the Company’s Condensed Consolidated Statements of Income.
Restructuring
liability:
The
following table summarizes the restructuring activity for the nine months ended
October 2, 2009:
(Dollars
in thousands)
|
||||
Balance
as of January 2, 2009
|
$ | 1,917 | ||
Charges
|
9,130 | |||
Payments
|
(7,513 | ) | ||
Adjustments
|
289 | |||
Balance
as of October 2, 2009
|
$ | 3,823 |
The $3.8
million restructuring accrual consisted of severance and benefits and was
included in Other current liabilities. It is expected to be paid through the
first quarter of fiscal 2010.
NOTE 13:
INCOME TAXES
The
Company’s effective income tax rate for the three months and nine months ended
October 2, 2009 was 26.5% and 27.0 %, respectively, as compared to 29.8% and
30.0% for the three months and nine months ended September 26, 2008,
respectively.
The
Company and its U.S. subsidiaries are subject to U.S. federal and state income
tax. The Company has substantially concluded all U.S. federal and
state income tax matters for years through 1992. Generally, non-U.S.
income tax matters have been concluded for years through 2000. The Company is
currently in various stages of multiple year examinations by Federal, State, and
foreign taxing authorities. The Company does not anticipate a significant impact
to the unrecognized tax benefits balance with respect to current tax
examinations. Although the timing of the resolution and/or the
closure on audits is highly uncertain, the Company does not believe that the
unrecognized tax benefits would materially change in the next twelve
months.
The
amount of liabilities for unrecognized tax benefits (net of the federal benefit
on state issues) that, if recognized, would favorably affect the effective
income tax rate in any future period are $39.4 million and $37.3 million at
October 2, 2009 and January 2, 2009, respectively. The unrecognized
tax benefits are recorded in Other non-current liabilities and within the
deferred tax accounts in the accompanying Condensed Consolidated Balance
Sheets.
The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. The Company’s unrecognized tax
benefit liabilities include interest and penalties at October 2, 2009 and
January 2, 2009, of $5.0 million and $4.4 million, respectively, which were
recorded in Other non-current liabilities in the accompanying Condensed
Consolidated Balance Sheets.
On
September 30, 2008, the State of California enacted Assembly Bill 1452 into law
which among other provisions, suspends net operating loss deductions for 2008
and 2009 and extends the carryforward period of any net operating losses not
utilized due to such suspension, adopts the federal 20-year net operating loss
carryforward period, phases-in the federal two-year net operating loss carryback
periods beginning in 2011, and limits the utilization of tax credits to the
extent of 50 percent of a taxpayer’s tax liability before tax
credits.
The
Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension
Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008
(HR1424) were
signed into law on October 3, 2008. This legislation includes a
provision that retroactively extends the research tax credit from
January 1, 2008 to December 31, 2009. The impact in 2008 was a
tax benefit of $1.9 million and an expected tax benefit of $1.5 million in
2009.
As of
February 20, 2009, California enacted elective legislation under CR & TC
25128.5 to use the single sales factor apportionment formula. The
impact of this legislation resulted in a tax benefit of $0.8 million for the
nine month period ended October 2, 2009.
NOTE 14:
COMPREHENSIVE INCOME:
The
components of comprehensive income, net of related tax, were as
follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Net
income attributable to Trimble Navigation Ltd.
|
$ | 15,577 | $ | 39,067 | $ | 53,899 | $ | 127,733 | ||||||||
Foreign
currency translation adjustments
|
14,387 | (19,835 | ) | 23,562 | (1,688 | ) | ||||||||||
Net
unrealized gain on investments/actuarial gain (loss)
|
133 | (152 | ) | 243 | (176 | ) | ||||||||||
Comprehensive
income attributable to Trimble Navigation Ltd.
|
30,097 | 19,080 | 77,704 | 125,869 | ||||||||||||
Comprehensive
income attributable to the noncontrolling interests
|
367 | - | 1,089 | - | ||||||||||||
Comprehensive
income
|
$ | 30,464 | $ | 19,080 | $ | 78,793 | $ | 125,869 |
This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are subject to the
“safe harbor” created by those sections. Actual results could differ materially
from those indicated in the forward-looking statements due to a number of
factors including, but not limited to, the risk factors discussed in “Risk
Factors” below and elsewhere in this report as well as in the Company's Annual
Report on Form 10-K for fiscal year 2008 and other reports and documents that
the Company files from time to time with the Securities and
Exchange Commission. The Company has attempted
to identify forward-looking statements in this report by placing an asterisk (*)
before paragraphs. Discussions containing such forward-looking statements
may be found in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” below. In some cases, forward-looking statements can be
identified by terminology such as “may,” ”will,” “should,” “could,” “predicts,”
“potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,”
“believes,” “estimates,” and similar expressions. These forward-looking
statements are made as of the date of this Quarterly Report on Form 10-Q, and
the Company disclaims any obligation to update these statements or to explain
the reasons why actual results may differ.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
discussion and analysis of our financial condition and results of operations are
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the 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, 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 changes to our significant accounting polices during the nine
months ended October 2, 2009 from those disclosed in our 2008 Form
10-K.
Recent
Accounting Pronouncements
Updates
to recent accounting standards as disclosed in our Annual Report on Form 10-K
for the fiscal year ended January 2, 2009 are as follows:
In
September 2006, the FASB issued accounting guidance on fair value measurements.
This standard, which is now codified under the Fair Value Measurements
and Disclosures Topic of the FASB Accounting Standards Codification,
clarifies the definition of fair value, establishes a framework for measuring
fair value within GAAP, and expands the disclosures regarding fair value
measurements. In February 2008, the FASB deferred the effective date
of the guidance to fiscal years beginning after November 15, 2008 and interim
periods within those fiscal years for nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. We adopted the fair value measurement
guidance in the first quarter of fiscal 2008, except for those items
specifically deferred by the FASB, which were adopted in the first quarter of
fiscal 2009. The adoption did not have a material impact on our financial
position, results of operations, or cash flows.
In
December 2007, the FASB issued revised accounting guidance on business
combinations. This revised standard, now codified under the Business Combination
Topic of the FASB Accounting Standards Codification, establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed and any
non-controlling interest in the acquiree, and recognizes and measures the
goodwill acquired in the business combination or a gain from a bargain
purchase. The guidance also sets forth the disclosures required to be
made in the financial statements to evaluate the nature and financial effects of
the business combination. The guidance applies prospectively to business
combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008.
Accordingly, we adopted this guidance in the first quarter of fiscal
2009. We expect the implementation of the new guidance to have an
impact on our financial position, results of operations, or cash flows, but the
nature and magnitude of the specific effects will depend largely upon the nature
and size of our business combinations. The adoption of the guidance did
not have a material impact in the first nine months of fiscal 2009.
In
December 2007, the FASB issued guidance related to the accounting for
noncontrolling interests in consolidated financial statements. The guidance, now
codified under the Consolidation Topic
of the FASB Accounting Standards Codification, changed the accounting and
reporting for minority interests, which were re-characterized as noncontrolling
interests and classified as a component of equity. This new consolidation method
significantly changed the accounting for transactions with minority interest
holders. The guidance required retroactive adoption of the
presentation and disclosure requirements for previously existing minority
interests. All other requirements of the guidance are applied
prospectively. We adopted this new accounting guidance in the first
quarter of fiscal 2009. The adoption of the guidance did not have a
material impact on our financial position, results of operations, or cash
flows.
In March
2008, the FASB issued accounting guidance on disclosures about derivative
instruments and hedging activities. The new accounting guidance, now codified
under the Derivatives and Hedging
Topic of the FASB Accounting Standards Codification, requires enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. We adopted this new accounting
guidance in the first quarter of fiscal 2009. The adoption of
the guidance did not have an impact on our financial position, results of
operations, or cash flows.
In May
2009, the FASB issued accounting guidance on subsequent events. The standard,
now codified under the Subsequent Events
Topic of the FASB Accounting Standards Codification, became effective for
and was adopted by us during the second quarter of fiscal 2009. The
guidance establishes the accounting for and disclosure of events that occur
after the balance sheet date but before financial statements are issued or are
available to be issued. Specifically, this guidance sets forth the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements, and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date.
The guidance is effective for interim or annual financial periods ending after
June 15, 2009. The adoption of the guidance did not have an impact on
our financial position, results of operations or cash flows, other than the
disclosures required by the guidance.
In June
2009, the FASB issued accounting guidance which changes the consolidation
guidance applicable to a variable interest entity (“VIE”). The guidance, now
codified under the Consolidation Topic
of the FASB Accounting Standards Codification, also amends the guidance
governing the determination of whether an enterprise is the primary beneficiary
of a VIE, and is, therefore, required to consolidate an entity, by requiring a
qualitative analysis rather than a quantitative analysis. The qualitative
analysis will include, among other things, consideration of who has the power to
direct the activities of the entity that most significantly impact the entity’s
economic performance and who has the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant to the VIE.
This guidance also requires continuous reassessments of whether an enterprise is
the primary beneficiary of a VIE. Previously, GAAP required reconsideration of
whether an enterprise was the primary beneficiary of a VIE only when specific
events had occurred. We are required to adopt this guidance
beginning in fiscal 2010. We are evaluating the impact of the adoption of
the guidance on our financial position, results of operations and cash
flows.
In June
2009, the FASB issued guidance which establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with U.S. GAAP. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative U.S. GAAP for SEC registrants. The Codification is
effective for financial statements issued for interim and annual periods ending
after September 15, 2009. The Codification supersedes all accounting
standards in U.S. GAAP, aside from those issued by the SEC. We adopted
this guidance in the third quarter of fiscal 2009. The adoption did not have an
impact on our financial position, results of operations, or cash
flows.
In
October 2009, the FASB issued revised guidance on multiple-deliverable revenue
arrangements which requires entities to allocate revenue in an arrangement using
estimated selling prices of the delivered goods and services based on a selling
price hierarchy, and eliminates the residual method of revenue
allocation. It also requires revenue to be allocated using the
relative selling price method. The FASB also issued accounting
guidance on the applicability of software revenue accounting for certain
arrangements that include software elements, which remove tangible products from
the scope of software revenue guidance and provides guidance on determining
whether software deliverables in an arrangement that includes a tangible product
are covered by the scope of the software revenue guidance. The guidance on
both of these topics, which are now codified under the Revenue Recognition
Topic of the FASB Accounting Standards Codification, should be applied on
a prospective basis for revenue arrangements entered into or materially modified
in fiscal years beginning on or after June 15, 2010, with early adoption
permitted. We are evaluating the expected impact of the new revenue guidance on
our financial position, results of operations and cash flows, and when we will
adopt the revised guidance.
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 the new Excavator DDS300 Depth Display system, which provides
dynamic depth display for compacting equipment to improve the accuracy and
productivity of trenching, excavating and grading operations, and the AllTrak™
Asset Management system, which is designed to help contractors manage their
construction equipment and tools. New versions of the GCS900 Grade
Control system for milling machines and the LM80 Layout Manager were also
released. We further expanded our Trimble Access software to include
Spatial Imaging and Monitoring technology. The new software extends
the benefits of Trimble Access to make sophisticated 3D scanning easier, faster,
and more intuitive for the surveying community.
In our
Field Solutions Segment, we introduced the Ag3000 modem for use as part of a
Trimble GPS Autopilot™ system. The modem allows farmers to improve
machine guidance accuracy by accessing network correction signals that use
Trimble VRS technology via a cellular connection. We also
introduced the TrueGuide Implement Guidance system which allows a tractor,
equipped with Trimble Autopilot™ and an FmX display, to pull an implement along
a more accurate line without additional steering hardware. In addition, we also
released the Utility Center Mainenance-2 software module to help utilities
maintain and manage all types of plant equipment in one solution and the Utility
Center Field Inspector software, which provides a robust handheld field
maintenance inspection solution for optimizing utility field
operations.
In our
Mobile Solutions segment, we introduced Trimble® Performance Manager, a unique
business intelligence application that alerts companies managing field
operations when there is a deviation between what is planned and what is
actually occurring in the field. This allows cost reductions through
fewer miles driven and better utilization of fleet vehicles, which also
decreases an organization's carbon footprint. In our
Advanced Devices segment, we introduced the AP series of embedded GNSS-Inertial
OEM boards plus IMU with advanced Maxwell™ technology and Applanix In-Fusion™
GNSS-Inertial integration technology, enabling continuous mobile positioning and
high-accuracy orientation in poor signal environments. We also
introduced the BD970, a 220 channel, Real-Time Kinematic (RTK) GNSS receiver
module for precise positioning OEM applications. All of these
products strengthened our competitive position and created new value for the
user.
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
Engineering and Construction segment, we expanded the Trimble VRS Now service to
the Czech Republic and Mississippi. Also within Engineering and Construction, we
introduced the Trimble Digital Pen which converts form and markup information to
digital data allowing notes, sketches, data and markups to be aggregated into
the original file and tracked by user, pen and time. In our Field Solutions
segment, the acquisition of Farm Works’ assets continues the expansion of our
Precision Agriculture Solutions business with the addition of Farm Works
software solutions for information and farm operations management.
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. Our efforts
are focused in emerging markets in Africa, China, India, the Middle-East and
Russia.
RECENT
BUSINESS DEVELOPMENTS
The
following companies and joint ventures were acquired or formed during the twelve
months ended October 2, 2009 and are combined in our results of
operations since the date of acquisition or formation:
Farm
Works
On July
16, 2009, we acquired the assets of privately-held CTN Data Service, LLC,
creator of Farm Works software, located in Hamilton, Indiana. Farm Works
provides integrated office and mobile software solutions for both the farmer and
agriculture service professional. Farm Works’ performance is reported under our
Field Solutions business segment.
Accutest
On June
5, 2009, we acquired Accutest Engineering Solutions Ltd, based in Derbyshire,
UK. Accutest is a leading provider of vehicle diagnostics and telematics
technologies for the automotive industry. Accutest’s performance is reported
under our Mobile Solutions business segment.
NTech
On June
4, 2009, we acquired privately-held NTech Industries, based in Ukiah, Calif.
NTech is a leading provider of crop-sensing technology that allows farmers to
reduce costs and environmental impact by controlling the application of
nitrogen, herbicide and other crop inputs. NTech’s performance is
reported under our Field Solutions business segment.
QuickPen
On March
12, 2009, we acquired privately-held QuickPen International, based in Englewood,
Colorado. QuickPen is a leading provider of Building Information Modeling (BIM)
software for the heating, ventilation and air conditioning (HVAC), mechanical
construction and plumbing industries. QuickPen’s performance is reported under
our Engineering and Construction business segment.
Rawson
Control Systems
On
December 3, 2008, we acquired the assets of privately-held Rawson Control
Systems, based in Oelwein, Iowa. Rawson manufactures hydraulic and electronic
controls for the agriculture equipment industry, including variable rate planter
drives and controllers, variable rate fertilizer controllers, mechanical remote
electric control valves and speed reducers. Rawson Control Systems’
performance is reported under our Field Solutions business segment.
FastMap
and GeoSite
On
November 28, 2008, we acquired the FastMap and GeoSite software assets from
Korec, a privately-held Trimble distributor serving the United Kingdom and
Ireland. FastMap and GeoSite’s performance is reported under our Engineering and
Construction and Field Solutions business segments, respectively.
Callidus
Precision Systems
On
November 28, 2008, we acquired the assets of privately-held Callidus Precision
Systems GmbH, based in Halle, Germany. Callidus is a provider of 3D laser
scanning solutions for the industrial market. Callidus’s performance is reported
under our Engineering and Construction business segment.
TopoSys
On
November 13, 2008, we acquired TopoSys GmbH, based in Biberach an der Riss,
Germany. TopoSys is a leading provider of aerial data collection systems
comprised of LiDAR and metric cameras. TopoSys’s performance is reported under
our Engineering and Construction business segment.
TruCount
On
October 30, 2008, we acquired the assets of privately-held TruCount, Inc., based
in Ames, Iowa. TruCount is a leading manufacturer of air and electric clutches
that automate individual planter row shut-off. TruCount’s performance is
reported under our Field Solutions business segment.
RolleiMetric
On
October 20, 2008, we acquired the assets of RolleiMetric from Rollei GmbH, based
in Braunschweig, Germany. RolleiMetric is a leading provider of metric camera
systems for aerial imaging and terrestrial close range photogrammetry.
RolleiMetric’s performance is reported under our Engineering and Construction
business segment.
VirtualSite
Solutions
On
October 3, 2008, VirtualSite Solutions (VSS), a joint venture we formed with
Caterpillar, began operations. We contributed $7.8 million in exchange for
a 65% ownership and Caterpillar contributed $4.2 million for a 35% ownership in
VSS. VSS develops software for fleet management and connected
worksite solutions for both Caterpillar and us, and in turn, sells software
subscription services to Caterpillar and us, which we both sell through our
respective distribution channels. For financial reporting purposes, VSS
assets and liabilities are consolidated with ours, as are its results of
operations, which are reported under our Engineering and Construction business
segment. Caterpillar’s 35% interest is included in our Condensed
Consolidated Financial Statements as noncontrolling interests.
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.
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.
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Total
consolidated revenue
|
$ | 269,713 | $ | 328,087 | $ | 848,730 | $ | 1,061,150 | ||||||||
Gross
margin
|
$ | 132,458 | $ | 165,623 | $ | 419,216 | $ | 527,098 | ||||||||
Gross
margin %
|
49.1 | % | 50.5 | % | 49.4 | % | 49.7 | % | ||||||||
Total
consolidated operating income
|
$ | 20,165 | $ | 54,056 | $ | 73,143 | $ | 175,020 | ||||||||
Operating
income %
|
7.5 | % | 16.5 | % | 8.6 | % | 16.5 | % |
Revenue
In the
three months ended October 2, 2009, total revenue decreased by $58.4 million or
18%, as compared to the same corresponding period in fiscal 2008. Of the
decrease, Engineering and Construction revenue decreased $42.5 million, Field
Solutions decreased $8.7 million, Mobile Solutions decreased $1.2 million, and
Advanced Devices decreased $6.0 million. The revenue decrease was primarily due
to recessionary conditions in the U.S. and European markets in Engineering and
Construction and lower sales in Field Solutions due to reduced farmer demand for
agricultural products, generally due to lower commodity prices.
In the
nine months ended October 2, 2009, total revenue decreased by $212.4 million or
20%, as compared to the same corresponding period in fiscal 2008. Engineering
and Construction revenue decreased $174.8 million, Field Solutions decreased
$7.9 million, Mobile Solutions decreased $10.2 million, and Advanced Devices
decreased $19.6 million, compared to the same corresponding period in fiscal
2008. Revenue reduction within these segments was primarily due to
recessionary conditions in the U.S. and European markets in Engineering and
Construction.
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 decreased by $33.2 million and $107.9 million for the three and nine
months ended October 2, 2009, respectively, as compared to the corresponding
periods in the prior year, primarily due to the decrease in revenue. Gross
margin as a percentage of total revenue for the three months ended October 2,
2009 was 49.1%, as compared to 50.5% for the three months ended September 26,
2008. Gross margin as a percentage of total revenue for the nine
months ended October 2, 2009 was 49.4%, as compared to 49.7% for the nine months
ended September 26, 2008. The gross margin percentage for the three
and nine month periods ended October 2, 2009 was relatively consistent and was
maintained by a greater percentage of higher margin product sales, in
particular, software and subscription services, in spite of the decrease in
revenue.
Operating
Income
Operating
income decreased by $33.9 million and $101.9 million for the three and nine
months ended October 2, 2009, respectively, as compared to the corresponding
periods in the prior year, primarily due to the revenue
decrease. Operating income as a percentage of total revenue was 7.5%
for the three months ended October 2, 2009, as compared to 16.5% for the three
months ended September 26, 2008. Operating income as a
percentage of total revenue was 8.6% for the nine months ended October 2, 2009,
as compared to 16.5% for the nine months ended September 26, 2008. The decrease
in operating income percentage for both the three and nine month periods was
primarily due to decreased operating expense leverage, primarily in Engineering
and Construction and Field Solutions, due to the revenue
decrease.
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 intangibles, amortization of inventory step-up charges, non-recurring
acquisition costs, restructuring charges, non-operating income, net, and income
tax provision.
The
following table is a summary of revenue and operating income by
segment:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Engineering
and Construction
|
||||||||||||||||
Revenue
|
$ | 149,384 | $ | 191,858 | $ | 424,275 | $ | 599,057 | ||||||||
Segment
revenue as a percent of total revenue
|
55 | % | 59 | % | 49 | % | 56 | % | ||||||||
Operating
income
|
$ | 21,131 | $ | 41,560 | $ | 42,800 | $ | 123,675 | ||||||||
Operating
income as a percent of segment revenue
|
14 | % | 22 | % | 10 | % | 21 | % | ||||||||
Field
Solutions
|
||||||||||||||||
Revenue
|
$ | 55,654 | $ | 64,354 | $ | 234,598 | $ | 242,461 | ||||||||
Segment
revenue as a percent of total revenue
|
21 | % | 20 | % | 28 | % | 23 | % | ||||||||
Operating
income
|
$ | 16,286 | $ | 22,058 | $ | 88,637 | $ | 91,961 | ||||||||
Operating
income as a percent of segment revenue
|
29 | % | 34 | % | 38 | % | 38 | % | ||||||||
Mobile
Solutions
|
||||||||||||||||
Revenue
|
$ | 39,572 | $ | 40,822 | $ | 116,925 | $ | 127,118 | ||||||||
Revenue
as a percent of total revenue
|
15 | % | 12 | % | 14 | % | 12 | % | ||||||||
Operating
income
|
$ | 3,367 | $ | 3,602 | $ | 10,163 | $ | 7,997 | ||||||||
Operating
income as a percent of segment revenue
|
9 | % | 9 | % | 9 | % | 6 | % | ||||||||
Advanced
Devices
|
||||||||||||||||
Revenue
|
$ | 25,103 | $ | 31,053 | $ | 72,932 | $ | 92,514 | ||||||||
Segment
revenue as a percent of total revenue
|
9 | % | 9 | % | 9 | % | 9 | % | ||||||||
Operating
income
|
$ | 4,488 | $ | 6,835 | $ | 13,633 | $ | 18,105 | ||||||||
Operating
income as a percent of segment revenue
|
18 | % | 22 | % | 19 | % | 20 | % |
Unallocated
corporate expense includes general corporate expense, amortization of inventory
step-up charges, in-process research and development expense, and non-recurring
acquisition costs. A reconciliation of our consolidated segment
operating income to consolidated income before income taxes
follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Consolidated
segment operating income
|
$ | 45,272 | $ | 74,055 | $ | 155,233 | $ | 241,738 | ||||||||
Unallocated
corporate expense
|
(10,345 | ) | (8,405 | ) | (33,992 | ) | (30,058 | ) | ||||||||
Amortization
of purchased intangible assets
|
(13,620 | ) | (11,143 | ) | (38,968 | ) | (32,865 | ) | ||||||||
Restructuring
charges
|
(1,142 | ) | (451 | ) | (9,130 | ) | (3,795 | ) | ||||||||
Consolidated
operating income
|
20,165 | 54,056 | 73,143 | 175,020 | ||||||||||||
Non-operating
income, net
|
1,396 | 1,563 | 1,795 | 7,453 | ||||||||||||
Consolidated
income before taxes
|
$ | 21,561 | $ | 55,619 | $ | 74,938 | $ | 182,473 |
Engineering
and Construction
Engineering
and Construction revenue decreased by $42.5 million or 22% and $174.8 million or
29% for the three and nine months ended October 2, 2009, respectively, as
compared to the same corresponding periods in fiscal 2008. Segment
operating income decreased $20.5 million or 49% and $80.9 million or 65% for the
three and nine months ended October 2, 2009, respectively, as compared to the
same corresponding periods in fiscal 2008.
The
revenue decline for both the three and nine month periods was primarily driven
by recessionary conditions in the U.S. and European markets, as well as softness
in the rest of the world, with the exception of China. Segment operating income
for both the three and nine month periods decreased primarily due to the revenue
decrease, partially offset by a reduction in operating expense due to
restructuring and overall expense control.
Field
Solutions
Field
Solutions revenue decreased by $8.7 million or 14% and $7.9 million or 3% for
the three and nine months ended October 2, 2009, respectively, as compared to
the same corresponding periods in fiscal 2008. Segment operating
income decreased by $5.8 million or 26% and $3.3 million or 4% for the three and
nine months ended October 2, 2009, respectively, as compared to the same
corresponding periods in fiscal 2008.
The
revenue decrease for both the three and nine month periods was primarily due to
softening farmer demand for agriculture products, generally due to lower
commodity prices. Segment operating income for both the three and nine
month periods decreased primarily due to the lower revenue, partially offset by
gross margin improvement.
Mobile
Solutions
Mobile
Solutions revenue decreased by $1.2 million or 3% and $10.2 million or 8% for
the three and nine months ended October 2, 2009, respectively, as compared to
the same corresponding period in fiscal 2008. Segment operating
income decreased by $0.2 million or 7% and increased by $2.2 million or 27% for
the three and nine months ended October 2, 2009, respectively, as compared to
the same corresponding periods in fiscal 2008.
The
revenue decline for the three month period was due to lower ready mix product
sales due to recessionary conditions in the U.S. The revenue decline
for the nine month period was primarily due to lower product sales as well as
the impact in the prior year of the recognition of large non-recurring revenue
items. Operating income for the three month period decreased slightly due to the
decrease in revenue, partially offset by a reduction in operating expense due to
restructuring and overall expense control. Operating income for the nine month
period increased primarily due to a reduction in operating expense due to
restructuring and overall expense control, partially offset by lower
revenue.
Advanced
Devices
Advanced
Devices revenue decreased by $6.0 million or 19% and $19.6 million or 21% for
the three and nine months ended October 2, 2009, respectively, as compared to
the same corresponding periods in fiscal 2008. Segment operating
income decreased by $2.3 million or 34% and $4.5 million or 25% for the three
and nine months ended October 2, 2009, respectively, as compared to the same
corresponding periods in fiscal 2008.
The
decrease in revenue for both the three and nine month periods was driven by
slower sales in Component Technologies and Applanix. Operating income decreased
for both the three and nine month periods primarily due to the decrease in
revenue, partially offset by lower spending due to operating expense
control.
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:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Research
and development
|
33,250 | 35,348 | 100,844 | 112,097 | ||||||||||||
Percentage
of revenue
|
12 | % | 11 | % | 12 | % | 10 | % | ||||||||
Sales
and marketing
|
47,022 | 48,664 | 141,120 | 151,727 | ||||||||||||
Percentage
of revenue
|
17 | % | 15 | % | 16 | % | 14 | % | ||||||||
General
and administrative
|
23,237 | 22,072 | 75,901 | 70,051 | ||||||||||||
Percentage
of revenue
|
9 | % | 6 | % | 9 | % | 7 | % | ||||||||
Total
|
103,509 | 106,084 | 317,865 | 333,875 | ||||||||||||
Percentage
of revenue
|
38 | % | 32 | % | 37 | % | 31 | % |
Overall,
R&D, S&M, and G&A expense decreased by approximately $2.6 million
and $16.0 million for the three and nine months ended October 2, 2009,
respectively, as compared to the corresponding periods in fiscal
2008.
Research
and development expense decreased by $2.1 million and $11.3 million for the
three and nine month periods ended October 2, 2009, respectively, as compared to
the same corresponding periods in fiscal 2008, primarily due to foreign currency
exchange rates and decreased compensation costs, partially offset by the
inclusion of expense from acquisitions not included in the prior
year. All of our R&D costs have been expensed as incurred. Costs
of software developed for external sale subsequent to reaching technical
feasibility were not considered material and were expensed as incurred. Spending
overall was at approximately 12% of revenue in the three and nine months ended
October 2, 2009, respectively, as compared to 11% and 10% in the corresponding
periods in fiscal 2008.
* 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 decreased by $1.6 million and $10.6 million for the three and
nine months ended October 2, 2009, respectively, as compared to the same
corresponding periods in fiscal 2008. The decrease was primarily due
to foreign currency exchange rates, decreased compensation costs, and travel and
trade show expense, partially offset by the inclusion of expense from
acquisitions not applicable in the prior year. Spending overall
was at approximately 17% and 16% of revenue in the three and nine months ended
October 2, 2009, respectively, as compared to 15% and 14% in the same
corresponding periods in fiscal 2008.
* 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 $1.2 million for the three months ended
October 2, 2009, as compared to the same corresponding period in fiscal 2008,
primarily due to the inclusion of expense from acquisitions not applicable in
the prior year and deferred compensation plan expense, partially offset by lower
bad debt expense. General and administrative expense increased by
$5.9 million for the nine months ended October 2, 2009, as compared to the same
corresponding period in fiscal 2008, primarily due to the inclusion of expense
from acquisitions not applicable in the prior year, deferred compensation plan
expense, settlement costs, and increased bad debt expense, partially offset by
foreign currency exchange rates. Spending overall was at
approximately 9% of revenue in the three and nine months ended October 2, 2009,
respectively, as compared to 6% and 7% in the same corresponding periods in
fiscal 2008.
Amortization
of Purchased Intangible Assets
Amortization
of purchased intangible assets was $13.6 million in the third quarter of
fiscal 2009, as compared to $11.1 million in the third quarter of fiscal
2008. Of the total $13.6 million in the third quarter of fiscal 2009,
$7.9 million is presented as a separate line within Operating expense and $5.7
million is included within Cost of sales on our Condensed Consolidated
Statements of Income. The increase was due primarily to business
acquisitions and asset purchases not included in the corresponding period of
fiscal 2008. *As of October 2, 2009, future amortization of these intangible
assets is expected to be $13.6 million during the fourth quarter of fiscal 2009,
$53.0 million during 2010, $47.7 million during 2011, $40.0 million during 2012,
$35.2 million during 2013, and $27.1 million thereafter.
Restructuring
Charges
Restructuring
expense for the three and nine months ended October 2, 2009 and September 26,
2008 was as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
(Dollars
in thousands)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Severance
and benefits
|
$ | 1,142 | $ | 451 | $ | 9,130 | $ | 3,795 |
During
the three and nine months ended October 2, 2009, restructuring expense of $1.1
million and $9.1 million, respectively, was related to decisions to streamline
processes and reduce the cost structure of the Company, with approximately 300
positions eliminated. As a result of the decisions made through the
third quarter of fiscal 2009, we expect restructuring activities to result in
additional restructuring expense totaling approximately $0.3 million
through the fourth quarter of fiscal 2009. During the three and nine months
ended October 2, 2009, of the total restructuring expense, $0.9
million and $5.8 million, respectively, was shown as a separate line
within Operating expense, and $0.2 million and $3.3 million,
respectively, was included within Cost of sales on the Company’s Condensed
Consolidated Statements of Income.
During
the three and nine months ended September 26, 2008, restructuring expense
of $0.5 million and $3.8 million, respectively, was related to
decisions to streamline processes and reduce the cost structure of the Company,
with approximately 90 positions eliminated worldwide. During
the three and nine months ended September 26, 2008, of the total restructuring
expense, $0.1 million and $2.4 million, respectively, was shown as a
separate line within Operating expense, and $0.4 million and $1.4
million, respectively, was included within Cost of sales on the Company’s
Condensed Consolidated Statements of Income.
Restructuring
liability:
The
following table summarizes the restructuring activity for the nine months ended
October 2, 2009:
(Dollars
in thousands)
|
||||
Balance
as of January 2, 2009
|
$ | 1,917 | ||
Charges
|
9,130 | |||
Payments
|
(7,513 | ) | ||
Adjustments
|
289 | |||
Balance
as of October 2, 2009
|
$ | 3,823 |
The $3.8
million restructuring accrual consisted of severance and benefits and was
included in Other current liabilities. It is expected to be paid through the
first quarter of fiscal 2010.
Non-operating
Income, Net
The
components of non-operating income, net, were as follows:
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
October 2,
|
September 26,
|
October 2,
|
September 26,
|
|||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
(Dollars
in thousands)
|
||||||||||||||||
Interest
income
|
$ | 124 | $ | 404 | $ | 546 | $ | 1,369 | ||||||||
Interest
expense
|
(450 | ) | (214 | ) | (1,408 | ) | (1,389 | ) | ||||||||
Foreign
currency transaction gain
|
792 | 117 | 760 | 2,338 | ||||||||||||
Income
(loss) from joint ventures, net
|
(151 | ) | 2,163 | 369 | 6,796 | |||||||||||
Other
income (expense), net
|
1,081 | (907 | ) | 1,528 | (1,661 | ) | ||||||||||
Total
non-operating income, net
|
$ | 1,396 | $ | 1,563 | $ | 1,795 | $ | 7,453 |
Non-operating
income, net decreased by $0.2 million and $5.7 million for the three and nine
months ended October 2, 2009, respectively, as compared to the same
corresponding period in fiscal 2008. The decrease for the three month period was
primarily due to lower income from joint ventures, partially offset by an
increase in foreign exchange gains and deferred compensation plan
gains. The decrease for the nine month period was primarily due
to lower income from joint ventures and decreases in foreign exchange gains,
partially offset by deferred compensation plan gains.
Income
Tax Provision
Our
effective income tax rate for the three and nine months ended October 2, 2009
was 26.5% and 27.0 %, respectively, as compared to 29.8% and 30.0% for the three
months and nine months ended September 26, 2008. The 2009 fiscal
third quarter effective tax rate is lower than the statutory federal income tax
rate of 35% primarily due to true-up adjustments resulting from the filing of
our 2008 income tax return and the geographical mix of our pre-tax income. The
2008 fiscal third quarter effective tax rate is lower than the statutory federal
income tax rate of 35% primarily due to the geographical mix of our 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 October 2, 2009 and January 2,
2009.
LIQUIDITY
AND CAPITAL RESOURCES
October 2,
|
January 2,
|
|||||||
As
of
|
2009
|
2009
|
||||||
(Dollars
in thousands)
|
||||||||
Cash
and cash equivalents
|
$ | 215,099 | $ | 142,531 | ||||
Total
debt
|
151,504 | 151,588 | ||||||
October 2,
|
September 26,
|
|||||||
Nine
Months Ended
|
2009 | 2008 | ||||||
(Dollars
in thousands)
|
||||||||
Cash
provided by operating activities
|
$ | 139,121 | $ | 141,945 | ||||
Cash
used in investing activities
|
(86,687 | ) | (77,609 | ) | ||||
Cash
provided by (used in) financing activities
|
14,809 | (97,201 | ) | |||||
Effect
of exchange rate changes on cash and cash equivalents
|
5,325 | 142 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
$ | 72,568 | $ | (32,723 | ) |
Cash
and Cash Equivalents
As of
October 2, 2009, cash and cash equivalents totaled $215.1 million as compared to
$142.5 million at January 2, 2009. Debt was $151.5 million as of October 2,
2009, as compared to $151.6 million at January 2, 2009.
* 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 our revolving credit
facilities, will be sufficient to meet our anticipated operating cash needs and
stock purchases under the stock repurchase program for at least the next twelve
months.
* We
anticipate that planned capital expenditures primarily for computer equipment,
software, manufacturing tools and test equipment 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 $139.1 million for the nine months ended
October 2, 2009, as compared to $141.9 million for the nine months ended
September 26, 2008. This decrease of $2.8 million was primarily
driven by a decrease in net income before non-cash depreciation and amortization
and income taxes due, partially offset by a decrease in accounts receivable,
inventories and income taxes payable resulting from decreased revenue and income
before taxes.
Investing
Activities
Cash used
in investing activities was $86.7 million for the nine months ended October 2,
2009, as compared to $77.6 million for the nine months ended September 26,
2008. The increase of $9.1 million was due to increased cash used for
business and intangible asset acquisitions.
Financing
Activities
Cash
provided by financing activities was $14.8 million for the nine months ended
October 2, 2009, as compared to cash used of $97.2 million for the nine months
ended September 26, 2008. The increase of $112.0 million was primarily due to
the stock repurchase and pay down of debt in the first nine months of fiscal
2008.
Accounts
Receivable and Inventory Metrics
October 2,
|
January 2,
|
|||||||
As
of
|
2009
|
2009
|
||||||
Accounts
receivable days sales outstanding
|
68 | 69 | ||||||
Inventory
turns per year
|
3.3 | 4.2 |
Accounts
receivable days sales outstanding were 68 days as of October 2, 2009, as
compared to 69 days as January 2, 2009 due to improved
collections. Our accounts receivable days sales outstanding is
calculated based on ending accounts receivable, net, divided by revenue for the
corresponding fiscal quarter, times a quarterly average of 91 days. Our
inventory turns were 3.3 as of October 2, 2009, as compared to 4.2 as of January
2, 2009. The decrease in turns is primarily due to slower sales. Our
inventory turnover is based on the total cost of sales for the fiscal period
over the average inventory for the corresponding fiscal period.
Debt
As of
October 2, 2009, our total debt was comprised primarily of our revolving credit
line in the amount of $151.0 million, which was drawn down in the third and the
fourth quarters of fiscal 2008. As of October 2, 2009 and January 2, 2009, there
were also notes payable totaling approximately $504,000 and $588,000,
respectively, primarily consisting of government loans to foreign
subsidiaries.
On July
28, 2005, we entered into a $200 million unsecured revolving credit agreement
(the 2005 Credit Facility) with a syndicate of 10 banks with The Bank of Nova
Scotia as the administrative agent. On February 16, 2007, we amended
our existing $200 million unsecured revolving credit agreement with a syndicate
of 11 banks with The Bank of Nova Scotia as the administrative agent (the 2007
Credit Facility). Under the 2007 Credit Facility, we exercised the option in the
existing credit agreement to increase the availability under the revolving
credit line by $100 million, for an aggregate availability of up to $300
million, and extended the maturity date of the revolving credit line by 18
months, from July 2010 to February 2012. Up to $25 million of the
availability under the revolving credit line may be used to issue letters of
credit, and up to $20 million may be used to pay off other debts or
loans. The maximum leverage ratio under the 2007 Credit Facility is
3.00:1.00. The funds available under the 2007 Credit Facility
may be used by us for acquisitions, stock repurchases, and general corporate
purposes. As of August 20, 2008, we amended the 2007 Credit Facility
to allow us to redeem, retire or purchase Trimble common stock without
limitation so long as no default or unmatured default then existed, and leverage
ratio for the two most recently completed periods was less than 2.00:1.00. In
addition, the definition of the fixed charge was amended to exclude the
impact of redemptions, retirements, or purchases of Trimble common stock
from the fixed charges coverage ratio. For additional discussion of our debt,
see Note 8 of Notes to the Condensed Consolidated Financial
Statements.
In
addition, during the first quarter of fiscal 2007 we incurred a five-year term
loan under the 2007 Credit Facility in an aggregate principal amount of $100
million, which was repaid in full during fiscal 2008.
We may
borrow funds under the 2007 Credit Facility in U.S. Dollars or in certain other
currencies, and borrowings will bear interest, at our option, at either: (i) a
base rate, based on the administrative agent's prime rate, plus a margin of
between 0% and 0.125%, depending on our leverage ratio as of our most recently
ended fiscal quarter, or (ii) a reserve-adjusted rate based on the London
Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Stockholm
Interbank Offered Rate (STIBOR), or other agreed-upon rate, depending on the
currency borrowed, plus a margin of between 0.625% and 1.125%, depending on our
leverage ratio as of the most recently ended fiscal quarter. Our obligations
under the 2007 Credit Facility are guaranteed by certain of our domestic
subsidiaries.
The 2007
Credit Facility contains customary affirmative, negative and financial 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, make investments, enter into mergers
and consolidations, and make capital expenditures, within certain limitations,
and financial covenants that require the maintenance of leverage and fixed
charge coverage ratios. The 2007 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 2007 Credit Facility, however that acceleration will be automatic in the
case of bankruptcy and insolvency events of default. As of October 2,
2009 we were in compliance with all financial debt covenants.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
We are
exposed to market risk related to changes in interest rates and foreign currency
exchange rates. We use certain derivative financial instruments to manage these
risks. We do not use derivative financial instruments for speculative purposes.
All financial instruments are used in accordance with policies approved by our
Board of Directors.
Market
Interest Rate Risk
There
have been no significant changes to our market interest rate risk
assessment. Refer to our 2008 Annual Report on Form 10-K on page
44.
Foreign
Currency Exchange Rate Risk
There
have been no significant changes to our foreign currency exchange rate risk
assessment. Refer to our 2008 Annual Report on Form 10-K on page
44.
ITEM 4. CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures.
The
management, with the participation of our Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of our disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded that, as
of the end of such period, our disclosure controls and procedures are
effective.
(b)
Internal Control Over Financial Reporting.
There
have not been any changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fiscal quarter to which this report relates that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time
to time, we are involved in litigation arising out of the ordinary course of our
business. There are no known claims or pending litigation expected to have a
material effect on our overall financial position, results of operations, or
liquidity.
ITEM 1A. RISK FACTORS
A
description of factors that could materially affect our business, financial
condition, or operating results is included under “Risk and Uncertainties” in
Item 1A of Part I of our 2008 Annual Report on Form 10-K and is
incorporated herein by reference. There have been no material changes
to the risk factor disclosure since our 2008 Annual Report on Form
10-K. The risk factors described in our Form 10-K are not the only
risks facing our Company. Additional risks and uncertainties not
currently known to us or that we currently deem to be immaterial also may
materially adversely affect our business, financial conditions and/or operating
results.
ITEM 6. EXHIBITS
3.1
|
Restated
Articles of Incorporation of the Company filed June 25, 1986.
(2)
|
3.2
|
Certificate
of Amendment of Articles of Incorporation of the Company filed October 6,
1988. (2)
|
3.3
|
Certificate
of Amendment of Articles of Incorporation of the Company filed July 18,
1990. (2)
|
3.4
|
Certificate
of Amendment of Articles of Incorporation of the Company filed May 29,
2003. (3)
|
3.5
|
Certificate
of Amendment of Articles of Incorporation of the Company filed March 4,
2004. (4)
|
3.6
|
Certificate
of Amendment of Articles of Incorporation of the Company filed February
21, 2007. (6)
|
3.7
|
Bylaws
of the Company, amended and restated through July 20, 2006.
(5)
|
4.1
|
Specimen
copy of certificate for shares of Common Stock of the Company.
(1)
|
10.1*
|
Consigned
Excess Inventory addendum to Master Manufacturing Services Agreement.*
(7)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 6, 2009.
(7)
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 6,
2009.(7)
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November
6, 2009. (7)
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November
6, 2009. (7)
|
(1)
|
Incorporated
by reference to exhibit number 4.1 to the registrant's Registration
Statement on Form S-1, as amended (File No. 33-35333), which
became effective July 19, 1990.
|
(2)
|
Incorporated
by reference to identically numbered exhibits to the registrant's Annual
Report on Form 10-K for the fiscal year ended January 1,
1999.
|
(3)
|
Incorporated
by reference to exhibit number 3.5 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended July 4,
2003.
|
(4)
|
Incorporated
by reference to exhibit number 3.6 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended April 2,
2004.
|
(5)
|
Incorporated
by reference to exhibit number 3.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 29,
2006.
|
(6)
|
Incorporated
by reference to exhibit number 3.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 30,
2007.
|
(7)
|
Filed
herewith.
|
* Portions
of this document have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment
under Rule 24b-2.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TRIMBLE NAVIGATION
LIMITED
|
|||
(Registrant)
|
|||
By:
|
/s/
Rajat Bahri
|
||
Rajat
Bahri
|
|||
Chief
Financial Officer
|
|||
(Authorized
Officer and Principal
|
|||
Financial
Officer)
|
|||
DATE:
November 6, 2009
|
EXHIBIT
INDEX
3.1
|
Restated
Articles of Incorporation of the Company filed June 25, 1986.
(2)
|
3.2
|
Certificate
of Amendment of Articles of Incorporation of the Company filed October 6,
1988. (2)
|
3.3
|
Certificate
of Amendment of Articles of Incorporation of the Company filed July 18,
1990. (2)
|
3.4
|
Certificate
of Amendment of Articles of Incorporation of the Company filed May 29,
2003. (3)
|
3.5
|
Certificate
of Amendment of Articles of Incorporation of the Company filed March 4,
2004. (4)
|
3.6
|
Certificate
of Amendment of Articles of Incorporation of the Company filed February
21, 2007. (6)
|
3.7
|
Bylaws
of the Company, amended and restated through July 20, 2006.
(5)
|
4.1
|
Specimen
copy of certificate for shares of Common Stock of the Company.
(1)
|
Consigned
Excess Inventory addendum to Master Manufacturing Services Agreement.*
(7)
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 6, 2009.
(7)
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 6,
2009.(7)
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November
6, 2009. (7)
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated November
6, 2009. (7)
|
(1)
|
Incorporated
by reference to exhibit number 4.1 to the registrant's Registration
Statement on Form S-1, as amended (File No. 33-35333), which
became effective July 19, 1990.
|
(2)
|
Incorporated
by reference to identically numbered exhibits to the registrant's Annual
Report on Form 10-K for the fiscal year ended January 1,
1999.
|
(3)
|
Incorporated
by reference to exhibit number 3.5 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended July 4,
2003.
|
(4)
|
Incorporated
by reference to exhibit number 3.6 to the registrant’s Quarterly Report on
Form 10-Q for the quarter ended April 2,
2004.
|
(5)
|
Incorporated
by reference to exhibit number 3.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended September 29,
2006.
|
(6)
|
Incorporated
by reference to exhibit number 3.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 30,
2007.
|
(7)
|
Filed
herewith.
|
* Portions
of this document have been omitted and filed separately with the Securities and
Exchange Commission pursuant to a request for confidential treatment
under Rule 24b-2.
35