UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2007
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission
file number: 0-18645
TRIMBLE
NAVIGATION LIMITED
(Exact
name of registrant as specified in its charter)
California
|
|
94-2802192
|
(State
or other jurisdiction of 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 x No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
Accelerated Filer x Accelerated
Filer o Non-accelerated
Filer o
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule
12b-2 of the Exchange Act).
Yes o No x
As
of
August 1, 2007, there were 120,164,431 shares of Common Stock (no par
value)
outstanding.
TRIMBLE
NAVIGATION LIMITED
FORM
10-Q for the Quarter Ended June 29, 2007
TABLE
OF CONTENTS
PART
I.
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Financial
Information
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Page
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ITEM
1.
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Financial
Statements (Unaudited):
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3
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4
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5
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6
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ITEM
2.
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21
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ITEM
3.
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32
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ITEM
4.
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33
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PART
II.
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Other
Information
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ITEM
1.
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34
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ITEM
1A.
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34
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ITEM
2.
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34
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ITEM
4.
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34
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ITEM
6.
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35
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36
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PART
I –
FINANCIAL INFORMATION
ITEM
1. CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE
NAVIGATION LIMITED
CONDENSED
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
|
|
June
29,
|
|
|
December
29,
|
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
73,760
|
|
|
$ |
129,621
|
|
Accounts
receivable, net
|
|
|
235,192
|
|
|
|
177,054
|
|
Other
receivables
|
|
|
11,939
|
|
|
|
6,014
|
|
Inventories,
net
|
|
|
137,664
|
|
|
|
112,552
|
|
Other
current assets
|
|
|
55,265
|
|
|
|
38,931
|
|
Total
current assets
|
|
|
513,820
|
|
|
|
464,172
|
|
Property
and equipment, net of accumulated depreciation of $72,577
and $63,683 at
June 29, 2007 and December 29, 2006, respectively
|
|
|
52,271
|
|
|
|
47,998
|
|
Goodwill
|
|
|
657,746
|
|
|
|
374,510
|
|
Other
purchased intangible assets, net
|
|
|
202,693
|
|
|
|
67,172
|
|
Other non-current
assets
|
|
|
47,844
|
|
|
|
29,625
|
|
Total
assets
|
|
$ |
1,474,374
|
|
|
$ |
983,477
|
|
|
|
|
|
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|
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|
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LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
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|
Current
liabilities:
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$ |
11,250
|
|
|
$ |
--
|
|
Accounts
payable
|
|
|
63,795
|
|
|
|
49,194
|
|
Deferred
revenue
|
|
|
41,440
|
|
|
|
28,060
|
|
Deferred
income taxes
|
|
|
3,291
|
|
|
|
4,525
|
|
Income
taxes payable
|
|
|
30,963
|
|
|
|
23,814
|
|
Other
current liabilities
|
|
|
90,577
|
|
|
|
80,586
|
|
Total
current liabilities
|
|
|
241,316
|
|
|
|
186,179
|
|
Non-current
portion of long-term debt
|
|
|
111,739
|
|
|
|
481
|
|
Non-current
deferred revenue
|
|
|
10,105
|
|
|
|
--
|
|
Deferred
income tax
|
|
|
45,584
|
|
|
|
21,633
|
|
Other
non-current liabilities
|
|
|
54,877
|
|
|
|
27,519
|
|
Total
liabilities
|
|
|
463,621
|
|
|
|
235,812
|
|
|
|
|
|
|
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|
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Commitments
and contingencies
|
|
|
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Shareholders'
equity:
|
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|
|
|
|
|
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|
Preferred
stock no par value; 3,000 shares authorized; none
outstanding
|
|
|
--
|
|
|
|
--
|
|
Common
stock, no par value; 180,000 shares authorized; 119,989 and
111,718 shares issued and outstanding at June 29, 2007 and
December 29, 2006, respectively
|
|
|
628,624
|
|
|
|
435,371
|
|
Retained
earnings
|
|
|
334,892
|
|
|
|
271,183
|
|
Accumulated
other comprehensive income
|
|
|
47,237
|
|
|
|
41,111
|
|
Total
shareholders' equity
|
|
|
1,010,753
|
|
|
|
747,665
|
|
Total
liabilities and shareholders' equity
|
|
$ |
1,474,374
|
|
|
$ |
983,477
|
|
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
TRIMBLE
NAVIGATION LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (1)
|
|
$ |
327,732
|
|
|
$ |
245,326
|
|
|
$ |
613,464
|
|
|
$ |
471,180
|
|
Cost
of sales (1)
|
|
|
160,563
|
|
|
|
123,670
|
|
|
|
303,165
|
|
|
|
242,061
|
|
Gross
margin
|
|
|
167,169
|
|
|
|
121,656
|
|
|
|
310,299
|
|
|
|
229,119
|
|
|
|
|
|
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|
|
|
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|
|
|
|
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Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
33,867
|
|
|
|
27,607
|
|
|
|
65,030
|
|
|
|
52,053
|
|
Sales
and marketing
|
|
|
47,546
|
|
|
|
35,747
|
|
|
|
89,693
|
|
|
|
68,453
|
|
General
and administrative
|
|
|
24,278
|
|
|
|
16,205
|
|
|
|
45,920
|
|
|
|
31,966
|
|
Restructuring
charges
|
|
|
333
|
|
|
|
-
|
|
|
|
3,025
|
|
|
|
-
|
|
Amortization
of purchased intangible assets
|
|
|
5,195
|
|
|
|
2,408
|
|
|
|
9,301
|
|
|
|
3,893
|
|
In-process
research and development
|
|
|
--
|
|
|
|
1,020
|
|
|
|
2,112
|
|
|
|
1,020
|
|
Total
operating expenses
|
|
|
111,219
|
|
|
|
82,987
|
|
|
|
215,081
|
|
|
|
157,385
|
|
Operating
income
|
|
|
55,950
|
|
|
|
38,669
|
|
|
|
95,218
|
|
|
|
71,734
|
|
Non-operating
income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
593
|
|
|
|
763
|
|
|
|
1,837
|
|
|
|
1,275
|
|
Interest
expense
|
|
|
(2,459 |
) |
|
|
(165 |
) |
|
|
(3,860 |
) |
|
|
(243 |
) |
Income
from joint ventures
|
|
|
2,080
|
|
|
|
1,575
|
|
|
|
4,502
|
|
|
|
3,191
|
|
Other
income, net
|
|
|
57
|
|
|
|
352
|
|
|
|
649
|
|
|
|
1,109
|
|
Total
non-operating income, net
|
|
|
271
|
|
|
|
2,525
|
|
|
|
3,128
|
|
|
|
5,332
|
|
Income
before taxes
|
|
|
56,221
|
|
|
|
41,194
|
|
|
|
98,346
|
|
|
|
77,066
|
|
Income
tax provision
|
|
|
21,195
|
|
|
|
12,691
|
|
|
|
34,637
|
|
|
|
22,735
|
|
Net
income
|
|
$ |
35,026
|
|
|
$ |
28,503
|
|
|
$ |
63,709
|
|
|
$ |
54,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.29
|
|
|
$ |
0.26
|
|
|
$ |
0.54
|
|
|
$ |
0.50
|
|
Shares
used in calculating basic earnings per share
|
|
|
119,621
|
|
|
|
109,694
|
|
|
|
117,535
|
|
|
|
109,088
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.28
|
|
|
$ |
0.25
|
|
|
$ |
0.52
|
|
|
$ |
0.47
|
|
Shares
used in calculating diluted earnings per share
|
|
|
124,584
|
|
|
|
116,256
|
|
|
|
122,539
|
|
|
|
115,522
|
|
(1)
Sales
to related parties were $6.3 million and $5.5 million for the three months
ended June 29, 2007 and June 30, 2006, respectively, with associated
cost of
sales to those related parties of $4.2 million and $3.2 million,
respectively. Sales to related parties were $11.4 million and $10.4 million
for the six months ended June 29, 2007 and June 30, 2006, respectively,
with
associated cost of sales to those related parties of $7.7 million and
$6.2
million, respectively. In addition, cost of sales associated with related
party
net inventory purchases was $7.5 million and $5.6 million for the three
months
ended June 29, 2007 and June 30, 2006, respectively, and $14.2 million
and $11.1
million for the six months ended June 29, 2007 and June 30, 2006, respectively.
See Note 5 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)
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
63,709
|
|
|
$ |
54,331
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
8,426
|
|
|
|
6,489
|
|
Amortization
expense
|
|
|
18,394
|
|
|
|
6,145
|
|
Provision
for doubtful accounts
|
|
|
358
|
|
|
|
95
|
|
Amortization
of debt issuance cost
|
|
|
105
|
|
|
|
90
|
|
Deferred
income taxes
|
|
|
(8,636 |
) |
|
|
(1,678 |
) |
Non-cash
restructuring charges
|
|
|
1,725
|
|
|
|
-
|
|
Stock-based
compensation
|
|
|
7,145
|
|
|
|
6,489
|
|
In-process
research and development
|
|
|
2,112
|
|
|
|
1,020
|
|
Equity
gain from joint venture
|
|
|
(4,503 |
) |
|
|
(3,191 |
) |
Excess
tax benefit for stock-based compensation
|
|
|
(5,929 |
) |
|
|
(4,770 |
) |
Provision
for excess and obsolete inventories
|
|
|
1,941
|
|
|
|
4,196
|
|
Other
non-cash items
|
|
|
140
|
|
|
|
463
|
|
Add
decrease (increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(41,832 |
) |
|
|
(19,417 |
) |
Other
receivables
|
|
|
2,968
|
|
|
|
341
|
|
Inventories
|
|
|
(11,760 |
) |
|
|
(6,933 |
) |
Other
current and non-current assets
|
|
|
9,414
|
|
|
|
(2,097 |
) |
Add
increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(6,298 |
) |
|
|
1,386
|
|
Accrued
liabilities
|
|
|
3,216
|
|
|
|
(1,076 |
) |
Deferred
revenue
|
|
|
12,132
|
|
|
|
9,862
|
|
Income
taxes payable
|
|
|
33,630
|
|
|
|
7,624
|
|
Net
cash provided by operating activities
|
|
|
86,457
|
|
|
|
59,369
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
of businesses, net of cash acquired
|
|
|
(277,743 |
) |
|
|
(38,137 |
) |
Acquisitions
of property and equipment
|
|
|
(6,270 |
) |
|
|
(10,943 |
) |
Dividends
received
|
|
|
581
|
|
|
|
-
|
|
Other
|
|
|
378
|
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(283,054 |
) |
|
|
(49,080 |
) |
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Issuances
of common stock
|
|
|
15,761
|
|
|
|
17,162
|
|
Excess
tax benefit for stock-based compensation
|
|
|
5,929
|
|
|
|
4,770
|
|
Proceeds
from long-term debt and revolving credit lines
|
|
|
250,000
|
|
|
|
-
|
|
Payments
on long-term debt and revolving credit lines
|
|
|
(127,517 |
) |
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
(777 |
) |
Net
cash provided by financing activities
|
|
|
144,173
|
|
|
|
21,155
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(3,437 |
) |
|
|
2,429
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(55,861 |
) |
|
|
33,873
|
|
Cash
and cash equivalents, beginning of period
|
|
|
129,621
|
|
|
|
73,853
|
|
Cash
and cash equivalents, end of period
|
|
$ |
73,760
|
|
|
$ |
107,726
|
|
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 product solutions to commercial and government users in a
large
number of markets. These markets include surveying, construction, agriculture,
fleet and mobile worker, urban and resource management, military, transportation
and telecommunications.
The
Company has a 52-53 week fiscal year, ending on the Friday nearest to
December
31, which for fiscal 2006 was December 29. The second fiscal quarters
of 2007
and 2006 ended on June 29, 2007 and June 30, 2006, respectively. Fiscal
2007 and
2006 are 52-week years. Unless otherwise stated, all dates refer to its
fiscal
year and fiscal periods.
The
Condensed Consolidated Financial Statements include the results of the
Company
and its subsidiaries. Inter-company accounts and transactions have been
eliminated. The Condensed Consolidated Balance Sheet is derived from
the December 29, 2006 audited Consolidated Financial Statements included
in the
Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year
2006.
Certain amounts from prior periods have been reclassified to conform
to the
current period presentation.
The
accompanying financial data as of June 29, 2007 and for the three and
six months
ended June 29, 2007 and June 30, 2006 has been prepared by the Company,
without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in
financial statements prepared in accordance with accounting principles
generally
accepted in the U.S. have been condensed or omitted pursuant to such
rules and
regulations. The following discussion should be read in conjunction with
the
Company’s 2006 Annual Report on Form 10-K.
In
the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present a fair statement of financial position
as of
June 29, 2007, results of operations for the three and six months ended
June 29,
2007 and June 30, 2006 and cash flows for the six months ended June 29,
2007 and
June 30, 2006, as applicable, have been made. The results of operations
for the
three and six months ended June 29, 2007 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.
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.
On
January 17, 2007, the Company’s Board of Directors approved a 2-for-1 split of
all outstanding shares of the Company’s Common Stock, payable February 22, 2007
to stockholders of record on February 8, 2007. All shares and per share
information presented have been adjusted to reflect the stock split on
a
retroactive basis for all periods presented.
NOTE
2.
UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
There
have been no changes to the Company’s significant accounting polices during the
six months ended June 29, 2007 from those disclosed in the Company’s 2006 Form
10-K. However, the Company is providing updated disclosures surrounding
certain accounting policies, as provided below.
Revenue
Recognition
The
Company recognizes product revenue when persuasive evidence of an arrangement
exists, delivery has occurred, the fee is fixed or determinable, and
collectibility is reasonably assured. In instances where final acceptance
of the
product is specified by the customer or is uncertain, revenue is deferred
until
all acceptance criteria have been met.
Contracts
and/or customer purchase orders are used to determine the existence of
an
arrangement. Shipping documents and customer acceptance, when applicable,
are
used to verify delivery. The Company assesses whether the fee is fixed
or
determinable based on the payment terms associated with the transaction
and
whether the sales price is subject to refund or adjustment. The Company
assesses
collectibility based primarily on the creditworthiness of the customer
as
determined by credit checks and analyses, as well as the customer’s payment
history.
Revenue
for orders are not recognized until the product is delivered and title
has
transferred to the buyer. The Company bears all costs and risks of loss
or
damage to the goods up to that point. The Company’s shipment terms for U.S.
orders and international orders fulfilled from the Company’s European
distribution center typically provide that title passes to the buyer
upon
delivery of the goods to the carrier named by the buyer at the named
place or
point. If no precise point is indicated by the buyer, the Company may
choose
within the place or range stipulated where the carrier will take the
goods into
carrier’s charge. Other shipment terms may provide that title passes to the
buyer upon delivery of the goods to the buyer. Shipping and handling
costs are included in the cost of goods sold.
Revenue
to distributors and resellers is recognized upon delivery, assuming all
other
criteria for revenue recognition have been met. Distributors and resellers
do
not have a right of return.
Revenue
from purchased extended warranty and support agreements is deferred and
recognized ratably over the term of the warranty/support period.
The
Company presents revenue net of sales taxes and any similar
assessments.
The
Company applies Statement of Position (SOP) No. 97-2, “Software Revenue
Recognition,” to products where the embedded software is more than incidental to
the functionality of the hardware. This determination requires significant
judgment including a consideration of factors such as marketing, research
and
development efforts and any post contract support (PCS) relating to the
embedded
software.
The
Company’s software arrangements generally consist of a perpetual license fee
and
PCS. The Company has established vendor-specific objective evidence (VSOE)
of
fair value for the Company’s PCS contracts based on the renewal rate. The
remaining value of the software arrangement is allocated to the license
fee
using the residual method, which revenue is primarily recognized when
the
software has been delivered and there are no remaining obligations. Revenue
from
PCS is recognized ratably over the term of the PCS agreement.
The
Company applies Emerging Issues Task Force (EITF) Issue 00-3, “Application
of AICPA Statement of Position 97-2 to Arrangements That Include the
Right to
Use Software Stored on Another Entity’s Hardware” for hosted arrangements which
the customer does not have the contractual right to take possession of
the
software at any time during the hosting period without incurring a significant
penalty and it is not feasible for the customer to run the software either
on
its own hardware or on a third-party’s hardware. Subscription revenue related to
the Company’s hosted arrangements is recognized ratably over the contract
period. Upfront fees for the Company’s hosted solution primarily consist of
amounts for the in-vehicle enabling hardware device and peripherals,
if any. For
upfront fees relating to propriety hardware where the firmware is more
than
incidental to the functionality of the hardware in accordance with SOP
No. 97-2,
the Company defers the upfront fees at installation and recognizes them
ratably
over the minimum service contract period, generally one to five years.
Product
costs are also deferred and amortized over such period.
In
accordance with EITF Issue 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables,” when a non-software sale involves multiple elements the
entire fee from the arrangement is allocated to each respective element
based on
its relative fair value and recognized when revenue recognition criteria
for
each element are met.
Inventories
Inventories
are stated at the lower of standard cost (which approximates actual cost
on a
first-in, first-out basis) or market. Adjustments to reduce the cost
of
inventory to its net realizable value, if required, are made for estimated
excess, obsolescence, or impaired balances. Factors influencing these
adjustments include decline in demand, technological changes, product
life cycle
and development plans, component cost trends, product pricing, physical
deterioration, and quality issues. If actual factors are less favorable
than
those projected by us, additional inventory write-downs may be
required.
Goodwill
and Purchased Intangible Assets
Goodwill
represents the excess of the purchase price over the fair value of
the net
tangible and identifiable intangible assets acquired in a business
combination.
Intangible assets resulting from the acquisitions of entities accounted
for
using the purchase method of accounting are estimated by management
based on the
fair value of assets received. Identifiable intangible assets are comprised
of
distribution channels, patents, licenses, technology, acquired backlog
and
trademarks. Identifiable intangible assets are being amortized over the
period of estimated benefit using the straight-line method and estimated
useful
lives ranging from one to ten years. Goodwill is not subject to
amortization, but is subject to at least an annual assessment for impairment,
applying a fair-value based test.
Impairment
of Goodwill, Intangible Assets and Other Long-Lived Assets
The
Company evaluates goodwill, at a minimum, on an annual basis and whenever
events
and changes in circumstances suggest that the carrying amount may not
be
recoverable. The Company performs its annual goodwill impairment testing
in the
fourth fiscal quarter of each year. Goodwill is reviewed for
impairment utilizing a two-step process. First, impairment of goodwill is
tested at the reporting unit level by comparing the reporting unit’s carrying
amount, including goodwill, to the fair value of the reporting unit.
The fair values of the reporting units are estimated using a discounted
cash
flow approach. If the carrying amount of the reporting unit exceeds its
fair value, a second step is performed to measure the amount of impairment
loss,
if any. In step two, the implied fair value of goodwill is calculated
as the
excess of the fair value of a reporting unit over the fair values assigned
to
its assets and liabilities. If the implied fair value of goodwill is
less than
the carrying value of the reporting unit’s goodwill, the difference is
recognized as an impairment loss.
Depreciation
and amortization of the Company’s intangible assets and other long-lived assets
is provided using the straight-line method over their estimated useful
lives,
reflecting the pattern of economic benefits associated with these assets.
Changes in circumstances such as technological advances, changes to the
Company’s business model, or changes in the capital strategy could result in
the
actual useful lives differing from initial estimates. In those cases
where the
Company determines that the useful life of an asset should be revised,
the
Company will depreciate the net book value in excess of the estimated
residual
value over its revised remaining useful life. These assets are evaluated
for
impairment whenever events or changes in circumstances indicate that
the
carrying amount of such assets may not be recoverable. The estimated
future cash
flows are based upon, among other things, assumptions about expected
future
operating performance and may differ from actual cash flows. The assets
evaluated for impairment are grouped with other assets to the lowest
level for
which identifiable cash flows are largely independent of the cash flows
of other
groups of assets and liabilities. If the sum of the projected undiscounted
cash
flows (excluding interest) is less than the carrying value of the assets,
the
assets will be written down to the estimated fair value.
Recent
Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (FASB) reached a consensus
on
EITF Issue 06-3, “How Taxes Collected from Customers and Remitted to
Governmental Authorities Should Be Presented in the Income Statement
(That Is,
Gross versus Net Presentation).” EITF 06-3 indicates that the income statement
presentation on either a gross basis or a net basis of the taxes within
the
scope of the issue is an accounting policy decision that should be disclosed.
On
December 30, 2006, the Company adopted EITF 06-3 and the adoption had
no effect
on the Company’s financial position, results of operations or cash
flows.
In
July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 applies to all tax positions related to income
taxes subject to Statement of Financial Accounting Standard (SFAS) 109,
“Accounting for Income Taxes.” Under FIN 48 a company would recognize the
benefit from a tax position only if it is more-likely-than-not that the
position
would be sustained upon audit based solely on the technical merits of
the tax
position. FIN 48 clarifies how a company would measure the income tax
benefits
from the tax positions that are recognized, provides guidance as to the
timing
of the derecognition of previously recognized tax benefits and describes
the
methods for classifying and disclosing the liabilities within the financial
statements for any unrecognized tax benefits. FIN 48 also addresses when
a
company should record interest and penalties related to tax positions
and how
the interest and penalties may be classified within the income statement
and
presented in the balance sheet. On December 30, 2006, the Company adopted
FIN 48 and, as a result of the implementation, no change to liabilities
for
uncertain tax positions were recorded (compared to amounts under SFAS
5,
“Accounting for Contingencies,” represented in the financial statements for the
2006 year).
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.”
SFAS 157 establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency
in how
fair value determinations are made under various existing accounting
standards
which permit, or in some cases require, estimates of fair market value.
SFAS 157
is effective for the Company beginning in its first quarter of fiscal
2008,
although earlier adoption is encouraged. The Company does not expect
the
adoption of SFAS 157 to have a material impact on its financial position,
results of operations or cash flows.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement
No. 115.” SFAS 159 allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities under an instrument-by-instrument election.
Subsequent measurements for the financial assets and liabilities an entity
elects to fair value will be recognized in earnings. SFAS 159 also establishes
additional disclosure requirements. If the Company elected to adopt SFAS
159, it
would be effective for the Company beginning in its first quarter of
fiscal
2008, with early adoption permitted provided that the Company also adopted
SFAS
157. The Company does not expect the adoption of SFAS 159 to have a
material impact on its financial position, results of operations or cash
flows.
NOTE
3.
ACQUISITIONS
@Road,
Inc.
On
December 10, 2006, the Company and @Road, Inc. (@Road) entered into a
definitive merger agreement. The acquisition became effective on
February 16, 2007. @Road is a global provider of solutions designed
to automate the management of mobile resources and to optimize the service
delivery process for customers across a variety of industries. The acquisition
of @Road expands the Company’s investment and reinforces the existing growth
strategy for its Mobile Solutions (TMS) segment. @Road’s results of
operations since February 17, 2006 have been included in the Company’s
consolidated statements of income within the Mobile Solutions business
segment.
Purchase
Price
Under
the
terms of the agreement, the Company acquired all of the outstanding shares
of
@Road common stock for $7.50 per share. The Company elected to issue
$2.50 per share of the consideration in the form of the Company’s common stock
(Common Stock) to be based upon the five-day average closing price of
the
Company’s shares six trading days prior to the closing of the transaction and
the remaining $5.00 per share consideration was paid in cash. Further,
each
share of Series A-1 and Series A-2 Redeemable Preferred Stock, par value
$0.001 per share, of @Road was converted into the right to receive an
amount in
cash equal to $100.00 plus all declared or accumulated but unpaid dividends
with
respect to such shares as of immediately prior to the effective time
of the
merger and each share of Series B-1 Redeemable Preferred Stock, par value
$0.001 per share, of @Road and each share of Series B-2 Redeemable
Preferred Stock, par value $0.001 per share, of @Road was converted into
the
right to receive an amount in cash equal to $831.39 plus all declared
or
accumulated but unpaid dividends with respect to such shares as of immediately
prior to the effective time of the merger. In addition, all @Road vested
stock
options were terminated and the holders of each such option were entitled
to
receive the excess, if any, of the aggregate consideration over the exercise
price. At the effective time of the merger, all unvested @Road stock
options
with an exercise price in excess of $7.50 were terminated and all unvested
stock
options that had exercise prices of $7.50 or less were assumed by the
Company.
Concurrently
with the merger, the Company amended and restated 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)
and
incurred a five-year term loan under the 2007 Credit Facility. See
Note 9 to the Condensed Consolidated Financial Statements for additional
information.
The
Company paid approximately $327.3 million in cash from debt and existing
cash,
and issued approximately 5.9 million shares of the Company’s common stock
based on an exchange ratio of 0.0894 shares of the Company’s common stock
for each outstanding share of @Road common stock as of February 16, 2007.
The
common stock issued had a fair value of $161.9 million and was valued using
the average closing price of the Company’s common stock of $27.69 over a range
of two trading days (February 14, 2007 through February 15, 2007) prior
to, and
including, the close date (February 16, 2007) of the transaction, which
is also
the date that the amount of the Company’s shares to be issued in accordance with
the merger agreement was settled. The
total purchase price is estimated as follows (in thousands):
Cash
consideration
|
|
$ |
327,370
|
|
Common
stock consideration
|
|
|
161,947
|
|
Merger
costs *
|
|
|
5,646
|
|
Total
Purchase price
|
|
$ |
494,963
|
|
*
Merger
costs consist of legal, advisory, accounting and administrative
fees.
Preliminary
Purchase Price Allocation
In
accordance with SFAS 141, "Business Combinations,” the total purchase
price was allocated to @Road net tangible assets, identifiable intangible
assets
and in-process research and development based upon their estimated fair
values
as of February 16, 2007. The excess purchase price over the net tangible,
identifiable intangible assets and in-process research and development
was
recorded as goodwill. The fair values assigned to tangible and identifiable
intangible assets acquired and liabilities assumed are based on estimates
and
assumptions provided by management. The allocation of the total estimated
purchase price is preliminary and may differ from the actual purchase
price
allocation upon realization of any accrued costs and final fair value
determination of certain tangible assets, intangible assets and liabilities
assumed.
The
total
preliminary purchase price has been allocated as follows (in
thousands):
Value
to be allocated to assets, based upon merger consideration
|
|
$ |
494,963
|
|
Less:
value of @Road’s assets acquired:
|
|
|
|
|
Net
tangible assets acquired
|
|
|
140,102
|
|
Amortizable
intangibles assets:
|
|
|
|
|
Developed
product technology
|
|
|
66,600
|
|
Customer
relationships
|
|
|
75,300
|
|
Trademarks
and tradenames
|
|
|
5,200
|
|
Subtotal
|
|
|
147,100
|
|
In-process
research and development
|
|
|
2,100
|
|
Deferred
tax liability
|
|
|
(56,855 |
) |
Goodwill
|
|
$ |
262,516
|
|
Net
Tangible Assets
|
|
As
of
|
|
|
|
February
16,
|
|
(in
thousands)
|
|
2007
|
|
Cash
and cash equivalents
|
|
$ |
74,729
|
|
Accounts
receivable, net
|
|
|
14,135
|
|
Other
receivables
|
|
|
8,773
|
|
Inventory
|
|
|
15,272
|
|
Other
current assets
|
|
|
11,953
|
|
Property
and equipment, net
|
|
|
5,854
|
|
Deferred
tax asset
|
|
|
42,471
|
|
Other
non-current assets
|
|
|
8,111
|
|
|
|
|
|
|
Total
assets acquired
|
|
$ |
181,298
|
|
|
|
|
|
|
Accounts
payable
|
|
|
19,285
|
|
Deferred
revenue
|
|
|
7,365
|
|
Other
accrued liabilities
|
|
|
14,546
|
|
|
|
|
|
|
Total
liabilities assumed
|
|
$ |
41,196
|
|
|
|
|
|
|
Total
net assets acquired
|
|
$ |
140,102
|
|
The
Company reviewed and adjusted @Road's net tangible assets and liabilities
to
fair value, as necessary, as of February 16, 2007, including the following
adjustments:
Fixed
assets – the Company decreased @Road's historical value of fixed assets by
$2.1 million to adjust fixed assets to an amount equivalent to fair market
value.
Deferred
revenue and cost of sales – the Company reduced @Road's historical value of
deferred revenue by $39.6 million to adjust deferred revenue to the fair
value of the direct cost associated with servicing the underlying obligation
plus a reasonable margin. @Road’s deferred revenue balance consists of upfront
payments of its hosted product, licensed product, extended warranty and
maintenance. The Company reduced @Road's historical value of deferred
product
cost by $47.1 million to adjust deferred product cost to the asset's
underlying fair value. The deferred product costs adjustment to fair
value
related to deferral of cost of sales of hardware that have shipped, resulting
in
no fair value relating to the associated deferred product costs.
Other
current and non-current assets – Other current and non-current assets were
increased by $15.4 million to adjust for the fair value of future cash
collections from customer contracts assumed for products delivered prior
to the
acquisition date.
As the products were delivered prior to the acquisition date, revenue
is not
recognizable in the Company’s statement of operations.
Intangible
Assets
Developed
product technology, which is comprised of products that have reached
technological feasibility, includes products in @Road's current product
offerings. @Road's technology includes hardware, software and services
that
serve the mobile resource management market internationally. The Company
expects
to amortize the developed and core technology over a weighted average
estimated
life of seven years.
Customer
relationships represent the value placed on @Road’s distribution channels and
end users. The Company expects to amortize the fair value of these assets
over a
weighted average estimated life of seven years.
Trademarks
and tradenames represent the value placed on the @Road brand and recognition
in
the mobile resource management market. The Company expects to amortize
the fair
value of these assets over a weighted average estimated life of eight
years.
In-process
Research and Development
The
Company recorded an expense of $2.1 million relating to in-process research
and
development projects in @Road’s license business. In-process
research and development represents incomplete @Road research and development
projects that had not reached technological feasibility and had no alternative
future use as of the consummation of the merger.
Goodwill
The
excess purchase price over the net tangible, identifiable intangible
assets and
in-process research and development was recorded as goodwill. The goodwill
was
attributed to the premium paid for the opportunity to expand and better
serve
the global mobile resource management market and achieve greater long-term
growth opportunities than either company had operating alone. The Company
believes these opportunities could include accelerating the rate at which
products are brought to market and increasing the diversity and global
reach of
those products. In addition, the Company expects that the combined companies
may
be able to obtain greater operating leverage by reducing costs in areas
of
redundancy.
Restructuring
Liabilities
related to restructuring @Road's operations that meet the requirements
of EITF
95-3, “Recognition of Liabilities in Connection with a Purchase Business
Combination,” have been recorded as adjustments to the purchase price and an
increase in goodwill. Liabilities related to restructuring the Company's
operations have been recorded as expenses in the Company's statement
of
operations in the period that the costs are incurred.
The
Company is in the process of finalizing the total restructuring liability
related to the @Road acquisition and will be implementing the plan as
soon as
feasible. See Note 12 to the Condensed Consolidated Financial
Statements for additional information.
Deferred
tax assets/liabilities
The
Company recognized $56.9 million in net deferred tax liabilities for
the tax
effects of differences between assigned values in the purchase price
and the tax
bases of assets acquired and liabilities assumed.
@Road
stock options assumed
In
accordance with the merger agreement, the Company assumed all @Road unvested
stock options that had exercise prices of $7.50 or less. The Company
issued approximately 795,000 stock options based on an exchange ratio
of
0.268 shares of the Company’s common stock for each unvested stock option
with exercise prices of $7.50 or less as of February 16, 2007. The
fair value of these assumed options was determined to be $10.1 million
which
will be expensed over the remaining vesting terms of the assumed options
which
is approximately three to four years. The assumed options were valued
using the binomial model similar to previously granted Trimble stock
options as
discussed in the Company’s fiscal 2006 Form 10-K.
Pro
Forma Results
The
following table presents pro forma results of operations of the Company
and
@Road, as if the companies had been combined as of the beginning of
the earliest
period presented. The unaudited pro forma results of operations are
not
necessarily indicative of results that would have occurred had the
acquisition
taken place on December 30, 2005 or of future
results. Included in the pro-forma results are fair value adjustments
based on the fair values of assets acquired and liabilities assumed
as of the
acquisition date of February 16, 2007 and adjustments for interest
expense
related to debt and stock options assumed as part of the merger
consideration.
The
Company excluded the effect of non-recurring items for all periods
presented as
the impact is short-term in nature. The pro forma information is as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2006
(b)
|
|
|
2007
(a)
|
|
|
2006
(b)
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
Pro
forma revenue
|
|
$ |
262,969
|
|
|
$ |
622,938
|
|
|
$ |
507,458
|
|
Pro
forma net income
|
|
$ |
19,679
|
|
|
$ |
54,114
|
|
|
$ |
36,968
|
|
Pro
forma basic net income per share
|
|
$ |
0.17
|
|
|
$ |
0.45
|
|
|
$ |
0.32
|
|
Pro
forma diluted net income per share
|
|
$ |
0.16
|
|
|
$ |
0.44
|
|
|
$ |
0.30
|
|
(a)
|
The
pro forma results of operations represent the Company’s results for the
three and six months ended June 29, 2007, including @Road
beginning from
February 17, 2007, and @Road historical results and pro forma
adjustments
based on the fair values of assets acquired and liabilities
assumed as of
the acquisition date of February 16, 2007 for the beginning
of @Road’s
first quarter of fiscal 2007 to February 16, 2007. Pro-forma
revenue includes a $4.8 million decrease due to deferred
revenue
write-downs and customer contracts where the product was
delivered prior
to the acquisition date. Pro-forma net income includes
revenue write-downs, related deferred cost of sales write-downs
of $0.7
million, amortization of intangible assets related to the
acquisition of
$5.6 million, interest expense for debt used to purchase @Road
of
$2.8 million, and stock-based compensation for @Road options
assumed of
$1.3 million.
|
(b)
|
The
pro forma results of operations represent the Company’s results for the
three and six months ended June 30, 2006, including @Road’s historical
results and pro forma adjustments based on the fair values of
assets acquired and liabilities assumed as of the acquisition
date of
February 16, 2007 for the three and six months ending June
30,
2006. Pro-forma revenue for the three and six months ended June
29, 2007 includes a $5.6 million and $11.7 million decrease,
respectively, due to deferred revenue write-downs and customer
contracts
which the product was delivered prior to the acquisition
date. Pro-forma net income for the three and six months ended
June 30, 2006 includes revenue write-downs and related deferred
cost of
sales write-down of $0.7 million and $1.9 million, respectively,
amortization of intangible assets related to the acquisition
of
$4.6 million and $9.1 million, respectively, interest expense
for
debt used to purchase @Road of $2.8 million and $5.6 million,
respectively, and stock-based compensation for @Road options
assumed of
$0.07 million and $0.4 million,
respectively.
|
INPHO
GmbH
On
February 13, 2007, the Company acquired privately-held INPHO GmbH of
Stuttgart,
Germany. INPHO provides photogrammetry and digital surface modeling
for aerial surveying, mapping and remote sensing
applications. INPHO’s results of operations since February 13, 2007
have been included in the Company’s consolidated statements of income within the
Engineering and Contruction business segment.
NOTE
4.
STOCK-BASED COMPENSATION
The
Company accounts for its employee stock options and rights to purchase
shares
under its stock participation plans at fair value, in accordance with
SFAS
123(R), “Share-Based Payment.” SFAS 123(R) 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 Consolidated Condensed
Statements of Income in accordance with SFAS 123(R) for the three and
six months
ended June 29, 2007 and June 30, 2006.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
$ |
429
|
|
|
$ |
309
|
|
|
$ |
771
|
|
|
$ |
596
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
1,022
|
|
|
|
667
|
|
|
|
1,751
|
|
|
|
1,306
|
|
Sales
and marketing
|
|
|
974
|
|
|
|
711
|
|
|
|
1,741
|
|
|
|
1,452
|
|
General
and administrative
|
|
|
1,367
|
|
|
|
1,572
|
|
|
|
2,882
|
|
|
|
3,135
|
|
Total
operating expenses
|
|
|
3,363
|
|
|
|
2,950
|
|
|
|
6,374
|
|
|
|
5,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation expense
|
|
|
3,792
|
|
|
|
3,259
|
|
|
|
7,145
|
|
|
|
6,489
|
|
Tax
benefit (1)
|
|
|
(520 |
) |
|
|
(294 |
) |
|
|
(868 |
) |
|
|
(588 |
) |
Total
stock-based compensation expense, net of tax
|
|
$ |
3,272
|
|
|
$ |
2,965
|
|
|
$ |
6,277
|
|
|
$ |
5,901
|
|
(1)
Tax
benefit related to U.S. non-qualified options only, as allowed by the
applicable
tax requirements using the statutory 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 for the three and six months ended June 29, 2007 and June 30,
2006, the
following assumptions were used:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
2007
|
|
|
June
30,
2006
|
|
|
June
29, 2007
|
|
|
June
30, 2006
|
|
Expected
dividend yield
|
|
--
|
|
|
--
|
|
|
--
|
|
|
--
|
|
Expected
stock price volatility
|
|
36.9%
|
|
|
42.0%
|
|
|
37.2%
|
|
|
42.0%
|
|
Risk
free interest rate
|
|
4.5%
|
|
|
4.5%
|
|
|
4.5%
|
|
|
4.5%
|
|
Expected
life of options after vesting
|
|
3.9
years
|
|
|
4.6
years
|
|
|
3.9
years
|
|
|
4.6
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 was 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
5.
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 from
joint ventures in the Non-operating income, net section of the Condensed
Consolidated Statements of Income. During the three and six
months ended June 29, 2007, the Company recorded $2.3 million and $4.5
million,
respectively, as its proportionate share of CTCT net income. During
the comparable periods of 2006 the Company recorded $1.4 million and $3.0
million, respectively, as its proportionate share of CTCT net
income. The carrying amount of the investment in CTCT was $8.6
million at June 29, 2007 and $4.1 million at December 29, 2006, 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
after-market dealer channel, and Caterpillar sells products for factory
and
dealer installation. CTCT does not hold inventory 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 six months ended
June 29, 2007, the Company recorded $2.7 million and $4.9 million of
revenue,
respectively, and $2.4 million and $4.4 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 six month periods of fiscal 2006, the Company recorded $2.3
million
and $4.3 million of revenue, respectively, and $2.0 million and $3.7
million of
cost of sales, respectively. In addition, during the three and
six months ended June 29, 2007, the Company recorded $7.5 million and
$14.2
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 six months ended June 30, 2006
were
$5.6 million and $11.1 million, respectively.
In
addition, the Company received reimbursement of employee-related costs
from CTCT
for the Company employees dedicated to CTCT or performing work for CTCT
totaling
$3.0 million and $6.3 million for the three and six months ended June
29, 2007,
respectively, and totaling $3.5 million and $6.9 million for the three
and six
months ended June 30, 2006, respectively. The reimbursements were
offset against operating expenses.
At
June
29, 2007 and December 29, 2006, 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 June 29, 2007 and December 29, 2006, the receivable from
CTCT was $6.7 million and $4.7 million, respectively, and is included
within
Accounts receivable, net, on the Condensed Consolidated Balance
Sheets. As of the same dates, the payable due to CTCT was $6.9
million and $4.4 million, respectively, and is 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 from
joint ventures in the Non-operating income, net section of the Condensed
Consolidated Statements of Income. During the three and six month
periods ended June 29, 2007, the Company recorded a loss of $0.3 million
and a
profit of $4,000, respectively, and during the three and six month periods
ended
June 30, 2006, the Company recorded a profit of $0.2 million and a profit
of
$0.2 million, respectively, as its proportionate share of Nikon-Trimble
net
income (loss). During the six months ended June 29, 2007, dividends
received from Nikon-Trimble, amounted to $0.6 million, and were recorded
against
Other non-current assets on the Condensed Consolidated Balance
Sheets. There were no dividends received during the six months ended
June 30, 2006. The carrying amount of the investment in Nikon-Trimble
was $13.5 million at June 29, 2007 and $14.0 million at December 29,
2006, 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.
Profits
from these inter-company sales are eliminated.
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 months ended
June 29, 2007 and June 30, 2006, the Company recorded $3.6 million and
$3.2
million of revenue and $1.8 million and $1.3 million of cost of sales
for the
manufacturing of products sold by the Company to Nikon-Trimble. During
the six
months ended June 29, 2007 and June 30, 2006, the Company recorded $6.5
million
and $6.1 million of revenue and $3.3 million and $2.5 million of cost
of sales
for the manufacturing of products sold by the Company to
Nikon-Trimble.
At
June
29, 2007 and December 29, 2006, 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 Sheet. At June 29, 2007 and December 29,
2006,
the amount due from Nikon-Trimble was $2.0 million and $1.5 million,
respectively, and is included within Accounts receivable, net on the
Condensed
Consolidated Balance Sheets. During the comparable periods, the
amount due to Nikon-Trimble was $3.2 million and $1.1 million,
respectively, and is included within Accounts payable on the Condensed
Consolidated Balance Sheets.
NOTE
6.
GOODWILL AND INTANGIBLE ASSETS
Intangible
Assets
Intangible
Assets consisted of the following:
|
|
June
29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
(in
thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Developed
product technology
|
|
$ |
162,785
|
|
|
$ |
(49,207 |
) |
|
$ |
113,578
|
|
Trade
names and trademarks
|
|
|
17,230
|
|
|
|
(11,195 |
) |
|
|
6,035
|
|
Patents
and other intellectual properties
|
|
|
104,545
|
|
|
|
(21,465 |
) |
|
|
83,080
|
|
|
|
$ |
284,560
|
|
|
$ |
(81,867 |
) |
|
$ |
202,693
|
|
|
|
December
29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
(in
thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Developed
product technology
|
|
$ |
92,430
|
|
|
$ |
(38,604 |
) |
|
$ |
53,826
|
|
Trade
names and trademarks
|
|
|
11,845
|
|
|
|
(10,687 |
) |
|
|
1,158
|
|
Patents
and other intellectual properties
|
|
|
25,845
|
|
|
|
(13,657 |
) |
|
|
12,188
|
|
|
|
$ |
130,120
|
|
|
$ |
(62,948 |
) |
|
$ |
67,172
|
|
The
estimated future amortization expense of intangible assets as of June
29, 2007,
is as follows (in thousands):
|
|
Amortization
Expense
|
|
2007
(Remaining)
|
|
$ |
19,769
|
|
2008
|
|
|
39,298
|
|
2009
|
|
|
36,250
|
|
2010
|
|
|
34,052
|
|
2011
|
|
|
28,732
|
|
Thereafter
|
|
|
44,592
|
|
Total
|
|
$ |
202,693
|
|
Goodwill
The
changes in the carrying amount of goodwill for the six months ended June
29,
2007, are as follows (in thousands):
|
|
Engineering
and Construction
|
|
|
Field
Solutions
|
|
|
Mobile
Solutions
|
|
|
Advanced
Devices
|
|
|
Total
|
|
Balance
as of December 29, 2006
|
|
$ |
296,597
|
|
|
$ |
1,517
|
|
|
$ |
63,430
|
|
|
$ |
12,966
|
|
|
$ |
374,510
|
|
Additions
due to acquisitions
|
|
|
6,344
|
|
|
|
--
|
|
|
|
262,574
|
|
|
|
--
|
|
|
|
268,918
|
|
Purchase
price adjustments
|
|
|
4,587
|
|
|
|
39
|
|
|
|
6,679
|
|
|
|
--
|
|
|
|
11,305
|
|
Foreign
currency translation adjustments
|
|
|
938
|
|
|
|
--
|
|
|
|
1,052
|
|
|
|
1,023
|
|
|
|
3,013
|
|
Balance
as of June 29, 2007
|
|
$ |
308,466
|
|
|
$ |
1,556
|
|
|
$ |
333,735
|
|
|
$ |
13,989
|
|
|
$ |
657,746
|
|
The
purchase price adjustments recorded during the six months ended June
29, 2007
are for earn-out payments related to previous business
acquisitions.
NOTE
7.
CERTAIN BALANCE SHEET COMPONENTS
Inventories,
net consisted of the following:
|
|
June
29,
|
|
|
December
29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
64,174
|
|
|
$ |
66,853
|
|
Work-in-process
|
|
|
14,150
|
|
|
|
6,181
|
|
Finished
goods
|
|
|
59,340
|
|
|
|
39,518
|
|
Total
inventory, net
|
|
$ |
137,664
|
|
|
$ |
112,552
|
|
Other
non-current liabilities consisted of the following:
|
|
June
29,
|
|
|
December
29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
$ |
8,203
|
|
|
$ |
5,887
|
|
Unrecognized
tax benefits
|
|
|
23,015
|
|
|
|
--
|
|
Other
non-current liabilities
|
|
|
23,659
|
|
|
|
21,632
|
|
Total
other non-current liabilities
|
|
$ |
54,877
|
|
|
$ |
27,519
|
|
As
of
June 29, 2007, the Company has $23.0 million of unrecognized tax benefits
that,
if recognized, would favorably affect the effective income tax rate in
future
periods and interest and/or penalties related to income tax
matters. As of December 29, 2006 these balances are included in
Income taxes payable on the Condensed Consolidated Balance
Sheets. Pursuant to the requirements of FIN 48, as of June 29, 2007,
these liabilities are classified in Other non-current liabilities in
the
Condensed Consolidated Balance Sheets.
NOTE
8.
THE COMPANY AND SEGMENT INFORMATION
The
Company is a designer and distributor of positioning products and applications
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 they 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 were
aggregated on the basis that no single operation accounted
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
expenses, excluding general corporate expenses, amortization of purchase
intangibles, in-process research and development expenses and restructuring
charges. The identifiable assets that the Company's Chief Operating Decision
Maker views by segment are accounts receivable and inventory.
|
|
Reporting
Segments
|
|
|
|
|
|
|
Engineering
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and
|
|
|
Field
|
|
|
Mobile
|
|
|
Advanced
|
|
|
|
|
|
|
Construction
|
|
|
Solutions
|
|
|
Solution
|
|
|
Devices
|
|
|
Total
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
revenue
|
|
$ |
198,853
|
|
|
$ |
55,273
|
|
|
$ |
40,927
|
|
|
$ |
32,679
|
|
|
$ |
327,732
|
|
Operating
income
|
|
|
52,371
|
|
|
|
18,398
|
|
|
|
2,906
|
|
|
|
5,384
|
|
|
|
79,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
revenue
|
|
$ |
168,041
|
|
|
$ |
36,320
|
|
|
$ |
14,851
|
|
|
$ |
26,114
|
|
|
$ |
245,326
|
|
Operating
income
|
|
|
38,803
|
|
|
|
11,299
|
|
|
|
374
|
|
|
|
2,243
|
|
|
|
52,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
revenue
|
|
$ |
374,457
|
|
|
$ |
106,235
|
|
|
$ |
70,784
|
|
|
$ |
61,988
|
|
|
$ |
613,464
|
|
Operating
income
|
|
|
94,535
|
|
|
|
35,026
|
|
|
|
3,916
|
|
|
|
8,727
|
|
|
|
142,204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
revenue
|
|
$ |
314,775
|
|
|
$ |
79,363
|
|
|
$ |
27,458
|
|
|
$ |
49,584
|
|
|
$ |
471,180
|
|
Operating
income
|
|
|
65,180
|
|
|
|
25,207
|
|
|
|
597
|
|
|
|
4,566
|
|
|
|
95,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of June 29, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable (1)
|
|
$ |
161,822
|
|
|
$ |
28,928
|
|
|
$ |
32,315
|
|
|
$ |
21,164
|
|
|
$ |
244,229
|
|
Inventories
|
|
|
87,366
|
|
|
|
13,521
|
|
|
|
19,087
|
|
|
|
17,690
|
|
|
|
137,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable (1)
|
|
$ |
127,567
|
|
|
$ |
21,016
|
|
|
$ |
15,630
|
|
|
$ |
16,474
|
|
|
$ |
180,687
|
|
Inventories
|
|
|
82,827
|
|
|
|
10,946
|
|
|
|
1,666
|
|
|
|
17,113
|
|
|
|
112,552
|
|
(1)
|
As
presented, accounts receivable represents trade receivables,
gross, which
are specified between segments.
|
|
|
June
29,
|
|
|
December
29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Accounts
receivable total for reporting segments
|
|
$ |
244,229
|
|
|
$ |
180,687
|
|
Unallocated
(1)
|
|
|
(9,037 |
) |
|
|
(3,633 |
) |
Total
|
|
$ |
235,192
|
|
|
$ |
177,054
|
|
(1) Includes
trade-related accruals, allowances, and cash received in advance that
are not
allocated by segment.
The
distribution of the Company’s consolidated revenue by segment is summarized in
the table below. Total consolidated revenue presented in the
Condensed Consolidated Statements of Income is reported net of eliminations
of
internal sales between segments, and equals revenue.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
|
$ |
200,797
|
|
|
$ |
169,102
|
|
|
$ |
377,670
|
|
|
$ |
316,560
|
|
Field
Solutions
|
|
|
55,273
|
|
|
|
36,320
|
|
|
|
106,235
|
|
|
|
79,362
|
|
Mobile
Solutions
|
|
|
40,927
|
|
|
|
14,851
|
|
|
|
70,784
|
|
|
|
27,458
|
|
Advanced
Devices
|
|
|
32,679
|
|
|
|
26,114
|
|
|
|
61,988
|
|
|
|
49,586
|
|
Total
segment revenue (including internal sales)
|
|
|
329,676
|
|
|
|
246,387
|
|
|
|
616,677
|
|
|
|
472,966
|
|
Eliminations
|
|
|
(1,944 |
) |
|
|
(1,061 |
) |
|
|
(3,213 |
) |
|
|
(1,786 |
) |
Total
consolidated revenue
|
|
$ |
327,732
|
|
|
$ |
245,326
|
|
|
$ |
613,464
|
|
|
$ |
471,180
|
|
A
reconciliation of our consolidated segment operating income to consolidated
income before income taxes is as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
segment operating income
|
|
$ |
79,059
|
|
|
$ |
52,719
|
|
|
$ |
142,204
|
|
|
$ |
95,550
|
|
Unallocated
corporate expense
|
|
|
(12,344 |
) |
|
|
(9,288 |
) |
|
|
(23,522 |
) |
|
|
(16,714 |
) |
Amortization
of purchased intangible assets
|
|
|
(10,432 |
) |
|
|
(3,742 |
) |
|
|
(18,327 |
) |
|
|
(6,082 |
) |
In-process
research and development expense
|
|
|
--
|
|
|
|
(1,020 |
) |
|
|
(2,112 |
) |
|
|
(1,020 |
) |
Restructuring
charges
|
|
|
(333 |
) |
|
|
--
|
|
|
|
(3,025 |
) |
|
|
--
|
|
Non-operating
income (expense), net
|
|
|
271
|
|
|
|
2,525
|
|
|
|
3,128
|
|
|
|
5,332
|
|
Consolidated
income before income taxes
|
|
$ |
56,221
|
|
|
$ |
41,194
|
|
|
$ |
98,346
|
|
|
$ |
77,066
|
|
NOTE
9.
LONG TERM DEBT, COMMITMENTS AND CONTINGENCIES
Long-term
debt consisted of the following:
|
|
June
29,
|
|
|
December
29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facilities:
|
|
|
|
|
|
|
Term
loan
|
|
$ |
97,500
|
|
|
$ |
-
|
|
Revolving
credit facility
|
|
|
25,000
|
|
|
|
-
|
|
Promissory
notes and other
|
|
|
489
|
|
|
|
481
|
|
Total
debt
|
|
|
122,989
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
Less
current portion of long-term debt
|
|
|
11,250
|
|
|
|
-
|
|
Non-current
portion
|
|
$ |
111,739
|
|
|
$ |
481
|
|
Credit
Facilities
On
February 16, 2007, the Company amended and restated 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 for swing line loans. During the three months ended March 30, 2007,
the
Company drew down $150 million on the revolving credit line.
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 will mature concurrently with the revolving
credit
line. The term loan will be repaid in quarterly installments, with
principal being amortized at the following annual rates: year 1 at 10%,
year 2
at 15%, year 3 at 15%, year 4 at 20%, year 5 at 20%, and the last quarterly
payment to be made at maturity, together with a final payment of 20%. The
maximum leverage ratio under the 2007 Credit Facility is 3.00:1. The funds
available under the new 2007 Credit Facility may be used by the Company
for
acquisitions and general corporate purposes.
At
June
29, 2007, the Company had $25.0 million drawn on the revolving credit
line and
$97.5 million of the term loan remained outstanding and the Company was
in
compliance with all financial debt covenants.
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, 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.
Leases
The
estimated future minimum operating lease commitments as of June 29, 2007,
is as
follows (in thousands):
|
|
|
|
2007
(Remaining)
|
|
$ |
8,312
|
|
2008
|
|
|
13,463
|
|
2009
|
|
|
10,522
|
|
2010
|
|
|
8,508
|
|
2011
|
|
|
5,727
|
|
Thereafter
|
|
|
4,767
|
|
Total
|
|
$ |
51,299
|
|
Additionally,
as of June 29, 2007, the Company had acquisition earn-outs of $10.6
million and
holdbacks of $8.5 million recorded in “Other current liabilities” and “Other
non-current liabilities.” The maximum remaining payments, including the $10.6
million and $8.5 million recorded, will not exceed $68.4 million. The
remaining
earn-outs and holdbacks are payable through 2009.
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 cost is primarily estimated
based upon historical trends in the volume of product returns within
the
warranty period and the cost 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 three and six months
ended June 29, 2007 and June 30, 2006 are as follows:
(In
thousands)
|
|
|
|
Balance
as of December 29, 2006
|
|
$ |
8,607
|
|
Accruals
for warranties issued
|
|
|
7,184
|
|
Changes
in estimates
|
|
|
--
|
|
Warranty
settlements (in cash or in kind)
|
|
|
(5,876 |
) |
Balance
as of June 29, 2007
|
|
$ |
9,915
|
|
The
product warranty liability is classified in Other current liabilities in
the accompanying Condensed Consolidated Balance Sheets.
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
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Used
in basic and diluted earnings per share
|
|
$ |
35,026
|
|
|
$ |
28,503
|
|
|
$ |
63,709
|
|
|
$ |
54,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares used in basic earnings per
share
|
|
|
119,621
|
|
|
|
109,694
|
|
|
|
117,535
|
|
|
|
109,088
|
|
Effect
of dilutive securities (using treasury stock method):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock options
|
|
|
4,713
|
|
|
|
5,268
|
|
|
|
4,757
|
|
|
|
5,358
|
|
Common
stock warrants
|
|
|
250
|
|
|
|
1,294
|
|
|
|
247
|
|
|
|
1,076
|
|
Weighted
average number of common shares and dilutive potential common
shares used
in diluted earnings per share
|
|
|
124,584
|
|
|
|
116,256
|
|
|
|
122,539
|
|
|
|
115,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.29
|
|
|
$ |
0.26
|
|
|
$ |
0.54
|
|
|
$ |
0.50
|
|
Diluted
earnings per share
|
|
$ |
0.28
|
|
|
$ |
0.25
|
|
|
$ |
0.52
|
|
|
$ |
0.47
|
|
NOTE
12.
RESTRUCTURING CHARGES:
In
conjunction with the Company’s acquisition of @Road, it accrued $3.6 million for
severance and benefits. These restructuring costs were recorded in
accordance with EITF 95-3 as part of the purchase price with no impact
on the
Company’s Statement of Operations. During the six months ended June
29, 2007 the Company paid $2.0 million against this restructuring
accrual. The remaining restructuring accrual of $1.6 million as of
June 29, 2007 is included in Accrued liabilities in the Company’s Condensed
Consolidated Balance Sheet and is expected to be paid by the end of fiscal
2007.
The
Company also recorded restructuring costs of $0.3 million and $3.0 million
during the three and six months ended June 29, 2007, respectively, for
charges
associated with the acceleration of vesting of employee stock options
for
certain terminated @Road employees, of which $1.4 million was settled
in cash
and $1.6 million was recorded as Stockholder’s Equity. These amounts
were recorded in the Company’s Condensed Consolidated Statements of Income for
the three and six months ended June 29, 2007 under “Restructuring Charges.”
NOTE
13:
INCOME TAXES
The
Company adopted FIN 48 on December 30, 2006, and as a result of the
implementation of the Company had no change to its estimated liability
for
uncertain tax positions (compared to amounts under SFAS 5, represented
in the
financial statements for the 2006 year). A total (net of the federal
benefit on state issues) of $19.1 million and $20.4 million represents the
amount of unrecognized tax benefits that, if recognized, would favorably
affect
the effective income tax rate in any future periods, at December 29,
2006 and
June 29, 2007, respectively. The unrecognized tax benefits are
recorded in Other non-current liabilities in the accompanying Condensed
Consolidated Balance Sheets.
The
Company and its subsidiaries are subject to U.S. Federal, state, and
foreign
income tax. The Company has substantially concluded all U.S. Federal
and state income tax matters for years through 1992. Foreign income
tax matters have been concluded for years through 2000.
The
Company’s continuing practice is to recognize interest and/or penalties related
to income tax matters in income tax expense. The Company’s liability includes
interest and penalties at December 30, 2006 and June 29, 2007, of $2.2
and $2.6
million, respectively, recorded in Other non-current liabilities in the
accompanying Condensed Consolidated Balance Sheets.
NOTE
14:
COMPREHENSIVE INCOME:
The
components of comprehensive income, net of related tax, are as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
35,026
|
|
|
$ |
28,503
|
|
|
$ |
63,709
|
|
|
$ |
54,331
|
|
Foreign
currency translation adjustments, net of tax
|
|
|
6,210
|
|
|
|
8,448
|
|
|
|
6,099
|
|
|
|
9,743
|
|
Net
unrealized actuarial losses
|
|
|
-
|
|
|
|
-
|
|
|
|
(8 |
) |
|
|
-
|
|
Net
unrealized gain (loss) on investments
|
|
|
(9 |
) |
|
|
(4 |
) |
|
|
35
|
|
|
|
(14 |
) |
Comprehensive
income
|
|
$ |
41,227
|
|
|
$ |
36,947
|
|
|
$ |
69,835
|
|
|
$ |
64,060
|
|
This
Quarterly Report on Form 10-Q contains forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section
21E of the Securities Exchange Act of 1934, as amended, which are subject
to the
“safe harbor” created by those sections. Actual results could differ materially
from those indicated in the forward-looking statements due to a number
of
factors including, but not limited to, the risk factors discussed in
“Risks and
Uncertainties” below and elsewhere in this report as well as in the Company's
Annual Report on Form 10-K for fiscal year 2006 and other reports and
documents
that the Company files from time to time with the Securities and Exchange
Commission. The Company
has attempted to identify forward-looking statements in this report by
placing
an asterisk (*) before paragraphs. Discussions containing such
forward-looking statements may be found in “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” below. In some cases,
forward-looking statements can be identified by terminology such as “may,”
”will,” “should,” “could,” “predicts,” “potential,” “continue,” “expects,”
“anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and
similar expressions. These forward-looking statements are made as of
the date of
this Quarterly Report on Form 10-Q, and the Company disclaims any obligation
to
update these statements or to explain the reasons why actual results
may
differ.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The
discussion and analysis of our financial condition and results of operations
are
based upon our condensed consolidated financial statements, which have
been
prepared in accordance with accounting principles generally accepted
in the
United States. The preparation of these financial statements requires
us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenue and expenses, and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including
those
related to product returns, doubtful accounts, inventories, investments,
intangible assets, income taxes, warranty obligations, restructuring
costs, and
contingencies and litigation. We base our estimates on historical experience
and
on various other assumptions that are believed to be reasonable under
the
circumstances, the results of which form the basis for making judgments
about
the amount and timing of revenue and expenses and the carrying values
of assets
and liabilities that are not readily apparent from other sources. Actual
results
may differ from these estimates under different assumptions or
conditions.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Recent
Accounting Pronouncements
In
June
2006, the Financial Accounting Standards Board (FASB) reached a consensus
on
Emerging Issues Task Force (EITF) Issue 06-3, “How Taxes Collected from
Customers and Remitted to Governmental Authorities Should Be Presented
in the
Income Statement (That Is, Gross versus Net Presentation).” EITF 06-3 indicates
that the income statement presentation on either a gross basis or a net
basis of
the taxes within the scope of the issue is an accounting policy decision
that
should be disclosed. On December 30, 2006, we adopted EITF 06-3 and the
adoption
had no effect on our financial position, results of operations or cash
flows.
In
July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (FIN 48). FIN 48 applies to all tax positions related to income
taxes subject to Statement of Financial Accounting Standard (SFAS) 109,
“Accounting for Income Taxes.” Under FIN 48 a company would recognize the
benefit from a tax position only if it is more-likely-than-not that the
position
would be sustained upon audit based solely on the technical merits of
the tax
position. FIN 48 clarifies how a company would measure the income tax
benefits
from the tax positions that are recognized, provides guidance as to the
timing
of the derecognition of previously recognized tax benefits and describes
the
methods for classifying and disclosing the liabilities within the financial
statements for any unrecognized tax benefits. FIN 48 also addresses when
a company should record interest and penalties related to tax positions
and how
the interest and penalties may be classified within the income statement
and
presented in the balance sheet. On December 30, 2006, we adopted FIN 48
and, as a result of the implementation, no change to liabilities for
uncertain
tax positions were recorded (compared to amounts under SFAS 5, “Accounting for
Contingencies,” represented in the financial statements for the 2006
year).
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.”
SFAS 157 establishes a framework for measuring the fair value of assets and
liabilities. This framework is intended to provide increased consistency
in how
fair value determinations are made under various existing accounting
standards
which permit, or in some cases require, estimates of fair market value.
SFAS 157
is effective for us beginning in our first quarter of fiscal 2008, although
earlier adoption is encouraged. We do not expect the adoption of SFAS 157
to have a material impact on our financial position, results of operations
or
cash flows.
In
February 2007, the FASB issued SFAS 159, “The Fair Value Option for Financial
Assets and Financial Liabilities, including an amendment of FASB Statement
No. 115.” SFAS 159 allows an entity the irrevocable option to
elect fair value for the initial and subsequent measurement for certain
financial assets and liabilities under an instrument-by-instrument election.
Subsequent measurements for the financial assets and liabilities an entity
elects to fair value will be recognized in earnings. SFAS 159 also establishes
additional disclosure requirements. If we elected to adopt SFAS 159,
it would be
effective for us beginning in our first quarter of fiscal 2008, with
early
adoption permitted provided that we also adopt SFAS 157. We do not expect
the adoption of SFAS 159 to have a material impact on our financial position,
results of operations or cash flows.
Revenue
Recognition
We
recognize product revenue when persuasive evidence of an arrangement
exists,
delivery has occurred, the fee is fixed or determinable, and collectibility
is
reasonably assured. In instances where final acceptance of the product
is
specified by the customer or is uncertain, revenue is deferred until
all
acceptance criteria have been met.
Contracts
and/or customer purchase orders are used to determine the existence of
an
arrangement. Shipping documents and customer acceptance, when applicable,
are
used to verify delivery. We assess whether the fee is fixed or determinable
based on the payment terms associated with the transaction and whether
the sales
price is subject to refund or adjustment. We assess collectibility based
primarily on the creditworthiness of the customer as determined by credit
checks
and analysis, as well as the customer’s payment history.
Revenue
for orders are not recognized until the product is delivered and title
has
transferred to the buyer. We bear all costs and risks of loss or damage
to the
goods up to that point. Our shipment terms for U.S. orders and international
orders fulfilled from our European distribution center typically provide
that
title passes to the buyer upon delivery of the goods to the carrier named
by the
buyer at the named place or point. If no precise point is indicated by
the
buyer, we may choose within the place or range stipulated where the carrier
will
take the goods into carrier’s charge. Other shipment terms may provide that
title passes to the buyer upon delivery of the goods to the
buyer. Shipping and handling costs are included in the cost of goods
sold.
Revenue
to distributors and resellers is recognized upon delivery, assuming all
other
criteria for revenue recognition have been met. Distributors and resellers
do
not have a right of return.
Revenue
from purchased extended warranty and support agreements is deferred and
recognized ratably over the term of the warranty/support period.
The
Company presents revenue net of sales taxes and any similar
assessments.
We
apply
Statement of Position (SOP) No. 97-2, “Software Revenue Recognition” to products
where the embedded software is more than incidental to the functionality
of the
hardware. This determination requires significant judgment including
a
consideration of factors such as marketing, research and development
efforts and
any post contract customer support (PCS) relating to the embedded
software.
Our
software arrangements generally consist of a perpetual license fee and
PCS. We
have established vendor-specific objective evidence (VSOE) of fair value
for our
PCS contracts based on the renewal rate. The remaining value of the software
arrangement is allocated to the license fee using the residual method,
which
revenue is primarily recognized when the software has been delivered
and there
are no remaining obligations. Revenue from PCS is recognized ratably
over the
term of the PCS agreement.
We
apply
EITF Issue 00-3, "Application of AICPA Statement of Position 97-2 to
Arrangements That Include the Right to Use Software Stored on Another
Entity's
Hardware" for hosted arrangements which the customer does not have the
contractual right to take possession of the software at any time during
the
hosting period without incurring a significant penalty and it is not
feasible
for the customer to run the software either on its own hardware or on
a
third-party’s hardware. Subscription revenue related to our hosted arrangements
is recognized ratably over the contract period. Upfront fees for our
hosted
solution primarily consist of amounts for the in-vehicle enabling hardware
device and peripherals, if any. For upfront fees relating to propriety
hardware
where the firmware is more than incidental to the functionality of the
hardware
in accordance with SOP No. 97-2, “Software Revenue Recognition,” we defer the
upfront fees at installation and recognizes them ratably over the minimum
service contract period, generally one to five years. Product costs are
also
deferred and amortized over such period.
In
accordance with EITF Issue 00-21, “Accounting for Revenue Arrangements with
Multiple Deliverables,” when a non-software sale involves multiple elements the
entire fee from the arrangement is allocated to each respective element
based on
its relative fair value and recognized when revenue recognition criteria
for
each element are met.
Allowance
for Doubtful Accounts and Sales Returns
We
evaluate the collectibility of our trade accounts receivable based on
a number
of factors such as age of the accounts receivable balances, credit quality,
historical experience, and current economic conditions that may affect
a
customer’s ability to pay. In circumstances where we are aware of a specific
customer’s inability to meet its financial obligations to us, a specific
allowance for bad debts is estimated and recorded which reduces the recognized
receivable to the estimated amount we believe will ultimately be collected.
In
addition to specific customer identification of potential bad debts,
bad debt
charges are recorded based on our recent past loss history and an overall
assessment of past due trade accounts receivable amounts
outstanding.
A
reserve
for sales returns is established based on historical trends in product
return
rates experienced in the ordinary course of business and is recorded
as a
reduction of our accounts receivable and revenue. If the actual future
returns
were to deviate from the historical data on which the reserve had been
established, our revenue could be adversely affected.
Inventory
Valuation
Our
inventories are stated at the lower of standard cost (which approximates
actual
cost on a first-in, first-out basis) or market. Adjustments to reduce
the cost
of inventory to its net realizable value, if required, are made for estimated
excess, obsolescence, or impaired balances. Factors influencing these
adjustments include decline in demand, technological changes, product
life cycle
and development plans, component cost trends, product pricing, physical
deterioration, and quality issues. If actual factors are less favorable
than
those projected by us, additional inventory write-downs may be
required.
Income
Taxes
Income
taxes are accounted for under the liability method whereby deferred tax
assets
or liability account balances are calculated at the balance sheet date
using
current tax laws and rates in effect for the year in which the differences
are
expected to affect taxable income. A valuation allowance is recorded
to reduce
the carrying amounts of deferred tax assets if it is more likely than
not such
assets will not be realized.
Our
valuation allowance is attributable to, primarily, acquisition net operating
loss carryforwards. Valuation allowance amounts are offsets to related
deferred tax assets. Management believes that it is more likely than
not that we
will not realize these deferred tax assets and, accordingly, a valuation
allowance has been established for such amounts. When the tax benefits
are
utilized and the valuation allowance is released, the benefit of the
release of
the valuation allowance will be accounted for as a credit to goodwill
rather
than as a reduction of the income tax provision.
Impairment
of Goodwill, Intangible Assets and Other Long-Lived Assets
The
process of evaluating the potential impairment of goodwill, intangible
assets
and other long-lived assets is subjective and requires significant
assumptions.
We
evaluate goodwill, at a minimum, on an annual basis and whenever events
and
changes in circumstances suggest that the carrying amount may not be
recoverable. We perform our annual goodwill impairment testing in the
fourth
fiscal quarter of each year. Goodwill is reviewed for impairment utilizing
a
two-step process. First, impairment of goodwill is tested at the reporting
unit level by comparing the reporting unit’s carrying amount, including
goodwill, to the fair value of the reporting unit. The fair values
of the reporting units are estimated using a discounted cash flow
approach. If the carrying amount of the reporting unit exceeds its fair
value, a second step is performed to measure the amount of impairment
loss, if
any. In step two, the implied fair value of goodwill is calculated as
the excess
of the fair value of a reporting unit over the fair values assigned to
its
assets and liabilities. If the implied fair value of goodwill is less
than the
carrying value of the reporting unit’s goodwill, the difference is recognized as
an impairment loss.
Depreciation
and amortization of our intangible assets and other long-lived assets
is
provided using the straight-line method over their estimated useful lives,
reflecting the pattern of economic benefits associated with these assets.
Changes in circumstances such as technological advances, changes to our
business
model, or changes in the capital strategy could result in the actual
useful
lives differing from initial estimates. In those cases where we determine
that
the useful life of an asset should be revised, we will depreciate the
net book
value in excess of the estimated residual value over its revised remaining
useful life. These assets are evaluated for impairment whenever events
or
changes in circumstances indicate that the carrying amount of such assets
may
not be recoverable. The estimated future cash flows are based upon, among
other
things, assumptions about expected future operating performance and may
differ
from actual cash flows. The assets evaluated for impairment are grouped
with
other assets to the lowest level for which identifiable cash flows are
largely
independent of the cash flows of other groups of assets and liabilities.
If the
sum of the projected undiscounted cash flows (excluding interest) is
less than
the carrying value of the assets, the assets will be written down to
the
estimated fair value in the period in which the determination is
made.
Warranty
Costs
We
accrue
for warranty costs as part of cost of sales based on associated material
product
costs, technical support labor costs, and costs incurred by third parties
performing work on our behalf. Our expected future cost is primarily
estimated
based upon historical trends in the volume of product returns within
the
warranty period and the cost 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
we
engage in extensive product quality programs and processes, including
actively
monitoring and evaluating the quality of our component suppliers, our
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
our
estimates, revisions to the estimated warranty accrual and related costs
may be
required.
Stock
Compensation
We
account for our employee stock options and rights to purchase shares
under our
stock participation plans at fair value, in accordance with SFAS 123(R),
“Share-Based Payment.” The determination of fair value of share-based payment
awards on the date of grant using an option-pricing model is affected
by our
stock price as well as assumptions regarding a number of highly complex
and
subjective variables. These variables include our expected stock price
volatility over the term of the awards, actual and projected employee
stock
option exercise behaviors, risk-free interest rates, and expected dividends.
In
addition, the binomial model incorporates actual option-pricing behavior
and changes in volatility over the option’s contractual term.
Beginning
in fiscal 2006, our expected stock price volatility for stock purchase
rights is
based on implied volatilities of traded options on our stock and our
expected
stock price volatility for stock options is based on a combination of
our
historical stock price volatility for the period commensurate with the
expected
life of the stock option and the implied volatility of traded options.
The use
of implied volatilities was based upon the availability of actively traded
options on our stock with terms similar to our awards and also upon our
assessment that implied volatility is more representative of future stock
price
trends than historical volatility. However, because the expected life
of our
stock options is greater than the terms of our traded options, we used
a
combination of our historical stock price volatility commensurate with
the
expected life of our stock options and implied volatility of traded
options.
We
estimated the expected life of the awards based on an analysis of our
historical
experience of employee exercise and post-vesting termination behavior
considered
in relation to the contractual life of the options and purchase rights.
The
risk-free interest rate assumption is based upon observed interest rates
appropriate for the expected term of the awards.
We
do not
currently pay cash dividends on our common stock and do not anticipate
doing so
in the foreseeable future. Accordingly, our expected dividend yield is
zero.
Because
stock-based compensation expense recognized in the Consolidated Statements
of
Income for fiscal 2007 and 2006 is based on awards ultimately expected
to vest,
it has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures
to be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. Forfeitures
were
estimated based on historical experience.
If
factors change and we employ different assumptions in the application
of SFAS
123(R) in future periods, the compensation expense that we record under
SFAS
123(R) may differ significantly from what we have recorded in the current
period. In addition, valuation models, including the Black-Scholes and
binomial models, may not provide reliable measures of the fair values
of our
stock-based compensation. Consequently, there is a risk that our estimates
of
the fair values of our stock-based compensation awards on the grant dates
may
bear little resemblance to the actual values realized upon the exercise,
expiration, early termination, or forfeiture of those stock-based payments
in
the future. Certain stock-based payments, such as employee stock options,
may
expire worthless or otherwise result in zero intrinsic value as compared
to the
fair values originally estimated on the grant date and reported in our
financial
statements. Alternatively, value may be realized from these instruments
that are
significantly higher than the fair values originally estimated on the
grant date
and reported in our financial statements.
As
of
June 29, 2007, the total stock option expense is $27.4 million with a
weighted-average recognition period of 1.5 years.
EXECUTIVE
LEVEL OVERVIEW
Trimble’s
focus is on combining positioning technology with wireless communication
and
software 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.
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 Trimble Mobile
Solutions (TMS) segment, our products are generally sold through a dealer
channel, and it is crucial that we maintain a proficient global, third-party
distribution channel.
We
continue to execute our strategy with a series of actions that can be
summarized
in four categories.
Reinforce
our position in existing markets
*
We
believe that our markets provide us with additional, substantial potential
for
substituting our technology for traditional methods. In the first half
of fiscal
2007 we continued to develop new products and to strengthen our distribution
channels in order to expand our market opportunity. A number of new products
such as AgGPS® EZ-Guide® 500, Juno™ST , Spectra Precision® GL412 and 422,
Trimble VX™Spatial Station, and Trimble® CCS900 Compaction Control System,
strengthened our competitive position and created new value for the
user.
Extend
our position in 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 existing users. For example, in January we
introduced the Trimble VX™Spatial Station and in April we introduced a suite of
interactive product training modules for the engineering and construction
industry.
Bring
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
in China, India, Russia, Korea and Eastern Europe all reflected improving
financial results, with the promise of more in the future.
Enter
new markets
*
In the
first quarter of fiscal 2007, we acquired @Road, a global provider of
solutions
designed to automate the management of mobile resources and to optimize
the
service delivery process for customers across a variety of industries,
and
INPHO, a leader in photogrammetry and digital surface modeling for aerial
surveying, mapping and remote sensing applications. In addition, we
increased our reach with existing products in new markets.
RECENT
BUSINESS DEVELOPMENTS
During
the last twelve months, we acquired the following companies and the results
of
their operation have been combined with our operations from the date
of
acquisition:
@Road,
Inc.
On
February 16, 2007, we acquired publicly-held @Road, Inc. of Fremont,
California. @Road, Inc. is a global provider of solutions designed to
automate the management of mobile resources and to optimize the service
delivery
process for customers across a variety of industries. @Road’s performance is
reported under our Mobile Solutions business segment.
INPHO
GmbH
On
February 13, 2007, we acquired privately-held INPHO GmbH of Stuttgart,
Germany. INPHO provides photogrammetry and digital surface modeling
for aerial surveying, mapping and remote sensing
applications. INPHO’s performance is reported under our Engineering
and Construction business segment.
Spacient
Technologies, Inc.
On
November 21, 2006, we acquired privately-held Spacient Technologies,
Inc. of
Long Beach, California. Spacient is a provider of enterprise field
service management and mobile mapping solutions for municipalities and
utilities. Spacient’s performance is reported under our Field
Solutions business segment.
Meridian
Project Systems, Inc.
On
November 7, 2006, we acquired privately-held Meridian Project Systems,
Inc. of
Folsom, California. Meridian provides enterprise project management
and lifecycle software for optimizing the plan, build and operate lifecycle
for
real estate, construction and other physical infrastructure
projects. Meridian’s performance is reported under our Engineering
and Construction business segment.
XYZ
Solutions, Inc.
On
October 27, 2006, we acquired privately-held XYZ Solutions, Inc., of
Alpharetta,
Georgia. XYZ Solutions provides real-time, interactive 3D
intelligence software to manage the spatial aspects of a construction
project. XYZ Solutions’ performance is reported under our Engineering
and Construction business segment.
Visual
Statement, Inc.
On
October 11, 2006, we acquired privately-held Visual Statement, Inc. of
Kamloops,
British Columbia, Canada. Visual Statement provides desktop software
tools for
crime and collision incident investigation, analysis, and reconstitution
as well
as state-wide enterprise solutions for reporting and analysis used by
public
safety agencies. Visual Statement’s performance is reported under our Mobile
Solutions business segment.
RESULTS
OF OPERATIONS
Overview
The
following table is a summary of revenue and operating income for the
periods
indicated and should be read in conjunction with the narrative descriptions
below.
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated revenue
|
|
$ |
327,732
|
|
|
$ |
245,326
|
|
|
$ |
613,464
|
|
|
$ |
471,180
|
|
Gross
margin
|
|
$ |
167,169
|
|
|
$ |
121,656
|
|
|
$ |
310,299
|
|
|
$ |
229,119
|
|
Gross
margin %
|
|
|
51.0 |
% |
|
|
49.6 |
% |
|
|
50.6 |
% |
|
|
48.6 |
% |
Total
consolidated operating income
|
|
$ |
55,950
|
|
|
$ |
38,669
|
|
|
$ |
95,218
|
|
|
$ |
71,734
|
|
Operating
income %
|
|
|
17.1 |
% |
|
|
15.8 |
% |
|
|
15.5 |
% |
|
|
15.2 |
% |
Revenue
In
the
three months ended June 29, 2007, total revenue increased by $82.4 million
or
34%, as compared to the same corresponding period in fiscal 2006. The
increase
resulted from strong revenue growth across all segments. Engineering
and
Construction revenue increased $30.8 million, Mobile Solutions increased
$26.1
million, Field Solutions increased $19.0 million, and Advanced Devices
increased
$6.5 million, compared to the same corresponding period in fiscal 2006.
Revenue
growth within these segments was driven by product mix, increased penetration
of
existing markets, and acquisitions made in the Engineering and Construction
and
Mobile Solution segments. Acquisitions made during the last twelve
months contributed $33.1 million to second fiscal quarter revenue.
In
the
six months ended June 29, 2007, total revenue increased by $142.3 million
or
30%, as compared to the same corresponding period in fiscal 2006. The
increase
was primarily due to strong revenue performances across all our
segments. Engineering and Construction revenue increased $59.7
million, Mobile Solutions increased $43.3 million, Field Solutions increased
$26.9 million, and Advanced Devices increased $12.4 million, compared
to the
same corresponding period in fiscal 2006. Revenue growth within these
segments was primarily driven by new product introductions and increased
penetration of existing markets, as well as the impact of acquisitions
of $50.8
million for the six month period ended June 29, 2007, that were not applicable
in the comparable period in 2006.
During
the second fiscal quarter of fiscal 2007, sales to customers in North
America
represented 57%, Europe represented 26%, Asia Pacific represented 12%
and other
regions represented 5% of our total revenue. During the same corresponding
period in fiscal 2006, sales to customers in North America represented
60%,
Europe represented 25%, Asia Pacific represented 11% and other regions
represented 4% of our total revenue.
Gross
Margin
Gross
margin varies due to a number of factors including product mix, pricing,
distribution channel, production volumes, new product start-up costs,
and
foreign currency translations.
Gross
margin increased by $45.5 million and $81.2 million for the three and
six months
ended June 29, 2007 respectively compared to the corresponding periods
in the
prior year. Gross margin as a percentage of total revenue for the
three months ended June 29, 2007 was 51.0% as compared to 49.6% for the
three
months ended June 30, 2006. Gross margin as a percentage of total
revenue for the six months ended June 29, 2007 was 50.6% as compared
to 48.6%
for the six months ended June 30, 2006.
The
increases in gross margin for the three and six month periods was driven by an
increase in sales of higher-margined products, software and subscription
revenue, foreign exchange rate gains, and improved manufacturing utilization,
partially offset by higher amortization of purchased intangibles.
Operating
Income
Operating
income increased by $17.3 million and $23.5 million for the three and
six months
ended June 29, 2007 respectively compared to the corresponding periods
in the
prior year. Operating income as a percentage of total revenue was
17.1% for the three months ended June 29, 2007 as compared to 15.8% for
the
three months ended June 30, 2006. Operating income as a percentage of
total
revenue was 15.5% for the six month period ended June 29, 2007 as compared
to
15.2% for the six months ended June 30, 2006. The increases in operating
income
for the three and six month periods were primarily due to higher revenue
and
associated gross margin and software and subscription revenue, offset
in part by
additional amortization of purchased intangibles and increased operating
expenses.
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 (loss) equals net revenue less cost of sales
and
operating expenses, excluding general corporate expenses, amortization
of
purchased intangibles, in-process research and development expenses,
and
restructuring charges.
The
following table is a breakdown of revenue and operating income by segment
(in
thousands, except percentages):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
198,853
|
|
|
$ |
168,041
|
|
|
$ |
374,457
|
|
|
$ |
314,775
|
|
Segment
revenue as a percent of total revenue
|
|
|
61 |
% |
|
|
68 |
% |
|
|
61 |
% |
|
|
67 |
% |
Operating
income
|
|
$ |
52,371
|
|
|
$ |
38,803
|
|
|
$ |
94,535
|
|
|
$ |
65,180
|
|
Operating
income as a percent of segment revenue
|
|
|
26 |
% |
|
|
23 |
% |
|
|
25 |
% |
|
|
21 |
% |
Field
Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
55,273
|
|
|
$ |
36,320
|
|
|
$ |
106,235
|
|
|
$ |
79,363
|
|
Segment
revenue as a percent of total revenue
|
|
|
17 |
% |
|
|
15 |
% |
|
|
17 |
% |
|
|
17 |
% |
Operating
income
|
|
$ |
18,398
|
|
|
$ |
11,299
|
|
|
$ |
35,026
|
|
|
$ |
25,207
|
|
Operating
income as a percent of segment revenue
|
|
|
33 |
% |
|
|
31 |
% |
|
|
33 |
% |
|
|
32 |
% |
Mobile
Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
40,927
|
|
|
$ |
14,851
|
|
|
$ |
70,784
|
|
|
$ |
27,458
|
|
Revenue
as a percent of total revenue
|
|
|
12 |
% |
|
|
6 |
% |
|
|
12 |
% |
|
|
6 |
% |
Operating
income
|
|
$ |
2,906
|
|
|
$ |
374
|
|
|
$ |
3,916
|
|
|
$ |
597
|
|
Operating
income as a percent of segment revenue
|
|
|
7 |
% |
|
|
3 |
% |
|
|
6 |
% |
|
|
2 |
% |
Advanced
Devices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
32,679
|
|
|
$ |
26,114
|
|
|
$ |
61,988
|
|
|
|
49,584
|
|
Segment
revenue as a percent of total revenue
|
|
|
10 |
% |
|
|
11 |
% |
|
|
10 |
% |
|
|
11 |
% |
Operating
income
|
|
$ |
5,384
|
|
|
$ |
2,243
|
|
|
$ |
8,727
|
|
|
$ |
4,566
|
|
Operating
income as a percent of segment revenue
|
|
|
16 |
% |
|
|
9 |
% |
|
|
14 |
% |
|
|
9 |
% |
A
reconciliation of our consolidated segment operating income to consolidated
income before income taxes follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
segment operating income
|
|
$ |
79,059
|
|
|
$ |
52,719
|
|
|
$ |
142,204
|
|
|
$ |
95,550
|
|
Unallocated
corporate expense
|
|
|
(12,344 |
) |
|
|
(9,288 |
) |
|
|
(23,522 |
) |
|
|
(16,714 |
) |
Amortization
of purchased intangible assets
|
|
|
(10,432 |
) |
|
|
(3,742 |
) |
|
|
(18,327 |
) |
|
|
(6,082 |
) |
In-process
research and development expense
|
|
|
--
|
|
|
|
(1,020 |
) |
|
|
(2,112 |
) |
|
|
(1,020 |
) |
Restructuring
charges
|
|
|
(333 |
) |
|
|
--
|
|
|
|
(3,025 |
) |
|
|
--
|
|
Non-operating
income, net
|
|
|
271
|
|
|
|
2,525
|
|
|
|
3,128
|
|
|
|
5,332
|
|
Consolidated
income before income taxes
|
|
$ |
56,221
|
|
|
$ |
41,194
|
|
|
$ |
98,346
|
|
|
$ |
77,066
|
|
Engineering
and Construction
Engineering
and Construction revenue increased by $30.8 million or 18% and $59.7
million or
19% for the three and six months ended June 29, 2007, as compared to
the same
corresponding periods in fiscal 2006. Segment operating income
increased $13.6 million or 35% and $29.4 million or 45% for the three
and six
months ended June 29, 2007 as compared to the same corresponding periods
in
fiscal 2006.
The
revenue growth for both the three and six months ended June 29, 2007
was driven
by a steady market, strong sales of construction products, acquisitions
made
during the last twelve months, and foreign exchange gains. In
addition, for the three months ended June 30, 2006 segment operating
income
increased for both the three and six months ended June 29, 2007 due
to higher
revenue and higher gross margin.
Field
Solutions revenue increased by $19.0 million or 52% and $26.9 million
or 34% for
the three and six months ended June 29, 2007, as compared to the same
corresponding periods in fiscal 2006. Segment operating income
increased by $7.1 million or 63% and $9.8 million or 39% for the three
and six
months ended June 29, 2007 as compared to the same corresponding periods
in
fiscal 2006.
Revenue
increases for the both the three and six month periods ended June 29,
2007 were
driven by the introduction of a new agricultural product, a robust
agricultural
market, and an extended growing season. Operating income increased
primarily due
to higher revenue and operating expense control.
Mobile
Solutions revenue increased by $26.1 million or 176% and $43.3 million
or 158%
for the three and six months ended June 29, 2007. Segment operating
income increased $2.5 million or 677% and $3.3 million or 556% for
the three and
six months ended June 29, 2007, as compared to the same corresponding
periods in
fiscal 2006.
Revenue
for the three and six months ended June 29, 2007 compared to the corresponding
periods of fiscal 2006 grew due to increased subscription revenue and
the
benefit of the @Road acquisition which was not in the corresponding
period of
fiscal 2006. Operating income increased for the three and six months
ended June 29, 2007, compared to the corresponding periods of fiscal
2006
primarily due to higher revenue, associated gross margin, and stronger
operating
expense control.
Advanced
Devices
Advanced
Devices revenue increased by $6.6 million or 25% and $12.5 million
or 25% for
the three and six months ended June 29, 2007 as compared to the same
corresponding periods in fiscal 2006. Segment operating income
increased by $3.1 million or 140% and $4.2 million or 91% for the three
and six
months ended June 29, 2007, as compared to the same corresponding periods
in
fiscal 2006.
For
the
three and six months ended June 29, 2007, compared to the corresponding
periods
in fiscal 2006, the increase in revenue and operating income was primarily
driven by stronger performance in our Component Technologies timing
and embedded
product revenues, as well as licensing revenue associated with a Nokia
intellectual property agreement signed in the third quarter of
2006.
Research
and Development, Sales and Marketing, and General and Administrative
Expenses
Research
and development (R&D), sales and marketing (S&M), and general and
administrative (G&A) expenses are summarized in the following table (in
thousands, except percentages):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Research
and development
|
|
$ |
33,867
|
|
|
$ |
27,607
|
|
|
$ |
65,030
|
|
|
$ |
52,053
|
|
Percentage
of revenue
|
|
|
10.3 |
% |
|
|
11.3 |
% |
|
|
10.6 |
% |
|
|
11.0 |
% |
Sales
and marketing
|
|
|
47,546
|
|
|
|
35,747
|
|
|
|
89,693
|
|
|
|
68,453
|
|
Percentage
of revenue
|
|
|
14.5 |
% |
|
|
14.5 |
% |
|
|
14.6 |
% |
|
|
14.5 |
% |
General
and administrative
|
|
|
24,278
|
|
|
|
16,205
|
|
|
|
45,920
|
|
|
|
31,966
|
|
Percentage
of revenue
|
|
|
7.4 |
% |
|
|
6.6 |
% |
|
|
7.5 |
% |
|
|
6.8 |
% |
Total
|
|
$ |
105,691
|
|
|
$ |
79,559
|
|
|
$ |
200,643
|
|
|
$ |
152,472
|
|
Percentage
of revenue
|
|
|
32.2 |
% |
|
|
32.4 |
% |
|
|
32.7 |
% |
|
|
32.3 |
% |
Overall,
R&D, S&M, and G&A expense increased by approximately $26.1 million
and $48.2 million for the three and six months ended June 29, 2007, compared
to
the corresponding periods in fiscal 2006.
The
increase in R&D expenses in the second quarter of fiscal 2007, as compared
with the second quarter of a fiscal 2006 was primarily due to additional
operating expenses of $5.9 million associated with recent business acquisitions,
$1.9 million increase in compensation related expenses, offset slightly
by a
$1.9 million decrease in R&D outside services and parts expenses which were
unusually high in the prior year due to compliance with the European
lead free
initiative. The increase in R&D expenses in the first six months
of fiscal 2007, as compared with the corresponding period in fiscal 2006, was
primarily due to additional operating expenses of $8.8 million associated
with
recent business acquisitions, a $4.8 million increase in compensation
related
expenses, partially offset by a $1.6 million decrease in R&D outside
services and parts expenses which were unusually high in the prior year
due to
compliance with the European lead free initiative.
All
of
our R&D costs have been expensed as incurred. Cost of software
developed for external sale subsequent to reaching technical feasibility
were
not considered material and were expensed as incurred.
*
We
believe that the development and introduction of new products are critical
to
our future success and we expect to continue active development of new
products.
The
increase in S&M expenses in the second quarter of fiscal 2007, as compared
with the corresponding period of fiscal 2006, was primarily due to additional
operating expense from recent business acquisitions of $9.8 million,
and a $0.8
million increase due to foreign currency exchange rates. The increase
in S&M expenses in the first six months of fiscal 2007 as compared with the
corresponding period of fiscal 2006 was primarily due to additional operating
expenses associated with recent business acquisitions of $15.2 million,
a $3.4
million increase in compensation related expenses, and a $1.5 million
increase
due to foreign currency exchange rates.
*
Our
future growth will depend in part on the timely development and continued
viability of the markets in which we currently compete as well as our
ability to
continue to identify and develop new markets for our products.
The
increase in G&A expenses in the second quarter of fiscal 2007, as compared
with the corresponding period in fiscal 2006, was primarily due to additional
operating expenses associated with recent business acquisitions of $3.5
million
and a $2.4 million increase in tax and legal fees. The increase in G&A
expenses in the first six months of fiscal 2007 compared with the corresponding
period in fiscal 2006 was primarily due to additional operating expenses
associated with recent business acquisitions in the amount of $6.3 million,
and
a $4.0 million increase in tax and legal fees.
Amortization
of Purchased Intangible Assets
Amortization
of purchased intangible assets was $10.4 million, of which $5.2 million
was
recorded in cost of sales, in the second quarter of fiscal 2007, compared
with
$3.7 million in the second quarter of fiscal 2006, due to acquisitions
not
applicable in the corresponding period of fiscal 2006, primarily
@Road. Amortization of purchased intangible assets was $18.3 million,
of which $9.0 was recorded in cost of sales, in the first six months
of fiscal
2007, compared with $6.1 million in the first six months of fiscal 2006,
due to
acquisitions not applicable in the corresponding period of fiscal 2006,
primarily @Road. As of June 29, 2007, future amortization of intangible
assets
is expected to be $19.8 million during the last half of fiscal 2007,
$39.3
million during 2008, $36.3 million during 2009, $34.0 million during
2010, $28.7
million during 2011, and $44.6 million thereafter.
In-Process
Research and Development
We
recorded in-process research and development (IPR&D) expense of $0 and $2.1
million related to acquisitions during the three and six months ended
June 29,
2007, respectively, compared with $1.0 million in the corresponding periods
in
2006. At the date of each acquisition, the projects associated with
the IPR&D efforts had not yet reached technological feasibility and the
research and development in process had no alternative future uses. The
value of
the IPR&D was determined using a discounted cash flow model similar to the
income approach, focusing on the income producing capabilities of the
in-process
technologies. Accordingly, the value assigned to these IPR&D amounts were
charged to expense on the respective acquisition date of each of the
acquired
companies.
Restructuring
Charges
For
the
three and six months ended June 29, 2007, we recorded $0.3 million and
$3.0
million, respectively within our consolidated condensed statements of
income as
“Restructuring charges” for the acceleration of vesting of employee stock
options related to certain @Road terminated employees, of which $1.4
million was
settled in cash and $1.6 million was settled in stock.
For
the
six month period ended June 29, 2007, we accrued $3.6 million of severance
and
benefits related to the acquisition of @Road. These restructuring
costs were recorded in accordance with EITF Issue 95-3 “Recognition of
Liabilities in Connection with a Purchase Business
Combination.” During the six months ended June 29, 2007, we paid $2.0
million against this reserve. The remaining restructuring accrual of
$1.6 million as of June 29, 2007 is included in Accrued liabilities in
our
Condensed Consolidated Balance Sheet and is expected to be paid by the
end of
fiscal 2007.
Non-operating
Income, Net
The
components of non-operating income, net, are as follows (in
thousands):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
29,
|
|
|
June
30,
|
|
|
June
29,
|
|
|
June
30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
593
|
|
|
$ |
763
|
|
|
$ |
1,837
|
|
|
$ |
1,275
|
|
Interest
expense
|
|
|
(2,459 |
) |
|
|
(165 |
) |
|
|
(3,860 |
) |
|
|
(243 |
) |
Foreign
currency transaction gain (loss), net
|
|
|
(430 |
) |
|
|
334
|
|
|
|
(73 |
) |
|
|
927
|
|
Income
from joint ventures
|
|
|
2,080
|
|
|
|
1,575
|
|
|
|
4,502
|
|
|
|
3,191
|
|
Other
income, net
|
|
|
487
|
|
|
|
18
|
|
|
|
722
|
|
|
|
182
|
|
Total
non-operating income, net
|
|
$ |
271
|
|
|
$ |
2,525
|
|
|
$ |
3,128
|
|
|
$ |
5,332
|
|
Non-operating
income, net, decreased $2.3 million or 89% for second quarter of fiscal
2007,
compared with the corresponding period in fiscal 2007, primarily due
to a $2.3
million increase in interest expense due to an increase in debt associated
with
the @Road acquisition and a $0.8 million change in foreign currency transactions
due to fluctuations in the U.S. to Canadian currencies, partially offset
by
increased profits from our CTCT joint venture.
Non-operating
income, net, decreased by $2.2 million or 41% during the first six months
of
fiscal 2007, compared with the corresponding period in fiscal 2006, due
to a
$3.6 million increase in interest expense due to an increase in debt
associated
with the @Road acquisition, and a $1.0 million change in foreign currency
transactions due to fluctuations in the U.S. to Canadian currencies,
partially
offset by an increase in interest income due to higher average cash balances
during the six month period and increased profits from our CTCT joint
venture.
Income
Tax Provision
Our
income tax provision reflects a tax rate of 37.7% and 35.2% for the quarter
and
six months ended June 29, 2007, respectively. The tax rates for the
comparable periods in fiscal 2006 were 30.8% and 29.5%, respectively.
The 2007
rates are higher than the 2006 rates due to contingency releases in
2006 as a result of favorable tax audits in several foreign jurisdictions,
a
reduction in benefits from operations in foreign jurisdictions, which
are
subject to a lower effective tax rate than the U.S., and the expiration
of the
Extraterritorial Income Exclusion (ETI) deduction.
*
We
anticipate an annual estimated effective tax rate of 38.0% for fiscal
year 2007.
The tax rate could be affected by several factors including stock option
activity, geographic mix of our pre-tax income, legislative changes,
changes to
our existing valuation allowance(s) or contingent tax liabilities, and/or
discrete quarterly events.
OFF-BALANCE
SHEET FINANCINGS AND LIABILITIES
Other
than lease commitments incurred in the normal course of business, we
do not have
any off-balance sheet financing arrangements or liabilities, guarantee
contracts, retained or contingent interests in transferred assets, or
any
obligation arising out of a material variable interest in an unconsolidated
entity. We do not have any majority-owned subsidiaries that are not included
in
the condensed consolidated financial statements. Additionally, we do
not have
any interest in, or relationship with, any special purpose
entities.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
|
|
June
29,
2007
|
|
|
December
29,
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
73,760
|
|
|
$ |
129,621
|
|
Total
debt
|
|
$ |
122,989
|
|
|
$ |
481
|
|
Six
Months Ended
|
|
June
29,
2007
|
|
|
June
30,
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$ |
86,457
|
|
|
$ |
59,369
|
|
Cash
used in investing activities
|
|
$ |
(283,054 |
) |
|
$ |
(49,080 |
) |
Cash
provided by financing activities
|
|
$ |
144,173
|
|
|
$ |
21,155
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
$ |
(3,437 |
) |
|
$ |
2,429
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$ |
(55,861 |
) |
|
$ |
33,873
|
|
Cash
and Cash Equivalents
As
of
June 29, 2007, cash and cash equivalents totaled $73.8 million compared
to
$129.6 million at December 30, 2006. For the first six months of fiscal
2007,
cash provided by operating activities was $86.5 million, compared to
$59.4
million in cash provided by operating activities during the first six
months of
fiscal 2006. This increase of $27.1 million was primarily driven by an
increase
in net income before non-cash depreciation and amortization expenses,
in-process
research write-offs, and non-cash restructuring related to the @Road
acquisition.
*
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
used
$283.1 million in net cash for investing activities during the first
six months
of 2007, compared to $49.1 million during the first six months of
2006. The increase was primarily attributable to cash used for the
@Road acquisition.
We
generated $144.2 million in net cash from financing activities in the
first six
months of 2007, compared to $21.2 million during the first six months
of 2006,
primarily related to debt incurred for the @Road acquisition.
*
We
believe that our cash and cash equivalents, together with our revolving
credit
facilities will be sufficient to meet our anticipated operating cash
needs for
at least the next twelve months.
Accounts
Receivable and Inventory Metrics
|
|
June
29,
|
|
|
December
29
|
|
As
of
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
Accounts
receivable days sales outstanding
|
|
|
56
|
|
|
|
58
|
|
Inventory
turns per year
|
|
|
4.3
|
|
|
|
4.1
|
|
Our
accounts receivable days for sales outstanding improved to 56 days at
June 29,
2007, from 58 days at December 29, 2006. The decrease is primarily
due to increased collection efforts and our improvement in
the monitoring of outstanding receivables. Our inventory turns increased
to
4.3 turns for the first six months of fiscal 2007 due to operational
efficiencies.
Debt
At
June
29, 2007, our total debt was approximately $123.0 million compared to
$0.5
million as of December 29, 2006, attributable to debt incurred for the
@Road
acquisition.
On
February 16, 2007, we amended and restated 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
for swing line loans. During the three months ended March 30, 2007, we
drew down
$150 million on the 2007 Credit Facility. In addition, we incurred a
five-year
term loan under the 2007 Credit Facility in an aggregate principal amount
of
$100 million, which will mature concurrently with the revolving credit
line. The term loan will be repaid in quarterly installments, with
principal being amortized at the following annual rates: year 1 at 10%,
year 2
at 15%, year 3 at 15%, year 4 at 20%, year 5 at 20%, and the last quarterly
payment to be made at maturity, together with a final payment of 20%.
The
maximum leverage ratio under the 2007 Credit Facility is 3.00:1. The
funds available under the new 2007 Credit Facility may be used by us
for
acquisitions and general corporate purposes.
As
of
June 29, 2007, we had $25.0 million drawn on the revolving credit line
and a
$97.5 million term loan outstanding. As of June 29, 2007, we were in
compliance with all financial debt covenants.
Contractual
Obligations
The
following table summarizes our contractual obligations at June 29,
2007:
|
|
Payments
Due In
|
|
|
|
Total
Payments
Due
|
|
|
Fiscal
2007
(1)
|
|
|
Fiscal
2008
and
2009
|
|
|
Fiscal
2010
and
2011
|
|
|
Thereafter
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
debt excluding interest (2)
|
|
$ |
122,989
|
|
|
$ |
5,000
|
|
|
$ |
29,239
|
|
|
$ |
38,750
|
|
|
$ |
50,000
|
|
Operating
leases
|
|
|
51,299
|
|
|
|
8,312
|
|
|
|
23,985
|
|
|
|
14,235
|
|
|
|
4,767
|
|
Other
purchase obligations and commitments
|
|
|
28,914
|
|
|
|
28,914
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
203,202
|
|
|
$ |
42,226
|
|
|
$ |
53,224
|
|
|
$ |
52,985
|
|
|
$ |
54,767
|
|
(1)
Represents obligations for the last two quarters of fiscal 2007.
(2)
We
may borrow funds under the 2007 Credit Facility in U.S. Dollars or in
certain
other currencies, and 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 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 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.
Total
debt consists of a term loan, a revolving line of credit, and government
loans
to foreign subsidiaries. (See Note 9 in the Condensed Consolidated Financial
Statements for further financial information regarding long-term
debt)
Other
purchase obligations and commitments represent open non-cancelable purchase
orders for material purchases with our vendors. Purchase obligations
exclude
agreements that are cancelable without penalty. Our pension
obligation which is not included in the table above, is included in
“Other current liablities” and “Other non-current liabilities” on our
Condensed Consolidated Balance Sheets. Additionally, as of June 29,
2007, we had acquisition earn-outs of $10.6 million and holdbacks of
$8.5
million recorded in “Other current liabilities” and “Other non-current
liabilities.” The maximum remaining payments, including the $10.6
million and $8.5 million recorded, will not exceed $68.4
million. The remaining earn-outs and holdbacks are payable through
2009.
Trimble
adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
(FIN 48), on December 30, 2006. A total (net of the Federal benefit
on state issues and interest and/or penalty amounts) of $20.4 million
represents
the FIN 48 liability at June 29, 2007. At this time, we cannot make a
reasonably reliable estimate of the period of cash settlement with respective
tax authorities regarding this liability.
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
We
are
exposed to market risk due to the possibility of changing interest
rates under our senior secured credit facilities. Our
credit facilities are comprised of an unsecured revolving credit
agreement with a maturity date of February 2012, and a five-year term
loan which will mature concurrently with the revolving credit
line. We may borrow funds under the revolving credit agreement 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 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 our leverage ratio as of the
most
recently ended fiscal quarter.
As
of June 29, 2007, the outstanding principal balances on the
revolving credit facility and the term loan are $25.0 million and $97.5
million,
respectively. A hypothetical 10% increase in the
three-month LIBOR rates could result in approximately $657,000
annual increase in interest expense on the existing principal
balances.
* The hypothetical changes and assumptions made above
will be different from what actually occurs in the future.
Furthermore, the computations do not anticipate actions that
may be taken by our management should the hypothetical market changes
actually occur over time. As a result, actual earnings effects in the
future
will differ from those quantified above.
Foreign
Currency Exchange Rate Risk
There
have been no changes to our foreign currency exchange rate risk
assessment. Refer to our 2006 Annual Report on Form
10-K.
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.
2006
@Road Internal Control Matter
On
February 16, 2007, we completed the acquisition of @Road. For fiscal
year 2006, a material weakness was identified in @Road's internal
controls over accounting for revenue recognition. @Road's material
weakness had no material impact on our Condensed consolidated financial
statements as of and for the three and six months ended, June 29, 2007, and
did not result in any changes which materially affected or are reasonably
likely to materially affect our internal control over financial
reporting. The historical results reported for @Road in our Form
8-K/A filed on April 30, 2007 continue to be fairly
stated.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS
From
time
to time, we are involved in litigation arising out of the ordinary course
of its
business. There are no known claims or pending litigation expected to
have a
material effect on our overall financial position, results of operations,
or
liquidity.
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 2006 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 2006 Annual Report on Form
10-K.
ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND
USE OF
PROCEEDS
On
April
5, 2007, we issued 243,999 shares of our common stock to a warrant holder
pursuant to the exercise of the warrant held by such warrant
holder. On April 12, 2007, we issued 244,128 shares of our common
stock to a warrant holder pursuant to the exercise of the warrant held
by such
warrant holder. The holders of such warrants exercised their warrants
on a cashless basis by surrendering their right to purchase a portion
of the
shares of common stock based on a value of $26.98 and $27.044 per share,
respectively, representing the average closing price of our common stock
on the
ten-day period prior to the exercise date. In connection with these
cashless exercises of warrants, the warrants were surrendered and no
underwriting discounts or commissions were paid. We offered and sold
the common stock issued in connection with these cashless exercises of
warrants
in reliance on the exemption from registration for exchanges of securities
with
existing security holders by virtue of Section 3(a)(9) of the Securities
Act of
1933, as amended.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
(a)
The
Company's annual meeting of shareholders, (the “Annual Meeting”), was held at
the Hyatt Regency Hotel, located at 5101 Great America Parkway, Santa
Clara,
California 95054, on May 17, 2007.
(b)
At
the Annual Meeting, an election of directors was held, with the following
individuals being elected to the Company's Board of Directors.
|
|
VOTE
FOR
|
|
WITHHELD
|
Steven
W. Berglund
|
|
109,275,039
|
|
2,469,502
|
Robert
S. Cooper
|
|
100,923,540
|
|
10,821,000
|
John
B. Goodrich
|
|
108,488,278
|
|
3,256,262
|
William
Hart
|
|
109,026,013
|
|
2,718,528
|
Ulf
J. Johansson
|
|
109,922,929
|
|
1,821,611
|
Bradford
W. Parkinson
|
|
85,494,129
|
|
26,250,412
|
Nickolas
W. Vande Steeg
|
|
109,691,468
|
|
2,053,072
|
(c)
Other
matters voted upon at the Annual Meeting and the results of the voting
with
respect to each such matter were as follows:
2.
|
To
ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the current fiscal year ending
December 28,
2007.
|
FOR
|
AGAINST
|
ABSTAIN
|
109,387,668
|
2,286,201
|
70,671
|
3.1
|
|
Restated
Articles of Incorporation of the Company filed June 25, 1986.
(3)
|
3.2
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
October 6,
1988. (3)
|
3.3
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
July 18,
1990. (3)
|
3.4
|
|
Certificate
of Determination of Rights, Preferences and Privileges of Series
A
Preferred Participating Stock of the Company filed February
19, 1999.
(3)
|
3.5
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
May 29,
2003. (5)
|
3.6
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
March 4,
2004. (6)
|
3.7
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
February
21, 2007. (10)
|
3.8
|
|
Bylaws
of the Company, amended and restated through July 20, 2006.
(8)
|
4.1
|
|
Specimen
copy of certificate for shares of Common Stock of the Company.
(1)
|
4.2
|
|
Preferred
Shares Rights Agreement dated as of February 18, 1999.
(2)
|
4.3
|
|
Agreement
of Substitution and Amendment of Preferred Shares Rights Agreement
dated
September 10, 2004. (7)
|
4.4
|
|
Form
of Warrant dated April 12, 2002. (4)
|
10.1
|
|
@Road,
Inc. 2000 Stock Option Plan. (9)
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated August 7, 2007. (11)
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated August 7, 2007. (11)
|
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
August 7,
2007. (11)
|
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
August 7,
2007. (11)
|
(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 exhibit number 1 to the registrant's Registration
Statement on Form 8-A, which was filed on February 18,
1999.
|
(3)
|
|
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.
|
(4)
|
|
Incorporated
by reference to exhibit number 4.1 to the registrant’s Registration
Statement on Form S-3 filed on April 19, 2002.
|
(5)
|
|
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.
|
(6)
|
|
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.
|
(7)
|
|
Incorporated
by reference to exhibit number 4.3 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 2004.
|
(8)
|
|
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.
|
(9)
|
|
Incorporated
by reference to exhibit number 10.19 to the Company’s Annual Report on
Form 10-K for the year ended December 29, 2006.
|
(10)
|
|
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.
|
(11)
|
|
Filed
herewith.
|
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:
August 7, 2007
3.1
|
|
Restated
Articles of Incorporation of the Company filed June 25, 1986.
(3)
|
3.2
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
October 6,
1988. (3)
|
3.3
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
July 18,
1990. (3)
|
3.4
|
|
Certificate
of Determination of Rights, Preferences and Privileges of Series
A
Preferred Participating Stock of the Company filed February
19, 1999.
(3)
|
3.5
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
May 29,
2003. (5)
|
3.6
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
March 4,
2004. (6)
|
3.7
|
|
Certificate
of Amendment of Articles of Incorporation of the Company filed
February
21, 2007. (10)
|
3.8
|
|
Bylaws
of the Company, amended and restated through July 20, 2006.
(8)
|
4.1
|
|
Specimen
copy of certificate for shares of Common Stock of the Company.
(1)
|
4.2
|
|
Preferred
Shares Rights Agreement dated as of February 18, 1999.
(2)
|
4.3
|
|
Agreement
of Substitution and Amendment of Preferred Shares Rights Agreement
dated
September 10, 2004. (7)
|
4.4
|
|
Form
of Warrant dated April 12, 2002. (4)
|
10.1
|
|
@Road,
Inc. 2000 Stock Option Plan. (9)
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated August 7, 2007. (11)
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated August 7, 2007. (11)
|
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
August 7,
2007. (11)
|
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
August 7,
2007. (11)
|
(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 exhibit number 1 to the registrant's Registration
Statement on Form 8-A, which was filed on February 18,
1999.
|
(3)
|
|
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.
|
(4)
|
|
Incorporated
by reference to exhibit number 4.1 to the registrant’s Registration
Statement on Form S-3 filed on April 19, 2002.
|
(5)
|
|
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.
|
(6)
|
|
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.
|
(7)
|
|
Incorporated
by reference to exhibit number 4.3 to the registrant’s Annual Report on
Form 10-K for the year ended December 31, 2004.
|
(8)
|
|
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.
|
(9)
|
|
Incorporated
by reference to exhibit number 10.19 to the Company’s Annual Report on
Form 10-K for the year ended December 29, 2006.
|
(10)
|
|
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.
|
(11)
|
|
Filed
herewith.
|