form10q.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
T QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 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)
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California
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94-2802192
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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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.
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 T
|
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).
As
of
October 31, 2007 there were 121,292,087 shares of Common Stock (no par
value) outstanding.
TRIMBLE
NAVIGATION LIMITED
FORM
10-Q for the Quarter Ended September 28, 2007
PART
I.
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Page
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ITEM
1.
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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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ITEM
1.
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33
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ITEM
1A.
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33
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ITEM
2.
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33
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ITEM
6.
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34
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35
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ITEM
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE
NAVIGATION LIMITED
(UNAUDITED)
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September
28,
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December
29,
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2007
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2006
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(In
thousands)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$ |
84,072
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|
|
$ |
129,621
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Accounts
receivable, net
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|
242,589
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177,054
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Other
receivables
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|
10,677
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6,014
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Inventories,
net
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142,158
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|
112,552
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Other
current assets
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57,211
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38,931
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Total
current assets
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536,707
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464,172
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Property
and equipment, net
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51,667
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47,998
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Goodwill
|
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669,608
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374,510
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Other
purchased intangible assets, net
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195,459
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67,172
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Other non-current
assets
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51,092
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29,625
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Total
assets
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$ |
1,504,533
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|
$ |
983,477
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LIABILITIES
AND SHAREHOLDERS' EQUITY
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Current
liabilities:
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Current
portion of long-term debt
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$ |
167
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$ |
--
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Accounts
payable
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63,358
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49,194
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Deferred
revenue
|
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|
53,598
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|
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|
28,060
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|
Deferred
income taxes
|
|
|
5,234
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|
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|
4,525
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Income
taxes payable
|
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|
33,178
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23,814
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Other
current liabilities
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88,113
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80,586
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Total
current liabilities
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243,648
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186,179
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Non-current
portion of long-term debt
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80,923
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481
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Non-current
deferred revenue
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11,988
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--
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Deferred
income taxes
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39,907
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21,633
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Other
non-current liabilities
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55,475
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27,519
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Total
liabilities
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431,941
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235,812
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Commitments
and contingencies
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Shareholders'
equity:
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Preferred
stock no par value; 3,000 shares authorized; none
outstanding
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--
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--
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Common
stock, no par value; 180,000 shares authorized; 121,110 and 111,718
shares
issued and outstanding at September 28, 2007 and December 29, 2006,
respectively
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650,454
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435,371
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Retained
earnings
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|
362,266
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271,183
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Accumulated
other comprehensive income
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59,872
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41,111
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Total
shareholders' equity
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1,072,592
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747,665
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Total
liabilities and shareholders' equity
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$ |
1,504,533
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$ |
983,477
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See
accompanying Notes to the Condensed Consolidated Financial
Statements.
TRIMBLE
NAVIGATION LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
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Three
Months Ended
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Nine
Months Ended
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September
28,
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September
29,
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September
28,
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September
29,
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2007
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2006
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2007
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2006
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(In
thousands, except per share data)
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Revenue (1)
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$ |
296,023
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$ |
234,851
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$ |
909,487
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$ |
706,030
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Cost
of sales (1)
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149,083
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118,660
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452,248
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360,721
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Gross
margin
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146,940
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116,191
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457,239
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345,309
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Operating
expenses
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Research
and development
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31,707
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25,180
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96,737
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77,234
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Sales
and marketing
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45,274
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34,902
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134,967
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103,356
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General
and administrative
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21,262
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17,981
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67,182
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50,016
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Restructuring
charges
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|
-
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-
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3,025
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-
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Amortization
of purchased intangible assets
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|
4,911
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|
1,747
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|
14,212
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|
5,639
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|
In-process
research and development
|
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-
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50
|
|
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|
2,112
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|
1,000
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|
Total
operating expenses
|
|
|
103,154
|
|
|
|
79,860
|
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|
318,235
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|
237,245
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|
Operating
income
|
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|
43,786
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|
|
|
36,331
|
|
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|
139,004
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|
108,064
|
|
Non-operating
income, net
|
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|
|
|
|
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Interest
income
|
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|
770
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|
1,402
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|
2,607
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|
2,677
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|
Interest
expense
|
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|
(1,616 |
) |
|
|
(87 |
) |
|
|
(5,476 |
) |
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|
(330 |
) |
Income
from joint ventures
|
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|
1,943
|
|
|
|
1,047
|
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|
6,445
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|
4,238
|
|
Other
income, net
|
|
|
(8 |
) |
|
|
295
|
|
|
|
641
|
|
|
|
1,404
|
|
Total
non-operating income, net
|
|
|
1,089
|
|
|
|
2,657
|
|
|
|
4,217
|
|
|
|
7,989
|
|
Income
before taxes
|
|
|
44,875
|
|
|
|
38,988
|
|
|
|
143,221
|
|
|
|
116,053
|
|
Income
tax provision
|
|
|
17,501
|
|
|
|
13,646
|
|
|
|
52,138
|
|
|
|
36,380
|
|
Net
income
|
|
$ |
27,374
|
|
|
$ |
25,342
|
|
|
$ |
91,083
|
|
|
$ |
79,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.23
|
|
|
$ |
0.23
|
|
|
$ |
0.77
|
|
|
$ |
0.73
|
|
Shares
used in calculating basic earnings per share
|
|
|
120,591
|
|
|
|
110,678
|
|
|
|
118,553
|
|
|
|
109,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
|
$ |
0.22
|
|
|
$ |
0.22
|
|
|
$ |
0.74
|
|
|
$ |
0.69
|
|
Shares
used in calculating diluted earnings per share
|
|
|
125,687
|
|
|
|
116,986
|
|
|
|
123,691
|
|
|
|
115,854
|
|
(1)
Sales
to related parties were $6.5 million and $5.2 million for the three months
ended
September 28, 2007 and September 29, 2006, respectively, with associated cost
of
sales to those related parties of $4.8 million and $3.5 million,
respectively. Sales to related parties were $18.3 million and $15.6
million for the nine months ended September 28, 2007 and September 29, 2006,
respectively, with associated cost of sales to those related parties of $12.6
million and $9.7 million, respectively. In addition, cost of sales associated
with related party net inventory purchases was $5.6 million and $5.0 million
for
the three months ended September 28, 2007 and September 29, 2006, respectively,
and $19.8 million and $16.1 million for the nine months ended September 28,
2007
and September 29, 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
(UNAUDITED)
|
|
Nine
Months Ended
|
|
|
|
September
28,
|
|
|
September
29,
|
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
91,083
|
|
|
$ |
79,673
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
12,733
|
|
|
|
9,939
|
|
Amortization
expense
|
|
|
28,615
|
|
|
|
9,082
|
|
Provision
for doubtful accounts
|
|
|
684
|
|
|
|
181
|
|
Amortization
of debt issuance cost
|
|
|
162
|
|
|
|
135
|
|
Deferred
income taxes
|
|
|
(6,547 |
) |
|
|
(355 |
) |
Non-cash
restructuring charges
|
|
|
1,725
|
|
|
|
-
|
|
Stock-based
compensation
|
|
|
10,949
|
|
|
|
9,437
|
|
In-process
research and development
|
|
|
2,112
|
|
|
|
1,000
|
|
Equity
gain from joint venture
|
|
|
(6,445 |
) |
|
|
(4,238 |
) |
Excess
tax benefit for stock-based compensation
|
|
|
(13,283 |
) |
|
|
(8,088 |
) |
Provision
for excess and obsolete inventories
|
|
|
3,513
|
|
|
|
5,830
|
|
Other
non-cash items
|
|
|
144
|
|
|
|
131
|
|
Add
decrease (increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(42,971 |
) |
|
|
(19,829 |
) |
Other
receivables
|
|
|
4,619
|
|
|
|
1,615
|
|
Inventories
|
|
|
(15,512 |
) |
|
|
(9,110 |
) |
Other
current and non-current assets
|
|
|
6,353
|
|
|
|
(7,371 |
) |
Add
increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(7,518 |
) |
|
|
(6,250 |
) |
Accrued
liabilities
|
|
|
(832 |
) |
|
|
4,760
|
|
Deferred
revenue
|
|
|
25,989
|
|
|
|
9,499
|
|
Income
taxes payable
|
|
|
33,511
|
|
|
|
7,482
|
|
Net
cash provided by operating activities
|
|
|
129,084
|
|
|
|
83,523
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions
of businesses, net of cash acquired
|
|
|
(285,523 |
) |
|
|
(43,167 |
) |
Acquisitions
of property and equipment
|
|
|
(9,208 |
) |
|
|
(13,966 |
) |
Dividends
received
|
|
|
2,888
|
|
|
|
2,244
|
|
Other
|
|
|
361
|
|
|
|
(16 |
) |
Net
cash used in investing activities
|
|
|
(291,482 |
) |
|
|
(54,905 |
) |
|
|
|
|
|
|
|
|
|
Cash
flow from financing activities:
|
|
|
|
|
|
|
|
|
Issuances
of common stock
|
|
|
27,830
|
|
|
|
24,134
|
|
Excess
tax benefit for stock-based compensation
|
|
|
13,283
|
|
|
|
8,088
|
|
Proceeds
from long-term debt and revolving credit lines
|
|
|
250,000
|
|
|
|
-
|
|
Payments
on long-term debt and revolving credit lines
|
|
|
(170,037 |
) |
|
|
-
|
|
Other
|
|
|
-
|
|
|
|
(911 |
) |
Net
cash provided by financing activities
|
|
|
121,076
|
|
|
|
31,311
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(4,227 |
) |
|
|
2,620
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(45,549 |
) |
|
|
62,549
|
|
Cash
and cash equivalents, beginning of period
|
|
|
129,621
|
|
|
|
73,853
|
|
Cash
and cash equivalents, end of period
|
|
$ |
84,072
|
|
|
$ |
136,402
|
|
See
accompanying Notes to the Condensed Consolidated Financial
Statements.
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 third fiscal quarters of 2007
and
2006 ended on September 28, 2007 and September 29, 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 September 28, 2007 and for the three and
nine
months ended September 28, 2007 and September 29, 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
September 28, 2007, results of operations for the three and nine months ended
September 28, 2007 and September 29, 2006 and cash flows for the nine months
ended September 28, 2007 and September 29, 2006, as applicable, have been made.
The results of operations for the three and nine months ended September 28,
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
nine months ended September 28, 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, shipment 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 shipped 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 shipment, 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 is 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
Updates
to recent accounting standards as disclosed in the Company’s Annual Report on
Form 10-K for the fiscal year ended December 29, 2006 are as
follows:
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 0.0893 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 *
|
|
|
5,698
|
|
Total
Purchase price
|
|
$ |
495,015
|
|
*
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
|
|
$ |
495,015
|
|
Less:
value of @Road’s assets acquired:
|
|
|
|
|
Net
tangible assets acquired
|
|
|
139,884
|
|
|
|
|
|
|
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
|
|
$ |
262,786
|
|
Net
Tangible Assets
|
|
As
of
|
|
|
|
February
16,
|
|
(in
thousands)
|
|
2007
|
|
Cash
and cash equivalents
|
|
$ |
74,729
|
|
Accounts
receivable, net
|
|
|
14,255
|
|
Other
receivables
|
|
|
8,774
|
|
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
|
|
$ |
181,419
|
|
|
|
|
|
|
Accounts
payable
|
|
|
19,285
|
|
Deferred
revenue
|
|
|
7,365
|
|
Other
accrued liabilities
|
|
|
14,885
|
|
|
|
|
|
|
Total
liabilities assumed
|
|
$ |
41,535
|
|
|
|
|
|
|
Total
net assets acquired
|
|
$ |
139,884
|
|
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
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
receivables and non-current assets – Other receivables 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 Condensed Consolidated Statements of
Income.
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 Condensed
Consolidated Statements of Income 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. 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
|
|
|
Nine
Months Ended
|
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2006
(b)
|
|
|
2007
(a)
|
|
|
2006
(b)
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
Pro-forma
revenue
|
|
$ |
254,728
|
|
|
$ |
918,961
|
|
|
$ |
762,186
|
|
Pro-forma
net income
|
|
|
16,496
|
|
|
|
82,639
|
|
|
|
53,464
|
|
Pro-forma
basic net income per share
|
|
$ |
0.14
|
|
|
$ |
0.68
|
|
|
$ |
0.46
|
|
Pro-forma
diluted net income per share
|
|
$ |
0.13
|
|
|
$ |
0.66
|
|
|
$ |
0.44
|
|
(a)
|
The
pro-forma results of operations represent the Company’s results for the
nine months ended September 28, 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 $1.4 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 and related deferred cost of sales write-downs
of $0.1
million, amortization of intangible assets related to the acquisition
of
$2.8 million, interest expense for debt used to purchase @Road of
$1.4 million, and stock-based compensation for @Road options assumed
of
$0.2 million.
|
(b)
|
The
pro-forma results of operations represent the Company’s results for the
three and nine months ended September 29, 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 nine months ending
September
29, 2006. Pro-forma revenue for the three and nine months ended
September 29, 2006 includes a $5.3
million and
$16.9
million decrease, respectively, due to deferred revenue write-downs
and
customer contracts for which the product was delivered prior to
the
acquisition date. Pro-forma net income for the three and nine
months ended September 29, 2006 includes revenue write-downs and
related
deferred cost of sales write-downs of $0.6
million and
$2.5
million, respectively, amortization of intangible assets related
to the
acquisition of $4.6 million and $13.7 million, respectively, interest
expense for debt used to purchase @Road of $2.8
million and
$8.4
million, respectively, and stock-based compensation for @Road options
assumed of $0.2 million
and $0.6
million, respectively.
|
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 nine
months ended September 28, 2007 and September 29, 2006.
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
$ |
469
|
|
|
$ |
285
|
|
|
$ |
1,240
|
|
|
$ |
881
|
|
Research
and development
|
|
|
868
|
|
|
|
620
|
|
|
|
2,619
|
|
|
|
1,926
|
|
Sales
and marketing
|
|
|
1,059
|
|
|
|
663
|
|
|
|
2,800
|
|
|
|
2,115
|
|
General
and administrative
|
|
|
1,408
|
|
|
|
1,380
|
|
|
|
4,290
|
|
|
|
4,515
|
|
Total
operating expenses
|
|
|
3,335
|
|
|
|
2,663
|
|
|
|
9,709
|
|
|
|
8,556
|
|
Total
stock-based compensation expense
|
|
|
3,804
|
|
|
|
2,948
|
|
|
|
10,949
|
|
|
|
9,437
|
|
Tax
benefit (1)
|
|
|
294
|
|
|
|
(263 |
) |
|
|
(574 |
) |
|
|
(851 |
) |
Total
stock-based compensation expense, net of tax
|
|
$ |
4,098
|
|
|
$ |
2,685
|
|
|
$ |
10,375
|
|
|
$ |
8,586
|
|
(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 nine months ended September 28, 2007 and September
29,
2006, the following assumptions were used:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
2007
|
|
|
September 29,
2006
|
|
|
September 28,
2007
|
|
|
September 29,
2006
|
|
Expected
dividend yield
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Expected
stock price volatility
|
|
|
37.0%
|
|
|
|
42.7%
|
|
|
|
37.2%
|
|
|
|
42.2%
|
|
Risk
free interest rate
|
|
|
4.4%
|
|
|
|
5.1%
|
|
|
|
4.5%
|
|
|
|
4.7%
|
|
Expected
life of options after vesting
|
|
3.9
years
|
|
|
4.7
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 nine
months ended September 28, 2007, the Company recorded $1.6 million and $6.1
million, respectively, as its proportionate share of CTCT net
income. During the comparable periods of 2006 the Company recorded
$0.8 million and $3.8 million, respectively, as its proportionate share of
CTCT
net income. The carrying amount of the investment in CTCT was $7.9
million at September 28, 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 have net inventory on its balance sheet
in
that the resale of products to Caterpillar and the Company occur simultaneously
when the products are purchased from the Company. During the three
and nine months ended September 28, 2007, the Company recorded $3.9 million
and
$8.8 million of revenue, respectively, and $3.4 million and $7.8 million of
cost
of sales, respectively, for the manufacturing of products sold by the Company
to
CTCT and then sold through the Caterpillar distribution
channel. During the comparable three and nine month periods of fiscal
2006, the Company recorded $2.0 million and $6.3 million of revenue,
respectively, and $1.8 million and $5.5 million of cost of sales,
respectively. In addition, during the three and nine months
ended September 28, 2007, the Company recorded $5.6 million and $19.8 million
in
net cost of sales for the manufacturing of products sold by the Company to
CTCT
and then repurchased by the Company upon sale through the Company’s distribution
channel. The comparable net cost of sales recorded by the Company for
the three and nine months ended September 29, 2006 were $5.0 million and $16.1
million, respectively.
In
addition, the Company received reimbursement of employee-related costs from
CTCT
for company employees dedicated to CTCT or performance of work for CTCT totaling
$3.7 million and $10.0 million for the three and nine months ended September
28,
2007, respectively, and totaling $3.3 million and $10.2 million for the three
and nine months ended September 29, 2006, respectively. The
reimbursements were offset against operating expenses.
At
September 28, 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 September 28, 2007 and December 29, 2006, the
receivables from CTCT were $5.7 million and $4.7 million, respectively, and
are
included within Accounts receivable, net, on the Condensed Consolidated Balance
Sheets. As of the same dates, the payables due to CTCT were $5.0
million and $4.4 million, respectively, and are included within Accounts payable
on the Condensed Consolidated Balance Sheets.
Nikon-Trimble
Joint Venture
On
March
28, 2003, Nikon-Trimble Co., Ltd (Nikon-Trimble), a joint venture was formed
by
the Company and Nikon Corporation. The joint venture began operations in July
2003 and is 50% owned by the Company and 50% owned by Nikon, with equal voting
rights. It focuses on the design and manufacture of surveying instruments
including mechanical total stations and related products.
The
joint
venture is accounted for under the equity method of accounting. Under the equity
method, the Company’s share of profits and losses are included in Income from
joint ventures in the Non-operating income, net section of the Condensed
Consolidated Statements of Income. During the three and nine month
periods ended September 28, 2007, the Company recorded a profit of $0.4 million
and a profit of $0.4 million, respectively, and during the three and nine month
periods ended September 29, 2006, the Company recorded a profit of $0.2 million
and a profit of $0.4 million, respectively, as its proportionate share of
Nikon-Trimble net income (loss). During the nine months ended
September 28, 2007 and September 29, 2006, dividends received from
Nikon-Trimble, amounted to $0.6 million and $0.2 million, and were recorded
against Other non-current assets on the Condensed Consolidated Balance
Sheets. The carrying amount of the investment in Nikon-Trimble was
$13.6 million at September 28, 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 and nine month
periods ended September 28, 2007, the Company recorded $2.6 million and $9.4
million of revenue and $1.4 million and $4.8 million of cost of sales for the
manufacturing of products sold by the Company to Nikon-Trimble. During the
three
and nine month periods ended September 29, 2006, the Company recorded $3.2
million and $9.3 million of revenue and $1.7 million and $4.2 million of cost
of
sales for the manufacturing of products sold by the Company to
Nikon-Trimble.
At
September 28, 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 September 28, 2007
and December 29, 2006, the amounts due from Nikon-Trimble were $2.5 million
and
$1.5 million, respectively, and are included within Accounts receivable, net
on
the Condensed Consolidated Balance Sheets. During the comparable
periods, the amounts due to Nikon-Trimble were $4.7 million and $1.1 million,
respectively, and are included within Accounts payable on the Condensed
Consolidated Balance Sheets.
NOTE
6.
GOODWILL AND INTANGIBLE ASSETS
Intangible
Assets
Intangible
Assets consisted of the following:
|
|
September
28, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Net
Carrying
|
|
(in
thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
Developed
product technology
|
|
$ |
137,523
|
|
|
$ |
(36,624 |
) |
|
$ |
100,899
|
|
Trade
names and trademarks
|
|
|
7,708
|
|
|
|
(1,363 |
) |
|
|
6,345
|
|
Patents
and other intellectual properties
|
|
|
109,966
|
|
|
|
(21,751 |
) |
|
|
88,215
|
|
|
|
$ |
255,197
|
|
|
$ |
(59,738 |
) |
|
$ |
195,459
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September
28,
2007, is as follows (in thousands):
|
|
Amortization
Expense
|
|
2007
(Remaining)
|
|
$ |
10,024
|
|
2008
|
|
|
40,313
|
|
2009
|
|
|
36,590
|
|
2010
|
|
|
34,372
|
|
2011
|
|
|
28,755
|
|
Thereafter
|
|
|
45,405
|
|
Total
|
|
$ |
195,459
|
|
Goodwill
The
changes in the carrying amount of goodwill for the nine months ended September
28, 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
|
|
|
9,857
|
|
|
|
--
|
|
|
|
262,786
|
|
|
|
--
|
|
|
|
272,643
|
|
Purchase
price adjustments
|
|
|
4,591
|
|
|
|
39
|
|
|
|
6,994
|
|
|
|
--
|
|
|
|
11,624
|
|
Foreign
currency translation adjustments
|
|
|
6,958
|
|
|
|
--
|
|
|
|
1,778
|
|
|
|
2,095
|
|
|
|
10,831
|
|
Balance
as of September 28, 2007
|
|
$ |
318,003
|
|
|
$ |
1,556
|
|
|
$ |
334,988
|
|
|
$ |
15,061
|
|
|
$ |
669,608
|
|
The
purchase price adjustments recorded during the nine months ended September
28,
2007 are for earn-out payments related to previous business
acquisitions.
NOTE
7.
CERTAIN BALANCE SHEET COMPONENTS
Inventories,
net consisted of the following:
|
|
September 28,
|
|
|
December 29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
Raw
materials
|
|
$ |
66,850
|
|
|
$ |
66,853
|
|
Work-in-process
|
|
|
12,146
|
|
|
|
6,181
|
|
Finished
goods
|
|
|
63,162
|
|
|
|
39,518
|
|
Total
inventory, net
|
|
$ |
142,158
|
|
|
$ |
112,552
|
|
Deferred
costs of revenue are included within finished goods and were $11.0 million
at September 28, 2007 and $2.9 million at December 29, 2006, of which
$8.0 million and none, respectively, are related to products that include
services and will be recognized ratably over the term of the subscription
period.
Other
non-current liabilities consisted of the following:
|
|
September 28,
|
|
|
December 29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
Deferred
compensation
|
|
$ |
8,568
|
|
|
$ |
5,887
|
|
Unrecognized
tax benefits
|
|
|
24,069
|
|
|
|
--
|
|
Other
non-current liabilities
|
|
|
22,838
|
|
|
|
21,632
|
|
Total
other non-current liabilities
|
|
$ |
55,475
|
|
|
$ |
27,519
|
|
As
of
September 28, 2007, the Company has $24.1 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 were included in
Income taxes payable on the Condensed Consolidated Balance
Sheets. Pursuant to the requirements of FIN 48, as of September 28,
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 these include handheld devices and software that
enable
the collection of data on assets for a variety of governmental and
private
entities.
|
|
·
|
Mobile
Solutions — Consists of products that enable end users to monitor and
manage their mobile assets by communicating location and activity-relevant
information from the field to the office. The Company offers a range
of
products that address a number of sectors of this market including
truck
fleets, security, and public safety
vehicles.
|
|
·
|
Advanced
Devices — The various operations that comprise this segment 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 Construction
|
|
|
Field
Solutions
|
|
|
Mobile
Solutions
|
|
|
Advanced
Devices
|
|
|
Total
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 28, 2007
|
|
Segment
revenue
|
|
$ |
182,135
|
|
|
$ |
44,763
|
|
|
$ |
39,204
|
|
|
$ |
29,921
|
|
|
$ |
296,023
|
|
Operating
income
|
|
|
42,824
|
|
|
|
11,931
|
|
|
|
2,855
|
|
|
|
4,893
|
|
|
|
62,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 29, 2006
|
|
Segment
revenue
|
|
$ |
162,370
|
|
|
$ |
29,236
|
|
|
$ |
16,426
|
|
|
$ |
26,819
|
|
|
$ |
234,851
|
|
Operating
income
|
|
|
38,337
|
|
|
|
5,634
|
|
|
|
1,125
|
|
|
|
4,113
|
|
|
|
49,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months Ended September 28, 2007
|
|
Segment
revenue
|
|
$ |
556,592
|
|
|
$ |
150,998
|
|
|
$ |
109,988
|
|
|
$ |
91,909
|
|
|
$ |
909,487
|
|
Operating
income
|
|
|
137,359
|
|
|
|
46,957
|
|
|
|
6,771
|
|
|
|
13,620
|
|
|
|
204,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
months Ended September 29, 2006
|
|
Segment
revenue
|
|
$ |
477,145
|
|
|
$ |
108,599
|
|
|
$ |
43,884
|
|
|
$ |
76,402
|
|
|
$ |
706,030
|
|
Operating
income
|
|
|
103,519
|
|
|
|
30,841
|
|
|
|
1,722
|
|
|
|
8,679
|
|
|
|
144,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of September 28, 2007
|
|
Accounts
receivable (1)
|
|
$ |
162,810
|
|
|
$ |
33,048
|
|
|
$ |
36,836
|
|
|
$ |
19,788
|
|
|
$ |
252,482
|
|
Inventories
|
|
|
89,846
|
|
|
|
11,872
|
|
|
|
19,993
|
|
|
|
20,447
|
|
|
|
142,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
September 28,
|
|
|
December 29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(in
thousands)
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Accounts
receivable total for reporting segments
|
|
$ |
252,482
|
|
|
$ |
180,687
|
|
Unallocated
(1)
|
|
|
(9,893 |
) |
|
|
(3,633 |
) |
Total
|
|
$ |
242,589
|
|
|
$ |
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
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
|
$ |
184,414
|
|
|
$ |
164,387
|
|
|
$ |
562,076
|
|
|
$ |
480,947
|
|
Field
Solutions
|
|
|
44,763
|
|
|
|
29,236
|
|
|
|
150,998
|
|
|
|
108,599
|
|
Mobile
Solutions
|
|
|
39,205
|
|
|
|
16,426
|
|
|
|
109,988
|
|
|
|
43,884
|
|
Advanced
Devices
|
|
|
29,924
|
|
|
|
26,823
|
|
|
|
91,922
|
|
|
|
76,408
|
|
Total
segment revenue (including internal sales)
|
|
|
298,306
|
|
|
|
236,872
|
|
|
|
914,984
|
|
|
|
709,838
|
|
Eliminations
|
|
|
(2,283 |
) |
|
|
(2,021 |
) |
|
|
(5,497 |
) |
|
|
(3,808 |
) |
Total
consolidated revenue
|
|
$ |
296,023
|
|
|
$ |
234,851
|
|
|
$ |
909,487
|
|
|
$ |
706,030
|
|
A
reconciliation of our consolidated segment operating income to consolidated
income before income taxes is as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 28
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
segment operating income
|
|
$ |
62,503
|
|
|
$ |
49,209
|
|
|
$ |
204,707
|
|
|
$ |
144,761
|
|
Unallocated
corporate expense
|
|
|
(8,543 |
) |
|
|
(9,953 |
) |
|
|
(32,065 |
) |
|
|
(26,742 |
) |
Amortization
of purchased intangible assets
|
|
|
(10,174 |
) |
|
|
(2,875 |
) |
|
|
(28,501 |
) |
|
|
(8,955 |
) |
In-process
research and development expense
|
|
|
--
|
|
|
|
(50 |
) |
|
|
(2,112 |
) |
|
|
(1,000 |
) |
Restructuring
charges
|
|
|
--
|
|
|
|
--
|
|
|
|
(3,025 |
) |
|
|
--
|
|
Consolidated
operating income
|
|
|
43,786
|
|
|
|
36,331
|
|
|
|
139,004
|
|
|
|
108,064
|
|
Non-operating
income (expense), net
|
|
|
1,089
|
|
|
|
2,657
|
|
|
|
4,217
|
|
|
|
7,989
|
|
Consolidated
income before income taxes
|
|
$ |
44,875
|
|
|
$ |
38,988
|
|
|
$ |
143,221
|
|
|
$ |
116,053
|
|
NOTE
9.
LONG TERM DEBT, COMMITMENTS AND CONTINGENCIES
Long-term
debt consisted of the following:
|
|
September 28,
|
|
|
December 29,
|
|
As
of
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit
Facilities:
|
|
|
|
|
|
|
Term
loan
|
|
$ |
80,167
|
|
|
$ |
-
|
|
Revolving
credit facility
|
|
|
- |
|
|
|
-
|
|
Promissory
notes and other
|
|
|
923
|
|
|
|
481
|
|
Total
debt
|
|
|
81,090
|
|
|
|
481
|
|
|
|
|
|
|
|
|
|
|
Less
current portion of long-term debt
|
|
|
167
|
|
|
|
-
|
|
Non-current
portion
|
|
$ |
80,923
|
|
|
$ |
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 nine months ended September 28, 2007,
the
Company drew $150 million related to the acquisition of @Road and subsequently
paid down the entire 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 at least quarterly installments,
with the principal 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
September 28, 2007, the Company did not have an outstanding balance on the
revolving credit line and $80.2 million of outstanding term loans, including
all
other worldwide credit facilities. 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 September 28, 2007,
is as follows (in thousands):
|
|
|
|
2007
(Remaining)
|
|
$ |
4,586
|
|
2008
|
|
|
14,689
|
|
2009
|
|
|
11,638
|
|
2010
|
|
|
9,222
|
|
2011
|
|
|
6,310
|
|
Thereafter
|
|
|
5,560
|
|
Total
|
|
$ |
52,005
|
|
Additionally,
as of September 28, 2007, the Company had acquisition earn-outs of $11.7 million
and holdbacks of $6.3 million recorded in “Other current liabilities” and “Other
non-current liabilities.” The maximum remaining payments, including
the $11.7 million and $6.3 million recorded, will not exceed $66.2
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 costs are primarily estimated
based upon historical trends in the volume of product returns within the
warranty period and the costs to repair or replace the equipment. The products
sold are generally covered by a warranty for periods ranging from 90 days to
three years, and in some instances up to 5.5 years.
While
the
Company engages in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of component suppliers, its
warranty obligation is affected by product failure rates, material usage, and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage, or service delivery costs differ from
the
estimates, revisions to the estimated warranty accrual and related costs may
be
required.
Changes
in the Company’s product warranty liability during the nine months ended
September 28, 2007 are as follows:
(In
thousands)
|
|
|
|
Balance
as of December 29, 2006
|
|
$ |
8,607
|
|
Accruals
for warranties issued
|
|
|
11,355
|
|
Changes
in estimates
|
|
|
--
|
|
Warranty
settlements (in cash or in kind)
|
|
|
(9,669 |
) |
Balance
as of September 28, 2007
|
|
$ |
10,293
|
|
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
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
Used
in basic and diluted earnings per share
|
|
$ |
27,374
|
|
|
$ |
25,342
|
|
|
$ |
91,083
|
|
|
$ |
79,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares used in basic earnings per
share
|
|
|
120,591
|
|
|
|
110,678
|
|
|
|
118,553
|
|
|
|
109,618
|
|
Effect
of dilutive securities (using treasury stock method):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock options
|
|
|
5,025
|
|
|
|
4,990
|
|
|
|
4,848
|
|
|
|
5,146
|
|
Common
stock warrants
|
|
|
71
|
|
|
|
1,318
|
|
|
|
290
|
|
|
|
1,090
|
|
Weighted
average number of common shares and dilutive potential common shares
used
in diluted earnings per share
|
|
|
125,687
|
|
|
|
116,986
|
|
|
|
123,691
|
|
|
|
115,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings per share
|
|
$ |
0.23
|
|
|
$ |
0.23
|
|
|
$ |
0.77
|
|
|
$ |
0.73
|
|
Diluted
earnings per share
|
|
$ |
0.22
|
|
|
$ |
0.22
|
|
|
$ |
0.74
|
|
|
$ |
0.69
|
|
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 Condensed Consolidated Statements of Income. During the
nine months ended September 28, 2007, the Company paid $2.3 million against
this
restructuring accrual. The remaining restructuring accrual of $1.3
million as of September 28, 2007 is included in Accrued liabilities in the
Company’s Condensed Consolidated Balance Sheet and is expected to be settled by
the first quarter of fiscal 2008.
The
Company also recorded restructuring costs of $3.0 million during the nine months
ended September 28, 2007 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
Shareholder’s Equity. These amounts were recorded in the Company’s
Condensed Consolidated Statements of Income for the nine months ended September
28, 2007 under “Restructuring charges.”
NOTE
13:
INCOME TAXES
The
Company adopted FIN 48 on December 30, 2006, and as a result of the
implementation, 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 $21.2 million and $19.1 million represents
the amount of unrecognized tax benefits that, if recognized, would favorably
affect the effective income tax rate in any future periods, at September 28,
2007 and December 29, 2006, respectively. The unrecognized tax
benefits are recorded in Other non-current liabilities in the accompanying
Condensed Consolidated Balance Sheets. Furthermore, the Company believes the
total amount of unrecognized income tax benefits (under FIN 48) could
significantly increase or decrease within the next 12 months of the reporting
date, resulting primarily from operational strategies. The amount of the change
is not quantifiable at this time.
The
Company and its U.S. subsidiaries are subject to U.S. federal and state income
tax. The Company has substantially concluded all U.S. federal and
state income tax matters for years through 1992. Non-U.S. 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 September 28, 2007 and December 30, 2006, of $2.9
and
$2.2 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
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
27,374
|
|
|
$ |
25,342
|
|
|
$ |
91,083
|
|
|
$ |
79,673
|
|
Foreign
currency translation adjustments, net of tax
|
|
|
12,662
|
|
|
|
3,716
|
|
|
|
18,761
|
|
|
|
13,455
|
|
Net
unrealized actuarial losses
|
|
|
(12 |
) |
|
|
-
|
|
|
|
(20 |
) |
|
|
-
|
|
Net
unrealized gain (loss) on investments
|
|
|
(15 |
) |
|
|
20
|
|
|
|
20
|
|
|
|
6
|
|
Comprehensive
income
|
|
$ |
40,009
|
|
|
$ |
29,078
|
|
|
$ |
109,844
|
|
|
$ |
93,134
|
|
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
There
have been no changes to our significant accounting policies during the nine
months ended September 28, 2007 from those disclosed in our 2006 Form 10-K.
However, we are providing updated disclosures surrounding certain accounting
policies, as provided below.
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,
shipment 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 shipped 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 shipment, 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 is 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 that
such assets will not be realized.
Our
valuation allowance is primarily attributable to 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 costs are primarily estimated
based upon historical trends in the volume of product returns within the
warranty period and the costs to repair or replace the equipment. The products
sold are generally covered by a warranty for periods ranging from 90 days to
three years, and in some instances up to 5.5 years.
While
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
September 28, 2007, the total future stock option expense is estimated at $25.1
million with a weighted-average recognition period of 1.4 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 three quarters
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 the AgGPS® EZ-Guide® 500 system, Juno™ST handheld computer,
Spectra Precision® GL412 and 422 grade lasers, 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:
Ingenieurbüro
Breining GmbH
On
September 19, 2007, we acquired Ingenieurbüro Breining GmbH of Kirchheim,
Germany, a provider of customized field data collection and office software
solutions for the survey market in Germany. Ingenieurbüro Breining’s performance
is reported under our Engineering and Construction business
segment.
@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
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
($
in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated revenue
|
|
$ |
296,023
|
|
|
$ |
234,851
|
|
|
$ |
909,487
|
|
|
$ |
706,030
|
|
Gross
margin
|
|
$ |
146,940
|
|
|
$ |
116,191
|
|
|
$ |
457,239
|
|
|
$ |
345,309
|
|
Gross
margin %
|
|
|
49.6% |
|
|
|
49.5% |
|
|
|
50.3% |
|
|
|
48.9% |
|
Total
consolidated operating income
|
|
$ |
43,786
|
|
|
$ |
36,331
|
|
|
$ |
139,004
|
|
|
$ |
108,064
|
|
Operating
income %
|
|
|
14.8% |
|
|
|
15.5% |
|
|
|
15.3% |
|
|
|
15.3% |
|
Revenue
In
the
three months ended September 28, 2007, total revenue increased by $61.2 million
or 26%, 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 $19.8 million, Field Solutions increased
$15.5 million, Mobile Solutions increased $22.8 million, and Advanced Devices
increased $3.1 million, compared to the same corresponding period in fiscal
2006. Revenue growth within these segments was driven by new products, a robust
agricultural environment, strong international growth, and acquisitions made
in
the Engineering and Construction and Mobile Solution segments, partially offset
by regional pockets of softness in the U.S. markets. Acquisitions
made during the last twelve months contributed $33.0 million to third fiscal
quarter revenue.
In
the
nine months ended September 28, 2007, total revenue increased by $203.5 million
or 29%, 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 $79.5
million, Field Solutions increased $42.4 million, Mobile Solutions increased
$66.1 million, and Advanced Devices increased $15.5 million, compared to the
same corresponding period in fiscal 2006. Revenue growth within these
segments was primarily driven by new products, a robust agricultural
environment, strong international growth, as well as the impact of acquisitions
of $83.8 million, partially offset by regional pockets of softness in the U.S.
markets for the nine months ended September 28, 2007.
During
the third fiscal quarter of fiscal 2007, sales to customers in North America
represented 56%, Europe represented 25%, Asia Pacific represented 13% and other
regions represented 6% of our total revenue. During the same corresponding
period in fiscal 2006, sales to customers in North America represented 59%,
Europe represented 23%, Asia Pacific represented 12% and other regions
represented 6% 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 $30.7 million and $111.9 million for the three and nine
months ended September 28, 2007 respectively, compared to the corresponding
periods in the prior year. Gross margin as a percentage of total
revenue for the three months ended September 28, 2007 was 49.6%, as compared
to
49.5% for the three months ended September 29, 2006. Gross margin as
a percentage of total revenue for the nine months ended September 28, 2007
was
50.3%, as compared to 48.9% for the nine months ended September 29,
2006.
The
increases in gross margin for the three and nine 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 $7.5 million and $30.9 million for the three and nine months
ended September 28, 2007 respectively, compared to the corresponding periods
in
the prior year. Operating income as a percentage of total revenue was
14.8% for the three months ended September 28, 2007, as compared to 15.5% for
the three months ended September 29, 2006. Operating income as a percentage
of
total revenue was 15.3% for the nine months ended September 28, 2007, as
compared to 15.3% for the nine months ended September 29, 2006. The decrease
in
operating income percentage for the three month period was primarily due to
higher amortization of purchased intangibles, partially offset by an increase
in
revenue and associated gross margin. The increase in operating income
percentage for the nine month periods was due to higher revenue and associated
gross margin and software and subscription revenue, offset partially by
additional amortization of purchased intangibles.
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
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
182,135
|
|
|
$ |
162,370
|
|
|
$ |
556,592
|
|
|
$ |
477,145
|
|
Segment
revenue as a percent of total revenue
|
|
|
62% |
|
|
|
69% |
|
|
|
61% |
|
|
|
68% |
|
Operating
income
|
|
$ |
42,824
|
|
|
$ |
38,337
|
|
|
$ |
137,359
|
|
|
$ |
103,519
|
|
Operating
income as a percent of segment revenue
|
|
|
24% |
|
|
|
24% |
|
|
|
25% |
|
|
|
22% |
|
Field
Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
44,763
|
|
|
$ |
29,236
|
|
|
$ |
150,998
|
|
|
$ |
108,599
|
|
Segment
revenue as a percent of total revenue
|
|
|
15% |
|
|
|
12% |
|
|
|
17% |
|
|
|
15% |
|
Operating
income
|
|
$ |
11,931
|
|
|
$ |
5,634
|
|
|
$ |
46,957
|
|
|
$ |
30,841
|
|
Operating
income as a percent of segment revenue
|
|
|
27% |
|
|
|
19% |
|
|
|
31% |
|
|
|
28% |
|
Mobile
Solutions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
39,204
|
|
|
$ |
16,426
|
|
|
$ |
109,988
|
|
|
$ |
43,884
|
|
Revenue
as a percent of total revenue
|
|
|
13% |
|
|
|
7% |
|
|
|
12% |
|
|
|
6% |
|
Operating
income
|
|
$ |
2,855
|
|
|
$ |
1,125
|
|
|
$ |
6,771
|
|
|
$ |
1,722
|
|
Operating
income as a percent of segment revenue
|
|
|
7% |
|
|
|
7% |
|
|
|
6% |
|
|
|
4% |
|
Advanced
Devices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$ |
29,921
|
|
|
$ |
26,819
|
|
|
$ |
91,909
|
|
|
$ |
76,402
|
|
Segment
revenue as a percent of total revenue
|
|
|
10% |
|
|
|
12% |
|
|
|
10% |
|
|
|
11% |
|
Operating
income
|
|
$ |
4,893
|
|
|
$ |
4,113
|
|
|
$ |
13,620
|
|
|
$ |
8,679
|
|
Operating
income as a percent of segment revenue
|
|
|
16% |
|
|
|
15% |
|
|
|
15% |
|
|
|
11% |
|
A
reconciliation of our consolidated segment operating income to consolidated
income before income taxes follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September 28
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
segment operating income
|
|
$ |
62,503
|
|
|
$ |
49,209
|
|
|
$ |
204,707
|
|
|
$ |
144,761
|
|
Unallocated
corporate expense
|
|
|
(8,543 |
) |
|
|
(9,953 |
) |
|
|
(32,065 |
) |
|
|
(26,742 |
) |
Amortization
of purchased intangible assets
|
|
|
(10,174 |
) |
|
|
(2,875 |
) |
|
|
(28,501 |
) |
|
|
(8,955 |
) |
In-process
research and development expense
|
|
|
--
|
|
|
|
(50 |
) |
|
|
(2,112 |
) |
|
|
(1,000 |
) |
Restructuring
charges
|
|
|
--
|
|
|
|
--
|
|
|
|
(3,025 |
) |
|
|
--
|
|
Consolidated
operating income
|
|
|
43,786
|
|
|
|
36,331
|
|
|
|
139,004
|
|
|
|
108,064
|
|
Non-operating
income, net
|
|
|
1,089
|
|
|
|
2,657
|
|
|
|
4,217
|
|
|
|
7,989
|
|
Consolidated
income before income taxes
|
|
$ |
44,875
|
|
|
$ |
38,988
|
|
|
$ |
143,221
|
|
|
$ |
116,053
|
|
Engineering
and Construction
Engineering
and Construction revenue increased by $19.8 million or 12% and $79.4 million
or
17% for the three and nine months ended September 28, 2007, as compared to
the
same corresponding periods in fiscal 2006. Segment operating income
increased $4.5 million or 12% and $33.8 million or 33% for the three and
nine
months ended September 28, 2007, as compared to the same corresponding periods
in fiscal 2006.
The
revenue growth for both the three and nine months ended September 28, 2007
was
driven by strong sales of construction products, strong international markets,
acquisitions made during the last twelve months, partially offset by regional
pockets of softness in the U.S. markets. In addition, for the three months
ended
September 29, 2006 segment operating income increased for both the three
and
nine months ended September 28, 2007 due to higher revenue and higher gross
margin.
Field
Solutions revenue increased by $15.5 million or 53% and $42.4 million or
39% for
the three and nine months ended September 28, 2007, as compared to the same
corresponding periods in fiscal 2006. Segment operating income
increased by $6.3 million or 112% and $16.1 million or 52% for the three
and
nine months ended September 28, 2007, as compared to the same corresponding
periods in fiscal 2006.
Revenue
increases for the both the three and nine month periods ended September 28,
2007
were driven by the introduction of new agricultural products and a worldwide
robust agricultural market. Operating income increased primarily due to higher
revenue and operating expense control.
Mobile
Solutions revenue increased by $22.8 million or 139% and $66.1 million or
151%
for the three and nine months ended September 28, 2007. Segment
operating income increased $1.7 million or 154% and $5.1 million or 293%
for the
three and nine months ended September 28, 2007, as compared to the same
corresponding periods in fiscal 2006.
Revenue,
for the three and nine months ended September 28, 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
nine months ended September 28, 2007, compared to the corresponding periods
of
fiscal 2006 primarily due to higher subscription revenue and associated gross
margin.
Advanced
Devices
Advanced
Devices revenue increased by $3.1 million or 12% and $15.5 million or 20%
for
the three and nine months ended September 28, 2007, as compared to the same
corresponding periods in fiscal 2006. Segment operating income
increased by $0.8 million or 19% and $4.9 million or 57% for the three and
nine
months ended September 28, 2007, as compared to the same corresponding periods
in fiscal 2006.
For
the
three and nine months ended September 28, 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. In addition, for the nine month
period, operating income increased as well due to 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
|
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
Research
and development
|
|
$ |
31,707
|
|
|
$ |
25,180
|
|
|
$ |
96,737
|
|
|
$ |
77,234
|
|
Percentage
of revenue
|
|
|
11% |
|
|
|
11% |
|
|
|
11% |
|
|
|
11% |
|
Sales
and marketing
|
|
|
45,274
|
|
|
|
34,902
|
|
|
|
134,967
|
|
|
|
103,356
|
|
Percentage
of revenue
|
|
|
15% |
|
|
|
15% |
|
|
|
15% |
|
|
|
15% |
|
General
and administrative
|
|
|
21,262
|
|
|
|
17,981
|
|
|
|
67,182
|
|
|
|
50,016
|
|
Percentage
of revenue
|
|
|
7% |
|
|
|
7% |
|
|
|
7% |
|
|
|
7% |
|
Total
|
|
$ |
98,243
|
|
|
$ |
78,063
|
|
|
$ |
298,886
|
|
|
$ |
230,606
|
|
Percentage
of revenue
|
|
|
33% |
|
|
|
33% |
|
|
|
33% |
|
|
|
33% |
|
Overall,
R&D, S&M, and G&A expense increased by approximately $20.2 million
and $68.3 million for the three and nine months ended September 28, 2007,
compared to the corresponding periods in fiscal 2006.
The
increase in R&D expenses in the third quarter of fiscal 2007, as compared
with the third quarter of a fiscal 2006 was primarily due to additional
operating expenses of $5.9 million associated with recent business acquisitions
and a $0.7 million increase due to foreign currency exchange
rates. The increase in R&D expenses in the first nine months of
fiscal 2007, as compared with the corresponding period in fiscal 2006, was
primarily due to additional operating expenses of $14.8 million associated
with
recent business acquisitions, and a $5.8 million increase in compensation
related expenses.
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 third 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 $8.3 million, a $1.0
million increase due to foreign currency exchange rates, and a $0.7 million
increase in sales and marketing costs. The increase in S&M
expenses in the first nine 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 $23.5 million, a $4.2
million increase in compensation related expenses, and a $2.5 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 third 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 $3.7 million
partially offset by other expenses of $0.4 million. The increase in G&A
expenses in the first nine 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 $10.1 million,
and
a $5.1 million increase in tax and legal fees.
Amortization
of Purchased Intangible Assets
Amortization
of purchased intangible assets was $10.2 million, of which $5.3 million was
recorded in cost of sales, in the third quarter of fiscal 2007, compared with
$2.9 million in the third quarter of fiscal 2006, due primarily to @Road which
was not applicable in the third quarter of fiscal
2006. Amortization of purchased intangible assets was $28.5
million, of which $14.3 million was recorded in cost of sales, in the first
nine
months of fiscal 2007, compared with $3.3 million in the first nine months
of
fiscal 2006, due to acquisitions not applicable in the corresponding period
of
fiscal 2006, primarily @Road. As of September 28, 2007, future amortization
of
intangible assets is expected to be $10.0 million during the fourth quarter
of
fiscal 2007, $40.3 million during 2008, $36.6 million during 2009, $34.4 million
during 2010, $28.8 million during 2011, and $45.4 million
thereafter.
In-Process
Research and Development
We
recorded in-process research and development (IPR&D) expense of $2.1 million
related to acquisitions during the nine months ended September 28, 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
nine months ended September 28, 2007, we recorded $3.0 million 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
nine month period ended September 28, 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 nine months ended September 28, 2007, we
paid $2.3 million against this reserve. The remaining restructuring
accrual of $1.3 million as of September 28, 2007 is included in Accrued
liabilities in our Condensed Consolidated Balance Sheet and is expected to
be
settled 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
|
|
|
Nine
Months Ended
|
|
|
|
September 28,
|
|
|
September 29,
|
|
|
September 28,
|
|
|
September 29,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
$ |
770
|
|
|
$ |
1,402
|
|
|
$ |
2,607
|
|
|
$ |
2,677
|
|
Interest
expense
|
|
|
(1,616 |
) |
|
|
(87 |
) |
|
|
(5,476 |
) |
|
|
(330 |
) |
Foreign
currency transaction gain (loss), net
|
|
|
(459 |
) |
|
|
67
|
|
|
|
(532 |
) |
|
|
995
|
|
Income
from joint ventures
|
|
|
1,943
|
|
|
|
1,047
|
|
|
|
6,445
|
|
|
|
4,238
|
|
Other
income, net
|
|
|
451
|
|
|
|
228
|
|
|
|
1,173
|
|
|
|
409
|
|
Total
non-operating income, net
|
|
$ |
1,089
|
|
|
$ |
2,657
|
|
|
$ |
4,217
|
|
|
$ |
7,989
|
|
Non-operating
income, net, decreased $1.6 million for third quarter of fiscal 2007, compared
with the corresponding period in fiscal 2007, primarily due to a $1.5 million
increase in interest expense due to an increase in debt associated with the
@Road acquisition and a $0.6 million decrease in interest income due to lower
cash balances, partially offset by increased profits from our CTCT joint
venture.
Non-operating
income, net, decreased by $3.8 million during the first nine months of fiscal
2007, compared with the corresponding period in fiscal 2006, due to a $5.1
million increase in interest expense due to an increase in debt associated
with
the @Road acquisition, and a $1.5 million change in foreign currency
transactions due to fluctuations in the U.S. to Canadian and Euro currencies,
partially offset by increased profits from our CTCT joint venture.
Income
Tax Provision
Our
income tax provision reflects a tax rate of 39.0% and 36.4% for the three months
and nine months ended September 28, 2007, respectively. The tax rates
for the comparable periods in fiscal 2006 were 35.0% and 31.3%, 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 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 arrangements that are reasonably likely to have a current
or future material effect on our financial condition, changes in financial
condition, revenue or expenses, results of operations, liquidity, capital
expenditures or capital resources. We have no liabilities, 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
|
|
September 28, 2007
|
|
|
December 29, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
84,072
|
|
|
$ |
129,621
|
|
Total
debt
|
|
$ |
81,090
|
|
|
$ |
481
|
|
|
|
|
|
|
|
|
|
|
Nine
months Ended
|
|
September
28, 2007
|
|
|
September 29, 2006
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by operating activities
|
|
$ |
129,084
|
|
|
$ |
83,523
|
|
Cash
used in investing activities
|
|
$ |
(291,482 |
) |
|
$ |
(54,905 |
) |
Cash
provided by financing activities
|
|
$ |
121,076
|
|
|
$ |
31,311
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
$ |
(4,227 |
) |
|
$ |
2,620
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
$ |
(45,549 |
) |
|
$ |
62,549
|
|
Cash
and Cash Equivalents
As
of
September 28, 2007, cash and cash equivalents totaled $84.1 million compared
to
$129.6 million at December 30, 2006. For the first nine months of fiscal 2007,
cash provided by operating activities was $129.1 million, compared to $83.5
million in cash provided by operating activities during the first nine months
of
fiscal 2006. This increase of $45.6 million was primarily driven by an increase
in net income before non-cash depreciation and amortization expenses and
in-process research write-offs and increases in deferred revenue and income
taxes payable, partially offset by an increase in accounts
receivable.
*
Our
ability to continue to generate cash from operations will depend in large part
on profitability and our management of working capital.
We
used
$291.5 million in net cash for investing activities during the first nine months
of 2007, compared to $54.9 million during the first nine months of
2006. The increase was primarily attributable to cash used for the
@Road acquisition.
We
generated $121.1 million in net cash from financing activities in the first
nine
months of 2007, compared to $31.3 million during the first nine months of 2006,
primarily related to debt outstanding that was 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.
Debt
At
September 28, 2007, our total debt was approximately $81.1 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 nine months ended September 28, 2007, we drew
$150 million related to the acquisition of @Road and subsequently paid down
the
entire revolving credit line.
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, at a minimum
quarterly installments, with the principal 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
September 28, 2007, we had no outstanding balance on the revolving credit line
and an $80.2 million of outstanding term loans, including all other worldwide
credit facilities. As of September 28, 2007, we were in compliance
with all financial debt covenants.
Contractual Obligations
The
following table summarizes our contractual obligations at September 28,
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)
|
|
$ |
81,090
|
|
|
$ |
21
|
|
|
$ |
17,239
|
|
|
$ |
38,830
|
|
|
$ |
25,000
|
|
Operating
leases
|
|
|
52,005
|
|
|
|
4,586
|
|
|
|
26,327
|
|
|
|
15,532
|
|
|
|
5,560
|
|
Other
purchase obligations and commitments
|
|
|
52,905
|
|
|
|
41,791
|
|
|
|
11,016
|
|
|
|
-
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
186,000
|
|
|
$ |
46,398
|
|
|
$ |
54,582
|
|
|
$ |
54,362
|
|
|
$ |
30,658
|
|
(1)
Represents obligations for the last quarter 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 term loans of $80.2 million and government loans to non-U.S.
subsidiaries of $0.9 million. (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 liabilities” and “Other non-current liabilities” on our Condensed
Consolidated Balance Sheets. Additionally, as of September 28, 2007,
we had acquisition earn-outs of $11.7 million and holdbacks of $6.3 million
recorded in “Other current liabilities” and “Other non-current
liabilities.” The maximum remaining payments, including the $11.7
million and $6.3 million recorded, will not exceed $66.2 million. The
remaining earn-outs and holdbacks are payable through 2009.
We
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 $21.2 million
represents the FIN 48 liability at September 28, 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 September 28, 2007, the worldwide outstanding principal balance on
term loans is $80.2million. A hypothetical 10%
increase in the three-month LIBOR rates could result in approximately $416,000
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.
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
July
13, 2007 and September 18, 2007, we issued 44,348 shares and 48,863 shares,
respectively, of our common stock to a warrantholder pursuant to the exercise
of
warrants held by such warrantholder. The holder of the warrants
exercised the warrants on a cashless basis by surrendering their right to
purchase a portion of the shares of common stock based on a value of $32.42
and
$35.51 per share, respectively, representing the average closing price of our
common stock on the ten-day periods prior to each 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.
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. (9)
|
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
|
2002
Stock Plan. (10)
|
10.2
|
Trimble
Navigation Limited Deferred Compensation Plan, effective December
30,
2004, as amended and restated October 19, 2007. (10)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 2, 2007. (10)
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 2, 2007. (10)
|
32.1
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
November
2, 2007. (10)
|
32.2
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
November
2, 2007. (10)
|
(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 3.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 30, 2007.
|
(10)
|
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:
November 2, 2007
EXHIBIT
INDEX
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. (9)
|
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)
|
|
2002
Stock Plan. (10)
|
|
Trimble
Navigation Limited Deferred Compensation Plan, effective December
30,
2004, as amended and restated October 19, 2007. (10)
|
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 2, 2007. (10)
|
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 2, 2007. (10)
|
|
Certification
of Chief Executive Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
November
2, 2007. (10)
|
|
Certification
of Chief Financial Officer pursuant to 18 U.S.C. Section 1350,
as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated
November
2, 2007. (10)
|
(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 3.7 to the Company’s Quarterly Report on
Form 10-Q for the quarter ended March 30, 2007.
|
(10)
|
Filed
herewith.
|
36