form10q
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C.
20549
FORM
10-Q
(Mark
One)
[
X ] QUARTERLY
REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE
QUARTERLY PERIOD ENDED SEPTEMBER 29, 2006
OR
[
] TRANSITION
REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE
TRANSITION PERIOD FROM __________ TO __________
Commission
file
number: 0-18645
TRIMBLE
NAVIGATION LIMITED
(Exact
name of
registrant as specified in its charter)
California 94-2802192
(State
or other jurisdiction of
(I.R.S.
Employer
Identification Number)
incorporation
or organization)
935
Stewart
Drive, Sunnyvale, CA 94085
(Address
of
principal executive offices) (Zip Code)
Telephone
Number (408) 481-8000
(Registrant's
telephone number, including area code)
Indicate
by check
mark whether the registrant (1) has filed all reports required to be filed
by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past
90 days.
Yes [
X ] No [
]
Indicate
by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of “accelerated filer and large
accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large
Accelerated
Filer [
X ] Accelerated
Filer [
] Non-accelerated
Filer [
]
Indicate
by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the
Exchange Act).
Yes [
] No [
X ]
As
of November 1,
2006, there were 55,612,912 shares of
Common Stock (no
par value) outstanding.
TRIMBLE
NAVIGATION LIMITED
FORM
10-Q
for the Quarter ended September 29, 2006
TABLE
OF
CONTENTS
|
|
|
PART
I.
|
Financial
Information
|
Page
|
|
|
|
ITEM
1.
|
Financial
Statements (Unaudited):
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets —
|
|
|
as
of
September 29, 2006 and December 30, 2005
|
3
|
|
|
|
|
Condensed
Consolidated Statements of Income —
|
|
|
for
the Three
and Nine Months Ended September 29, 2006 and September 30,
2005
|
4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows —
|
|
|
for
the Nine
Months Ended September 29, 2006 and September 30, 2005
|
5
|
|
|
|
|
Notes
to
Condensed Consolidated Financial Statements
|
6
|
|
|
|
ITEM
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
18
|
|
|
|
ITEM
3.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
26
|
|
|
|
ITEM
4.
|
Controls
and
Procedures |
27
|
|
|
|
PART
II.
|
Other
Information
|
|
|
|
|
ITEM
1.
|
Legal
Proceedings
|
28
|
|
|
|
ITEM
1A.
|
Risk
Factors
|
28
|
|
|
|
ITEM
6.
|
Exhibits
|
33
|
|
|
|
SIGNATURES
|
34
|
PART
I - FINANCIAL
INFORMATION
ITEM
1. CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE
NAVIGATION
LIMITED
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
September
29,
|
|
|
|
December
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
(UNAUDITED)
|
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
$
|
136,402
|
|
|
$
|
73,853
|
|
Accounts
receivable, net
|
|
173,318
|
|
|
|
145,100
|
|
Other
receivables
|
|
7,423
|
|
|
|
6,489
|
|
Inventories,
net
|
|
114,875
|
|
|
|
107,851
|
|
Deferred
income taxes
|
|
21,834
|
|
|
|
18,504
|
|
Other
current
assets
|
|
10,275
|
|
|
|
8,580
|
|
Total
current
assets
|
|
464,127
|
|
|
|
360,377
|
|
Property
and
equipment, net
|
|
47,389
|
|
|
|
42,664
|
|
Goodwill
and
other purchased intangible assets, net
|
|
373,155
|
|
|
|
313,456
|
|
Deferred
income taxes
|
|
3,809
|
|
|
|
3,580
|
|
Other
assets
|
|
24
,556
|
|
|
|
23,011
|
|
Total
non-current assets
|
|
448,909
|
|
|
|
382,711
|
|
Total
assets
|
$
|
913,036
|
|
|
$
|
743,088
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
$
|
290
|
|
|
$
|
216
|
|
Accounts
payable
|
|
40,529
|
|
|
|
45,206
|
|
Accrued
compensation and benefits
|
|
39,387
|
|
|
|
36,083
|
|
Accrued
liabilities
|
|
22,398
|
|
|
|
16,189
|
|
Deferred
revenue
|
|
24,302
|
|
|
|
12,588
|
|
Accrued
warranty expense
|
|
7,737
|
|
|
|
7,466
|
|
Deferred
income taxes
|
|
5,462
|
|
|
|
4,087
|
|
Income
taxes
payable
|
|
21,977
|
|
|
|
24,922
|
|
Total
current
liabilities
|
|
162,082
|
|
|
|
146,757
|
|
Non-current
portion of long-term debt
|
|
467
|
|
|
|
433
|
|
Deferred
income tax
|
|
14,031
|
|
|
|
5,602
|
|
Other
non-current liabilities
|
|
27,532
|
|
|
|
19,041
|
|
Total
liabilities
|
|
204,112
|
|
|
|
171,833
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
Preferred
stock no par value; 3,000 shares authorized; none
outstanding
|
|
|
|
|
|
--
|
|
Common
stock,
no par value; 90,000 shares authorized;
55,558
and
53,910 shares issued and outstanding at September 29, 2006 and December
30, 2005, respectively
|
|
428,730
|
|
|
|
384,196
|
|
Retained
earnings
|
|
247,199
|
|
|
|
167,525
|
|
Accumulated
other comprehensive income
|
|
32,995
|
|
|
|
19,534
|
|
Total
shareholders' equity
|
|
708,924
|
|
|
|
571,255
|
|
Total
liabilities and shareholders' equity
|
$
|
913,036
|
|
|
$
|
743,088
|
|
(1) |
Derived
from
the December 30, 2005 audited Consolidated Financial Statements included
in the Annual Report on Form 10-K of Trimble Navigation Limited for
fiscal
year 2005.
|
See
accompanying
Notes to the Condensed Consolidated Financial Statements.
TRIMBLE
NAVIGATION
LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
|
Three
Months
Ended
|
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
(1)
|
$
|
234,851
|
|
|
$
|
188,484
|
|
|
$
|
706,030
|
|
|
$
|
588,092
|
|
Cost
of sales
(1)
|
|
118,660
|
|
|
|
91,192
|
|
|
|
360,721
|
|
|
|
290,586
|
|
Gross
margin
|
|
116,191
|
|
|
|
97,292
|
|
|
|
345,309
|
|
|
|
297,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and
development
|
|
25,180
|
|
|
|
20,639
|
|
|
|
77,234
|
|
|
|
63,332
|
|
Sales
and
marketing
|
|
34,902
|
|
|
|
29,313
|
|
|
|
103,356
|
|
|
|
88,388
|
|
General
and
administrative
|
|
17,981
|
|
|
|
13,448
|
|
|
|
50,016
|
|
|
|
38,204
|
|
Restructuring
charges
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
278
|
|
In-process
research and development
|
|
50
|
|
|
|
-
|
|
|
|
1
000
|
|
|
|
-
|
|
Amortization
of purchased intangible assets
|
|
1,747
|
|
|
|
865
|
|
|
|
5,639
|
|
|
|
5,340
|
|
Total
operating expenses
|
|
79
860
|
|
|
|
64,265
|
|
|
|
237
245
|
|
|
|
195,542
|
|
Operating
income
|
|
36,331
|
|
|
|
33,027
|
|
|
|
108,064
|
|
|
|
101,964
|
|
Non-operating
income (expense), net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
1,315
|
|
|
|
(650)
|
|
|
|
2,347
|
|
|
|
(1,680)
|
|
Foreign
currency transaction gain, net
|
|
67
|
|
|
|
61
|
|
|
|
995
|
|
|
|
67
|
|
Income
(expense) for affiliated operations, net
|
|
1,047
|
|
|
|
(1,976)
|
|
|
|
4,238
|
|
|
|
(7,514)
|
|
Other
income,
net
|
|
228
|
|
|
|
119
|
|
|
|
409
|
|
|
|
287
|
|
Total
non-operating income (expense), net
|
|
2,657
|
|
|
|
(2,446)
|
|
|
|
7,989
|
|
|
|
(8,840)
|
|
Income
before
taxes
|
|
38,988
|
|
|
|
30,581
|
|
|
|
116,053
|
|
|
|
93,124
|
|
Income
tax
provision
|
|
13,646
|
|
|
|
10,345
|
|
|
|
36,380
|
|
|
|
31,662
|
|
Net
income
|
$
|
25,342
|
|
|
$
|
20,236
|
|
|
$
|
79,673
|
|
|
$
|
61,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
per share
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
$
|
1.45
|
|
|
$
|
1.16
|
|
Shares
used in
calculating basic earnings per share
|
|
55,339
|
|
|
|
53,592
|
|
|
|
54,809
|
|
|
|
53,017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per share
|
$
|
0.43
|
|
|
$
|
0.35
|
|
|
$
|
1.38
|
|
|
$
|
1.08
|
|
Shares
used in
calculating diluted earnings per share
|
|
58,493
|
|
|
|
57,492
|
|
|
|
57,927
|
|
|
|
56,997
|
|
(1)
Sales to related
parties were $5.2 million and $2.3 million for the three month period ended
September 29, 2006 and September 30, 2005, respectively, while cost of sales
to
those related parties were $3.5 million and $ 1.1 million for the comparable
periods. Sales to related parties were $15.6 million and $6.9 million for the
nine month period ended September 29, 2006 and September 30, 2005, respectively,
while cost of sales to those related parties were $9.7 million and $3.0 million
for the comparable periods.
See
accompanying
Notes to the Condensed Consolidated Financial Statements.
TRIMBLE
NAVIGATION
LIMITED
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
Nine
Months
Ended
|
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from
operating activities:
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
79,673
|
|
|
$
|
61,462
|
|
Adjustments
to
reconcile net income to net cash
|
|
|
|
|
|
|
|
|
provided
by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
9,939
|
|
|
|
7,890
|
|
Amortization
expense
|
|
|
9,082
|
|
|
|
5,459
|
|
Provision
for
doubtful accounts
|
|
|
181
|
|
|
|
(663)
|
|
Amortization
of debt issuance cost
|
|
|
135
|
|
|
|
1,225
|
|
Deferred
income taxes
|
|
|
(355)
|
|
|
|
8,410
|
|
Stock-based
compensation
|
|
|
9,437
|
|
|
|
-
|
|
In-process
research and development
|
|
|
1,000
|
|
|
|
-
|
|
Excess
tax
benefit for stock-based compensation
|
|
|
(8,088)
|
|
|
|
-
|
|
Other
|
|
|
131
|
|
|
|
(670)
|
|
Add
decrease
(increase) in assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(19,829)
|
|
|
|
(22,673)
|
|
Other
receivables
|
|
|
(623)
|
|
|
|
1,907
|
|
Inventories
|
|
|
(3,442)
|
|
|
|
(4,926)
|
|
Other
current
and non-current assets
|
|
|
(7,127)
|
|
|
|
(4,450)
|
|
Add
increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(6,250)
|
|
|
|
(4,374)
|
|
Accrued
compensation and benefits
|
|
|
2,188
|
|
|
|
825
|
|
Accrued
liabilities
|
|
|
2,734
|
|
|
|
124
|
|
Deferred
gain
on joint venture
|
|
|
-
|
|
|
|
5,523
|
|
Deferred
revenue
|
|
|
9,499
|
|
|
|
1,677
|
|
Income
taxes
payable
|
|
|
7,482
|
|
|
|
12,850
|
|
Net
cash
provided by operating activities
|
|
|
85,767
|
|
|
|
69,596
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from
investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions,
net of cash acquired
|
|
|
(43,167)
|
|
|
|
(21,589)
|
|
Acquisition
of
property and equipment
|
|
|
(13,966)
|
|
|
|
(14,400)
|
|
Dividends
received
|
|
|
-
|
|
|
|
515
|
|
Costs
of
capitalized patents
|
|
|
(16)
|
|
|
|
(94)
|
|
Net
cash used
in investing activities
|
|
|
(57,149)
|
|
|
|
(35,568)
|
|
|
|
|
|
|
|
|
|
|
Cash
flow from
financing activities:
|
|
|
|
|
|
|
|
|
Issuance
of
common stock
|
|
|
24,134
|
|
|
|
20,881
|
|
Excess
tax
benefit for stock-based compensation
|
|
|
8,088
|
|
|
|
390
|
|
Proceeds
from
long-term debt and revolving credit lines
|
|
|
-
|
|
|
|
6,000
|
|
Payments
on
long-term debt and revolving credit lines
|
|
|
-
|
|
|
|
(44,250)
|
|
Other
|
|
|
(911)
|
|
|
|
-
|
|
Net
cash
provided (used) in financing activities
|
|
|
31,311
|
|
|
|
(16,979)
|
|
|
|
|
|
|
|
|
|
|
Effect
of
exchange rate changes on cash and cash equivalents
|
|
|
2,620
|
|
|
|
(1,628)
|
|
|
|
|
|
|
|
|
|
|
Net
increase
in cash and cash equivalents
|
|
|
62,549
|
|
|
|
15,421
|
|
Cash
and cash
equivalents, beginning of period
|
|
|
73,853
|
|
|
|
71,872
|
|
Cash
and cash
equivalents, end of period
|
|
$
|
136,402
|
|
|
$
|
87,293
|
|
See
accompanying
Notes to the Condensed Consolidated Financial Statements.
NOTES
TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
NOTE
1. OVERVIEW AND
BASIS OF PRESENTATION
Trimble
Navigation
Limited (“we,” “Trimble” or 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, urban and resource management, military, transportation and
telecommunications.
Trimble
has a 52-53
week fiscal year, ending on the Friday nearest to December 31, which for fiscal
2005 was December 30. The third fiscal quarters of 2006 and 2005 ended on
September 29, 2006 and September 30, 2005, respectively. Fiscal 2006 and 2005
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 Trimble and its
subsidiaries. Inter-company accounts and transactions have been eliminated.
Certain amounts from prior periods have been reclassified to conform to the
current period presentation.
The
accompanying
financial data as of September 29, 2006 and for the three and nine months ended
September 29, 2006 and September 30, 2005 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 Trimble’s 2005 Annual Report on Form 10-K.
In
the opinion of
management, all adjustments (which include normal recurring adjustments)
necessary to present a fair statement of financial position as of September
29,
2006, results of operations for the three and nine months ended September 29,
2006 and September 30, 2005 and cash flows for the nine months ended September
29, 2006 and September 30, 2005, as applicable, have been made. The results
of
operations for the three and nine months ended September 29, 2006 are not
necessarily indicative of the operating results for the full fiscal year or
any
future periods. Individual segment revenues may be affected by seasonal buying
patterns. Typically the second fiscal quarter has been the strongest quarter
for
the Company driven by the construction buying season. The second quarter has
averaged 27% of total revenue in the last two fiscal years.
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.
NOTE
2. NEW
ACCOUNTING PRONOUNCEMENTS
In
September 2006,
the FASB issued Statement No. 158, "Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No.
87,
88, 106, and 132(R)." SFAS 158 requires companies to recognize the overfunded
or
underfunded status of a defined benefit post-retirement plan as an asset or
liability in its balance sheet and to recognize changes in that funded status
in
the year in which the changes occur through comprehensive income, effective
for
fiscal years ending after December 15, 2006.
For Trimble, this
provision of SFAS 158 will be effective for the fiscal year ended 2006.
SFAS
158 also requires companies to measure the funded status of the plan as of
the
date of its fiscal year-end, with limited exceptions, effective for fiscal
years
ending after December 15, 2008. For
Trimble, this
provision of SFAS 158 will be effective for the fiscal year ended 2008.
The Company is
currently evaluating SFAS 158 and its possible impacts on the Company’s
financial statements.
In
July 2006, the
Financial Accounting Standards Board (“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 FASB Statement 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. FIN 48 is effective for fiscal years
beginning after December 15, 2006. For Trimble, FIN 48 will be effective
for the first quarter of fiscal 2007. Differences between the amounts
recognized in the statements of operations prior to and after the adoption
of
FIN 48 would be accounted for as a cumulative effect adjustment to the beginning
balance of retained earnings. The Company is currently evaluating
FIN 48 and its possible impacts on the Company’s financial statements.
Upon adoption, there is a possibility that the cumulative effect would result
in
a charge or benefit to the beginning balance of retained earnings.
In
December 2004,
the Financial Accounting Standards Board (“FASB”) issued Standard of Financial
Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS
123(R) requires employee stock options and rights to purchase shares under
stock
participation plans to be accounted for under the fair value method, and
eliminates the ability to account for these instruments under the intrinsic
value method prescribed by APB Opinion No. 25, and allowed under the original
provisions of SFAS 123.
Trimble
has adopted
SFAS 123(R) using the modified prospective method which requires the adoption
of
the accounting standard for fiscal years beginning after June 15, 2005. As
a
result, the Company’s financial statements for fiscal periods after December 30,
2005 include stock-based compensation expenses that are not comparable to
financial statements of fiscal periods prior to December 30, 2005. 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. Prior to the adoption of SFAS 123(R), the Company
accounted for stock-based compensation to employees and directors using the
intrinsic value method in accordance with APB Opinion No. 25 as allowed under
Statement of Financial Accounting Standards No. 123, “Accounting for
Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no
stock-based compensation expense had been recognized in the Company’s Condensed
Consolidated Statement of Income because the exercise price of the Company’s
stock options granted to employees and directors equaled the fair market value
of the underlying stock at the date of grant. See Note 3 to the Notes to the
Condensed Consolidated Financial Statements for additional information.
NOTE
3. STOCK-BASED
COMPENSATION
In
accordance with
the provisions of Statement of Financial Accounting Standards No. 123 (“SFAS
123”), "Accounting for Stock-Based Compensation" and “Statement of Financial
Accounting Standards No. 148” (“SFAS 148”), “Accounting for Stock-Based
Compensation - Transition and Disclosure,” Trimble applied Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" (“APB 25”) and
related interpretations in accounting for its stock option plans and stock
purchase plan prior to fiscal 2006. Accordingly, Trimble did not recognize
compensation cost for stock-based compensation prior to fiscal 2006. For periods
subsequent to fiscal 2005, Trimble recognized expense related to stock-based
compensation in accordance with SFAS 123(R)
The
following table
summarizes stock-based compensation expense, net of tax, related to employee
stock-based compensation included in the Condensed Consolidated Statements
of
Income in
accordance with
SFAS 123(R) for
the three
and nine
months ended September 29, 2006 and September 30, 2005.
|
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
|
September
29,
|
|
September
30,
|
|
September
29,
|
|
September
30,
|
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of
sales
|
|
$
|
285
|
$
|
-
|
$
|
881
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
&
development
|
|
|
620
|
|
-
|
|
1,926
|
|
-
|
|
Sales
&
marketing
|
|
|
663
|
|
-
|
|
2,115
|
|
-
|
|
General
&
administrative
|
|
|
1,380
|
|
-
|
|
4,515
|
|
-
|
|
Stock-based
compensation expense included in operating expenses
|
|
|
2,663
|
|
-
|
|
8,556
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock-based compensation
|
|
|
2,948
|
|
-
|
|
9,437
|
|
-
|
|
Tax
benefit
|
(1)
|
|
(263)
|
|
-
|
|
(851)
|
|
-
|
|
Total
stock-based compensation, net of tax
|
|
$
|
2,685
|
$
|
-
|
$
|
8,586
|
|
-
|
|
The
table below
provides pro forma information for the three and nine months ended September
30,
2005 as if Trimble had accounted for its employee stock options and purchases
under the employee stock purchase plan in accordance with SFAS 123.
|
Three
Months
Ended
|
Nine
Months
Ended
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2005
|
|
|
2005
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income -
as reported
|
$
|
20,236
|
|
$
|
61,462
|
|
Stock-based
compensation expense, net of tax (2)
|
|
2,640
|
|
|
8,448
|
|
Net
income -
pro forma
|
$
|
17,596
|
|
$
|
53,014
|
|
|
|
|
|
|
|
|
Basic
earnings
per share - as reported
|
$
|
0.38
|
|
$
|
1.16
|
|
Basic
earnings
per share - pro forma
|
$
|
0.33
|
|
$
|
1.00
|
|
|
|
|
|
|
|
|
Diluted
earnings per share - as reported
|
$
|
0.35
|
|
$
|
1.08
|
|
Diluted
earnings per share - pro forma
|
$
|
0.31
|
|
$
|
0.93
|
|
(2)
Includes
compensation expense for employee stock purchase plan for the three and nine
months ended September 30, 2005 and reduction of tax benefits for stock-based
compensation other than non-qualified stock options which were not included
in
the pro forma disclosure of Trimble’s third quarter of fiscal 2005 Form 10-Q.
Tax benefit relates to non-qualified options only as allowed by the applicable
tax requirements using the statutory tax rate as of the third quarter of fiscal
2005.
OPTIONS
Stock
option expense
recognized during the period is based on the value of the portion of share-based
payment awards that is expected to vest during the period. Stock option expense
recognized in the Company’s Condensed Consolidated of Income for the three and
nine months ended September 29, 2006 included compensation expense for stock
options granted prior to, but not yet vested as of December 30, 2005 based
on
the grant date fair value estimated in accordance with the provisions of SFAS
123 and compensation expense for the stock options granted subsequent to
December 30, 2005 based on the grant date fair value estimated in accordance
with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS
123(R), the Company changed its method of attributing the value of stock option
to expense from the accelerated multiple-option approach to the straight-line
single option method. Compensation expense for all stock options granted on
or
prior to December 30, 2005 will continue to be recognized using the
accelerated multiple-option approach while compensation expense for all stock
options granted subsequent to December 30, 2005 is recognized using the
straight-line single-option method. 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. In the Company’s pro forma
information required under SFAS 123 for the periods prior to fiscal 2006, the
Company accounted for forfeitures as they occurred.
Stock
Option
Plans
Trimble
issues new
shares upon exercises of stock options related to the following plans.
2002
Stock
Plan
In
2002, Trimble’s
Board of Directors adopted the 2002 Stock Plan (“2002 Plan”). The 2002 Plan, as
amended to date and approved by shareholders, provides for the granting of
incentive and non-statutory stock options for up to 6,000,000 shares plus any
shares currently reserved but unissued to employees, consultants, and directors
of Trimble. Incentive stock options may be granted at exercise prices that
are
not less than 100% of the fair market value of Common Stock on the date of
grant. Employee stock options granted under the 2002 Plan have 120-month terms,
and vest at a rate of 20% at the first anniversary of grant, and monthly
thereafter at an annual rate of 20%, with full vesting occurring at the fifth
anniversary of the grant. The exercise price of non-statutory stock options
issued under the 2002 Plan must be at least 85% of the fair market value of
Common Stock on the date of grant.
1993
Stock
Option Plan
In
1992, Trimble's
Board of Directors adopted the 1993 Stock Option Plan (“1993 Plan”). The 1993
Plan, as amended to date and approved by shareholders, provided for the granting
of incentive and non-statutory stock options for up to 9,562,500 shares of
Common Stock to employees, consultants, and directors of Trimble. Incentive
stock options may be granted at exercise prices that are not less than 100%
of
the fair market value of Common Stock on the date of grant. Employee stock
options granted under the 1993 Plan have 120-month terms, and vest at a rate
of
20% at the first anniversary of grant, and monthly thereafter at an annual
rate
of 20%, with full vesting occurring at the fifth anniversary of grant. The
exercise price of non-statutory stock options issued under the 1993 Plan must
be
at least 85% of the fair market value of Common Stock on the date of grant.
1992
Management
Discount Stock Option Plan
In
1992, Trimble's
Board of Directors and shareholders approved the 1992 Management Discount Stock
Option Plan ("Discount Plan"). Employee stock options granted under the 1992
Plan have 120-month terms, and vest at a rate of 20% at the first anniversary
of
grant, and monthly thereafter at an annual rate of 20%, with full vesting
occurring at the fifth anniversary of the grant.
1990
Director
Stock Option Plan
In
December 1990,
Trimble adopted a Director Stock Option Plan under which an aggregate of 570,000
shares of Common Stock have been reserved for issuance to non-employee directors
as approved by the shareholders to date. Stock options issued under this plan
vest generally over a three year period.
Option
Activity
Activity
during the
first nine months of fiscal 2006 under the combined plans was as follows:
|
September
29,
2006
|
Nine
Months
Ended
|
Options
|
Weighted
average exercise price
|
(In
thousands, except for per share data)
|
|
|
|
|
|
Outstanding
at
December 30, 2005
|
6,414
|
$
18.70
|
Granted
|
159
|
40.93
|
Exercised
|
(1,384)
|
13.94
|
Forfeited/Cancelled/Expired
|
(78)
|
25.03
|
Outstanding
at
September 29, 2006
|
5,109
|
20.58
|
Options
Outstanding and Exercisable
Exercise
prices for
options outstanding and exercisable as of September 29, 2006, ranged from $5.33
to $48.11. Options outstanding and exercisable consist of fully vested options
and options expected to vest at September 29, 2006. The
aggregate
intrinsic value is the total pretax intrinsic value based on the Company’s
closing stock price of $47.08 as of September
29,
2006, which would have been received by the option holders had all option
holders exercised their options as of that date.
|
|
|
Weighted-
|
|
Weighted-
|
|
|
|
|
|
Average
|
|
Average
|
|
Aggregate
|
|
Number
|
|
Exercise
Price
|
|
Remaining
|
|
Intrinsic
|
|
Of
Shares
|
|
per
Share
|
|
Contractual
Term
|
|
Value
|
|
|
|
|
|
(in
years)
|
|
(in
thousands)
|
Options
Outstanding and Expected to Vest
|
4,991,648
|
|
$
20.36
|
|
5.6
|
|
$
133,406
|
Options
Exercisable
|
3,014,052
|
|
15.62
|
|
5.0
|
|
94,824
|
As
of September 29,
2006, the total unamortized stock option expense is $14.5 million with
weighted-average recognition period of 1.4 years.
Valuation
Assumptions
For
options granted
prior to October 1, 2005, the fair value for these options was estimated at
the
date of grant using the Black-Scholes option-pricing model. For stock options
granted on or after October 1, 2005, the fair value of each award is
estimated on the date of grant using a binomial valuation model. Similar to
the
Black-Scholes model, the binomial model takes into account variables such as
volatility, dividend yield rate, and risk free interest rate. In
addition, the
binomial model
incorporates actual option-pricing behavior and changes in volatility over
the
option’s contractual term. For these reasons, the Company believes that the
binomial model provides a fair value that is more representative of actual
experience and future expected experience than the value calculated using the
Black-Scholes model.
Under
the binomial
models and Black-Scholes, the estimated values of each employee stock option
granted during the third quarter of fiscal 2006 and 2005 were $18.10 and $18.72
per share, respectively. The value of each option grant is estimated on the
date
of grant using the binomial model for options granted during the third quarter
of fiscal 2006 and the Black-Scholes option pricing model for options granted
during the third quarter of fiscal 2005 and with the following
assumptions:
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
September
29,
2006
|
September
30,
2005
|
|
September
29,
2006
|
September
30,
2005
|
Expected
dividend yield
|
--
|
--
|
|
--
|
--
|
Expected
stock
price volatility
|
42.7%
|
56.2%
|
|
42.2%
|
52.0%
|
Risk
free
interest rate
|
5.1%
|
4.2%
|
|
4.7%
|
4.1%
|
Expected
life
of options (in years)
|
4.7
|
4.7
|
|
4.6
|
4.7
|
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. The Company used implied and historical volatility as the
combination was more representative of future stock price trends than historical
volatility alone.
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 term of the option.
Expected
Life Of
Option
- The
Company’s
expected term 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.
EMPLOYEE
STOCK PURCHASE PLAN
Stock-based
compensation expense related to the Company’s employee stock purchase plan is
recognized during the purchase vesting period.
Employee
Stock
Purchase Plan
The
Company has an
Employee Stock Purchase Plan (“Purchase Plan”) under which an aggregate of
5,775,000 shares of Common Stock have been reserved for sale to eligible
employees as approved by the shareholders to date. The plan permits full-time
employees to purchase Common Stock through payroll deductions at 85% of the
lower of the fair market value of the Common Stock at the beginning or at the
end of each offering period. The Purchase Plan terminates on September 8, 2008.
Valuation
Assumptions
The
fair value of
rights granted under the Employee Stock Purchase Plan is estimated at the date
of grant using the Black-Scholes option-pricing model. The following assumptions
were used at September 29, 2006 and September 30, 2005:
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
September
29,
2006
|
September
30,
2005
|
|
September
29,
2006
|
September
30,
2005
|
Expected
dividend yield
|
--
|
--
|
|
--
|
--
|
Expected
stock
price volatility
|
36.1%
|
35.0%
|
|
40.0%
|
50.1%
|
Risk
free
interest rate
|
5.3%
|
3.5%
|
|
5.0%
|
3.4%
|
Expected
life
of purchase
|
0.7
|
0.5
|
|
0.6
|
0.5
|
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 implied volatilities from traded
options on the Company’s stock. The Company used implied volatility because it
is representative of future stock price trends during the six month purchase
period.
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 term of the purchase period.
Expected
Life Of
Purchase
- The
Company’s
expected life of the purchase is based on the term of the offering period of
the
purchase plan.
NOTE
4. JOINT
VENTURES:
Caterpillar
Trimble Control Technologies Joint Venture
On
April 1, 2002,
Caterpillar Trimble Control Technologies LLC (“CTCT”), a joint venture formed by
Trimble and Caterpillar began operations. The joint venture is 50% owned by
Trimble 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, Trimble’s share of profits and losses are included in income (expense)
for affiliated operations, net in the non-operating income (expense), net
section of the Condensed
Consolidated Statements
of
Income. CTCT develops advanced electronic guidance and control products for
earth moving machines in the construction and mining industries.
Trimble
acts as a
contract manufacturer for CTCT. Products are manufactured based on orders
received from CTCT and are sold at cost plus a mark up to CTCT. CTCT resells
products to both Caterpillar and Trimble for sales through their respective
distribution channels. Generally, Trimble sells products to its after market
dealer channel, and Caterpillar sells products for factory and dealer
installation. CTCT does not hold inventory in that the resale of products to
Caterpillar and Trimble occur simultaneously when the products are purchased
from Trimble.
Beginning
in the
first fiscal quarter of 2006, Trimble included the impact of certain
transactions with CTCT in revenue and cost of sales. Revenue and cost of sales
were recorded for the manufacturing of products that are sold to CTCT and then
sold through the Caterpillar distribution channel. Cost of sales transactions
also include the purchasing of products from CTCT at a higher price than
Trimble's original manufacturing costs for products sold through the Trimble
distribution channel. Prior to the first fiscal quarter of 2006, these
transactions were included in income (expense) for affiliated operations, net
in
the non-operating income (expense), net section of the Consolidated Statements
of Income. The change in presentation resulted from the Company’s assessment of
CTCT’s advancement and ability to function as a stand-alone company. In
addition, the Company’s exclusive manufacturing agreement with CTCT ended during
fiscal 2005. As a result, during the first quarter of fiscal 2006, the Company
deemed transactions between CTCT and Trimble to be arms-length and concluded
they should be presented similarly to other vendor and customer relationships.
The impact of this change in presentation was a $4.7 million decrease and 15.1
million decrease in gross margins for the three and nine month periods ended
September 29, 2006. There was no impact on net income.
Trimble
received
reimbursement of employee-related costs from CTCT for Trimble employees
dedicated to CTCT or performing work for CTCT totaling $3.3 million and $2.1
million for the three months ended September 29, 2006 and September 30, 2005,
respectively, and $10.2 million and $7.0 million for the nine months ended
September 29, 2006 and September 30, 2005, respectively. The reimbursements
were
offset against operating expenses.
|
September
29,
|
September
30,
|
Three
Months
Ended
|
2006
|
2005
|
(In
millions)
|
|
|
|
|
|
CTCT
incremental pricing effects, net
|
$
-
|
2.6
|
Trimble's
50%
share of CTCT's reported (gain) loss
|
(0.8)
|
(0.5)
|
Total
CTCT
expense (income) for affiliated operations, net
|
$
(0.8)
|
$
2.1
|
|
|
|
|
|
|
|
September
29,
|
September
30,
|
Nine
Months
Ended
|
2006
|
2005
|
(In
millions)
|
|
|
|
|
|
CTCT
incremental pricing effects, net
|
$
-
|
8.7
|
Trimble's
50%
share of CTCT's reported (gain) loss
|
(3.8)
|
(1.5)
|
Total
CTCT
expense (income) for affiliated operations, net
|
$
(3.8)
|
$7.2
|
|
|
|
The
net outstanding
balance due from CTCT was $1.0 million at September 29, 2006 and $0.2 million
at
December 30, 2005 and is included in account receivables, net. As of September
29, 2006, dividends receivable from CTCT was $2.3 million and was included
in
other receivables.
Nikon-Trimble
Joint Venture
On
March 28, 2003,
Trimble and Nikon Corporation entered into an agreement to form a joint venture
in Japan, Nikon-Trimble Co., Ltd., as described in Trimble’s 2005 Annual Report
on Form 10-K. Nikon-Trimble began operations in July, 2003
and is equally
owned by Trimble and Nikon, with equal voting rights.
Nikon-Trimble
is the
distributor in Japan for Nikon and Trimble products. Trimble is the exclusive
distributor outside of Japan for Nikon branded survey products. For products
sold from Trimble to the Nikon-Trimble, revenue is recognized by Trimble 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 Trimble to Nikon-Trimble are comparable
with those of the standard distribution agreements which Trimble maintains
with
its dealer channel and margins earned are similar to those from third party
dealers. Similarly, the purchases of product by Trimble from the 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 Trimble.
Trimble
has adopted
the equity method of accounting for its investment in Nikon-Trimble, with 50%
share of profit or loss from this joint venture to be reported by Trimble in
the
non-operating income (expense), net section of the Condensed Consolidated
Statement of Income under the heading of income (expense) for affiliated
operations, net. For both the three months ended September 29, 2006 and
September 30, 2005, Trimble reported a profit of $0.2 million. For the nine
months ended September 29, 2006 and September 30, 2005, Trimble reported a
profit of approximately $0.4 million and a loss of $0.3 million, respectively,
as its proportionate share of the results of the joint venture. In the
second quarter of fiscal 2006, Trimble began recording its proportionate share
of profit or loss in the joint venture one month in arrears. The impact of
this change is not material. At September 29, 2006, the net payable from Trimble
to Nikon-Trimble, related to the purchase and sale of products from and to
Nikon-Trimble, is $1.3 million and is recorded within accounts payable, net
on
the Condensed Consolidated Balance Sheet. At December 30, 2005, the net
payable by Trimble to Nikon-Trimble is $2.0 million and is recorded within
accounts payable on the Condensed Consolidated Balance Sheets. The
carrying amount
of the investment in Nikon Trimble was approximately $13.1 million at September
29, 2006 and $12.9 million at December 30, 2005 and is recorded in other
non-current assets on the Condensed Consolidated Balance Sheets.
NOTE
5.
GOODWILL AND
INTANGIBLE ASSETS
Intangible
Assets
Intangible
Assets
consisted of the following:
|
|
September
29,
|
|
December
30,
|
As
of
|
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Intangible
assets:
|
|
|
|
|
Intangible
assets with definite life:
|
|
|
|
|
Existing
technology
|
$
|
70,928
|
$
|
48,100
|
Trade
names,
trademarks, patents, and other intellectual properties
|
|
28,099
|
|
26,808
|
Total
intangible assets with definite life
|
|
99,027
|
|
74,908
|
Less
accumulated amortization
|
|
(57,986)
|
|
(47,598)
|
Total
net
intangible assets
|
$
|
41,041
|
$
|
27,310
|
Goodwill
Goodwill,
by
reporting segment, consisted of the following:
|
|
September
29,
|
|
December
30,
|
As
of
|
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
$
|
258,772
|
$
|
229,176
|
Mobile
Solutions
|
|
59,933
|
|
44,118
|
Advanced
Devices
|
|
13,409
|
|
12,852
|
|
|
|
|
|
Total
Goodwill
|
$
|
332,114
|
$
|
286,146
|
NOTE
6. CERTAIN
BALANCE
SHEET COMPONENTS
Inventories
net
consisted of the following:
|
September
29,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
Raw
materials
|
$
60,546
|
|
$
52,199
|
Work-in-process
|
7,699
|
|
7,249
|
Finished
goods
|
46,630
|
|
48,403
|
|
$
114,875
|
|
$
107,851
|
Property
and
equipment consisted of the following:
|
September
29,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
Machinery
and
equipment
|
$
76,922
|
|
$
72,273
|
Furniture
and
fixtures
|
12,144
|
|
10,110
|
Leasehold
improvements
|
12,684
|
|
8,695
|
Buildings
|
5,707
|
|
5,707
|
Land
|
1,231
|
|
1,231
|
|
108,688
|
|
98,016
|
Less
accumulated depreciation
|
(61,299)
|
|
(55,352)
|
|
$
47,389
|
|
$
42,664
|
NOTE
7.
THE COMPANY AND
SEGMENT INFORMATION
Trimble
is a
designer and distributor of positioning products and applications enabled by
GPS, optical, laser, and wireless communications technology. The Company
provides products for diverse applications in its targeted markets.
To
achieve
distribution, marketing, production, and technology advantages, the Company
manages its operations in the following four segments:
· |
Engineering
and Construction — Consists of products currently used by survey and
construction professionals in the field for positioning, data collection,
field computing, data management, and machine guidance and control.
The
applications served include surveying, road, runway, construction,
site
preparation and building construction.
|
· |
Field
Solutions — Consists of products that provide solutions in a variety of
agriculture and geographic information systems (GIS) applications.
In
agriculture these include precise land leveling and machine guidance
systems. In GIS they include handheld devices and software that enable
the
collection of data on assets for a variety of governmental and private
entities.
|
· |
Mobile
Solutions — Consists of products that enable end users to monitor and
manage their mobile assets by communicating location and activity-relevant
information from the field to the office. Trimble 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 Trimble’s total revenue, operating income and assets. This segment
is comprised of the Component Technologies, Military and Advanced
Systems,
Applanix and Trimble Outdoors
businesses.
|
Trimble
evaluates
each of its segment's performance and allocates resources based on segment
operating income from operations before income taxes, and some corporate
allocations. Trimble and each of its segments employ the same accounting
policies.
In
the first quarter
of 2006, Trimble combined the operating results of the former Components
Technologies and Portfolio Technologies segments and included the combined
operating results in the Advanced Devices segment. The change in presentation
was made in recognition of the small size of each of the businesses relative
to
the total company. The presentation of prior period’s segment operating results
has been changed to conform to the Company’s current segment presentation.
The
following table
presents revenues, operating income (loss), and identifiable assets for the
four
segments. Operating
income
(loss) is net revenue less operating expenses, excluding general corporate
expenses, amortization in-process research and development expenses,
restructuring charges, non-operating income (expense), and income taxes. The
identifiable assets that Trimble's Chief Operating Decision Maker views by
segment are accounts receivable and inventory.
|
|
Reporting
Segments
|
|
|
|
|
Engineering
and
|
|
Field
|
|
Mobile
|
|
Advanced
|
|
|
|
|
Construction
|
|
Solutions
|
|
Solutions
|
|
Devices
|
|
Total
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended September 29, 2006
|
|
|
|
|
|
|
|
|
|
External
net
revenues
|
|
$
162,370
|
|
$
29,236
|
|
$
16,426
|
|
$
26,819
|
|
$
234,851
|
|
Operating
income before corporate allocations
|
|
38,337
|
|
5,634
|
|
1,125
|
|
4,113
|
|
49,209
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months
Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
External
net
revenues
|
|
134,172
|
|
24,882
|
|
7,214
|
|
22,216
|
|
188,484
|
|
Operating
income (loss) before corporate allocations
|
|
34,360
|
|
3,962
|
|
(746)
|
|
2,916
|
|
40,492
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
Ended September 29, 2006
|
|
|
|
|
|
|
|
|
|
External
net
revenues
|
|
$
477,145
|
|
$
108,599
|
|
$
43,884
|
|
$
76,402
|
|
$
706,030
|
|
Operating
income before corporate allocations
|
|
103,519
|
|
30,841
|
|
1,722
|
|
8,679
|
|
144,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine
Months
Ended September 30, 2005
|
|
|
|
|
|
|
|
|
|
External
net
revenues
|
|
$
395,465
|
|
$
102,495
|
|
$
21,051
|
|
$
69,081
|
|
$
588,092
|
|
Operating
income (loss) before corporate allocations
|
|
93,022
|
|
27,583
|
|
(3,261)
|
|
10,726
|
|
128,070
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
September 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable (1)
|
|
$
125,447
|
|
$
21,875
|
|
$
11,562
|
|
$
18,857
|
|
$
177,641
|
|
Inventories
|
|
85,820
|
|
12,590
|
|
1,974
|
|
14,491
|
|
114,875
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of December
30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable (1)
|
|
$
105,980
|
|
$
21,823
|
|
$
10,789
|
|
$
14,033
|
|
$
152,625
|
|
Inventories
|
|
80,590
|
|
11,790
|
|
1,983
|
|
13,488
|
|
107,851
|
(1) |
As
presented,
accounts receivable represents trade receivables, gross, which are
specified between segments.
|
The
following are reconciliations corresponding to totals in the accompanying
Condensed Consolidated Financial Statements:
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
for
reportable divisions
|
$
|
49,209
|
|
|
$
|
40,492
|
|
|
$
|
144,761
|
|
|
$
|
128,070
|
|
Unallocated
corporate expenses
|
|
(12,878)
|
|
|
|
(7,465)
|
|
|
|
(36,697)
|
|
|
|
(26,106)
|
|
Operating
income
|
$
|
36,331
|
|
|
$
|
33,027
|
|
|
$
|
108,064
|
|
|
$
|
101,964
|
|
|
September
29,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(in
thousands)
|
|
|
|
Assets:
|
|
|
|
Accounts
receivable total for reporting segments
|
$
177,641
|
|
$
152,625
|
Unallocated
(1)
|
(4,323)
|
|
(7,525)
|
Total
|
$
173,318
|
|
$
145,100
|
(1)
Includes
trade-related accruals, allowances, and cash received in advance that are not
allocated by segment.
The
distribution of
Trimble’s gross consolidated revenue by segment is summarized in the table
below. Gross consolidated revenue includes external and internal sales. Total
external consolidated revenue is reported net of eliminations of internal sales
between segments.
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
September
30,
|
|
|
|
September
29,
|
|
September
30,
|
|
|
|
2006
|
|
2005
|
|
|
|
2006
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Engineering
and Construction
|
$
|
164,387
|
$
|
135,378
|
|
|
$
|
480,947
|
$
|
399,075
|
|
Field
Solutions
|
|
29,236
|
|
24,882
|
|
|
|
108,599
|
|
102,495
|
|
Mobile
Solutions
|
|
16,426
|
|
7,214
|
|
|
|
43,884
|
|
21,051
|
|
Advanced
Devices
|
|
26,823
|
|
22,215
|
|
|
|
76,408
|
|
69,135
|
|
Total
Gross
Consolidated Revenue
|
$
|
236,872
|
$
|
189,689
|
|
|
$
|
709,838
|
$
|
591,756
|
|
Eliminations
|
|
(2,021)
|
|
(1,205)
|
|
|
|
(3,808)
|
|
(3,664)
|
|
Total
External
Consolidated Revenue
|
$
|
234,851
|
$
|
188,484
|
|
|
$
|
706,030
|
$
|
588,092
|
|
NOTE
8.
LONG-TERM DEBT
Credit
Facilities
On
July 28, 2005,
Trimble entered into a $200 million unsecured revolving credit agreement (“2005
Credit Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as
the administrative agent. The 2005 Credit Facility replaced the Company’s $175
million secured 2003 Credit Facility. The funds available under the new 2005
Credit Facility may be used by the Company for general corporate purposes and
up
to $25 million of the 2005 Credit Facility may be used for letters of credit.
The
Company may
borrow funds under the 2005 Credit Facility in U.S. Dollars or in certain other
currencies, and 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 LIBOR,
EURIBOR, 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 2005 Credit Facility are guaranteed by certain of the Company's
domestic subsidiaries.
The
2005 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 2005 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 2005
Credit Facility, however that acceleration will be automatic in the case of
bankruptcy and insolvency events of default. Trimble incurs a commitment fee
if
the 2005 Credit Facility is not used. The commitment fee is not material to
the
Company’s results during all periods presented.
At
September 29,
2006, the Company had a zero balance outstanding under the 2005 Credit Facility
and was in compliance with all financial covenants.
Notes
Payable
As
of September 29,
2006, the Company had other notes payable totaling approximately $0.8 million
consisting of government loans to foreign subsidiaries and
loans assumed
from acquisitions.
NOTE
9.
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 Trimble's behalf. The products sold are generally
covered by a warranty for periods ranging from 90 days to three years, and
in
some instances up to 5.5 years.
While
the Company
engages in extensive product quality programs and processes, including actively
monitoring and evaluating the quality of component suppliers, its warranty
obligation is affected by product failure rates, material usage, and service
delivery costs incurred in correcting a product failure. Should actual product
failure rates, material usage, or service delivery costs differ from the
estimates, revisions to the estimated warranty accrual and related costs may
be
required.
Changes
in the
Company’s product warranty liability during the three and nine months ended
September 29, 2006 and September 1, 2005 are as follows:
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
$
|
7,475
|
|
|
$
|
7,192
|
|
|
$
|
7,466
|
|
|
$
|
6,425
|
|
Warranty
accrued
|
|
1,956
|
|
|
|
1,527
|
|
|
|
5,213
|
|
|
|
5,686
|
|
Warranty
claims
|
|
(1,694)
|
|
|
|
(1,564)
|
|
|
|
(4,942)
|
|
|
|
(4,956)
|
|
Ending
Balance
|
$
|
7,737
|
|
|
$
|
7,155
|
|
|
$
|
7,737
|
|
|
$
|
7,155
|
|
The
product warranty
liability is classified as accrued warranty in the accompanying condensed
consolidated balance sheets.
NOTE
10. 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
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Used
in basic
and diluted earnings per share
|
|
$
|
25,342
|
|
|
$
|
20,236
|
|
|
$
|
79,673
|
|
|
$
|
61,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares used in basic earnings per
share
|
|
|
55,339
|
|
|
|
53,592
|
|
|
|
54,809
|
|
|
|
53,017
|
|
Effect
of
dilutive securities (using treasury stock method):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
options
|
|
|
2,495
|
|
|
|
2,948
|
|
|
|
2,573
|
|
|
|
3,100
|
|
Common
stock
warrants
|
|
|
659
|
|
|
|
952
|
|
|
|
545
|
|
|
|
800
|
|
Weighted
average number of common shares and dilutive potential common shares
used
in diluted earnings per share
|
|
|
58,493
|
|
|
|
57,492
|
|
|
|
57,927
|
|
|
|
56,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
earnings
per share
|
|
$
|
0.46
|
|
|
$
|
0.38
|
|
|
$
|
1.45
|
|
|
$
|
1.16
|
|
Diluted
earnings per share
|
|
$
|
0.43
|
|
|
$
|
0.35
|
|
|
$
|
1.38
|
|
|
$
|
1.08
|
|
NOTE
11.
RESTRUCTURING CHARGES
The
Company did not
record any restructuring charges during the third quarter of fiscal 2006 or
fiscal 2005. Payments
of $0.1
million were made during each of the respective three months ended September
29,
2006 and September 30, 2005. Payments of $0.3 million were made during each
of
the nine months ended September 29, 2006 and September 30, 2005, respectively,
relating to previous restructuring plans. As
of September 29,
2006, the remaining restructuring accrual balance is $0.1 million which relates
to the closure of one of Trimble’s sales offices and is expected to be paid over
the next year. The restructuring accrual is included on the Condensed
Consolidated Balance Sheets under the heading of accrued
liabilities.
NOTE
12.
COMPREHENSIVE INCOME
The
components of comprehensive income, net of related tax in the Condensed
Consolidated Statement of Income are as follows:
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
$
|
25,342
|
|
|
$
|
20,236
|
|
|
$
|
79,673
|
|
|
$
|
61,462
|
|
Foreign
currency translation adjustments
|
|
3,716
|
|
|
|
1,265
|
|
|
|
13,455
|
|
|
|
(21,529)
|
|
Net
gain
(loss) on hedging transactions
|
|
-
|
|
|
|
2
|
|
|
|
-
|
|
|
|
(106)
|
|
Net
unrealized
gain (loss) on investments
|
|
20
|
|
|
|
(15)
|
|
|
|
6
|
|
|
|
(22)
|
|
Comprehensive
income
|
$
|
29,078
|
|
|
$
|
21,488
|
|
|
$
|
93,134
|
|
|
$
|
39,805
|
|
The
components of accumulated other comprehensive income, net of related tax in
the
Condensed Consolidated Balance Sheets are as follows:
|
September
29,
|
|
December
30,
|
As
of
|
2006
|
|
2005
|
(In
thousands)
|
|
|
|
|
|
|
|
Accumulated
foreign currency translation adjustments
|
$
32,959
|
|
$
19,504
|
Accumulated
net unrealized gain on investments
|
36
|
|
30
|
Total
accumulated other comprehensive income
|
$
32,995
|
|
$
19,534
|
NOTE
13.
LITIGATION
From
time to time,
the Company is 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 the Company’s overall financial position, results of
operations, or liquidity.
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 2005 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, revenues
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. See the discussion
of
our critical accounting policies under the heading Management’s Discussion and
Analysis of Financial Condition and Results of Operations in our Form 10-K
for
fiscal 2005.
RECENT
BUSINESS DEVELOPMENTS
Meridian
Project
Systems, Inc.
On
October 27, 2006,
Trimble signed a definitive agreement to acquire privately-held Meridian Project
Systems, Inc. of Folsom, Calif., in an all-cash transaction. Meridian Project
Systems provides enterprise project management and lifecycle software for
optimizing the plan, build and operate lifecycle for real estate, construction
and other physical infrastructure projects. Building owners, construction
contractors, engineering firms, and government agencies use Meridian's
technology to reduce capital construction costs and improve project
productivity. Meridian’s performance will be reported under our
Engineering and Construction business segment. The acquisition is expected
to
close in the fourth quarter of fiscal 2006.
XYZ
Solutions,
Inc.
On
October 27, 2006,
we acquired privately-held XYZ Solutions, Inc., of Alpharetta, Georgia, in
an
all-cash transaction. XYZ Solutions provides real-time, interactive 3D
intelligence software to manage the spatial aspects of a construction project.
XYZ Solutions’ performance will be 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 in an all-cash transaction. Visuals Statement provides state-of-the-art
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 will be
reported under our Mobile Solutions business segment.
BitWyse
Solutions, Inc.
On
May 1, 2006, we
acquired privately-held BitWyse Solutions, Inc. of Salem, Massachusetts in
an
all-cash transaction. BitWyse is a provider of engineering and construction
information management software dedicated to providing engineering companies
and
owner operators a competitive advantage. BitWyse’s performance is reported under
our Engineering and Construction business segment.
Eleven
Technology, Inc.
On
April 28, 2006,
we acquired privately-held Eleven Technology, Inc. of Cambridge, Massachusetts
in an all-cash transaction. Eleven is a mobile application software company
with
a leading position in the Consumer Packaged Goods industry. Eleven’s performance
is reported under our Mobile Solutions business segment.
Quantm
International, Inc.
On
April 5, 2006, we
acquired privately-held Quantm International, Inc. a leading provider of
transportation route optimization solutions used for planning highways,
railways, pipelines and canals. Quantm’s innovative software system enables
infrastructure planners to examine and select route corridors and alignments
that simultaneously optimize construction costs, environmental restrictions,
existing feature avoidance and legislative obligations. The improved solution
for the proposed route may result in significant reductions to the customer
in
project planning time and cost. Quantm’s performance
is reported under
our Engineering and Construction business segment.
XYZ
of GPS, Inc.
On
February 26,
2006, we acquired the assets of XYZ of GPS, Inc. of Dickerson, Maryland. XYZ
develops real-time Global
Navigation
Satellite System
or, GNSS, reference
station, integrity monitoring and dynamic positioning software for meter,
decimeter and centimeter applications. The purchase of XYZ’s intellectual
property is expected to extend our product portfolio of infrastructure solutions
by providing software that enhances differential GNSS correction systems used
in
marine aides to navigation, surveying, civil engineering, hydrography, mapping
and Geographic Information System or, GIS, and scientific applications. XYZ’s
performance
is reported under
our Engineering and Construction business segment.
Advanced
Public
Safety, Inc.
On
December 30,
2005, we acquired privately-held Advanced Public Safety, Inc. (“APS”) of
Deerfield Beach, Florida. APS provides mobile and handheld software products
used by law enforcement, fire-rescue and other public safety agencies. With
the
APS acquisition, we plan to leverage our rugged mobile computing devices and
our
fleet management systems to provide complete mobile resource solutions for
the
public safety industry. APS’s performance is reported under our Mobile Solutions
business segment.
MobileTech
Solutions, Inc.
On
October 25, 2005,
we acquired privately-held MobileTech Solutions, Inc. of Plano, Texas.
MobileTech Solutions provides field workforce automation solutions and has
a
leading market position in the Direct Store Delivery market. We expect the
MobileTech Solutions acquisition to extend our portfolio of fleet management
and
field workforce applications. MobileTech Solutions’ performance is reported
under our Mobile Solutions business segment.
The
effects of these acquisitions were not material to our overall results during
all periods presented.
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
29,
|
September
30,
|
|
September
29,
|
September
30,
|
|
2006
|
2005
|
|
2006
|
2005
|
(in
thousands)
|
|
|
|
|
|
Total
consolidated revenue
|
$
234,851
|
188,484
|
|
$
706,030
|
588,092
|
Gross
margin
|
116,191
|
97,292
|
|
345,309
|
297,506
|
Gross
margin
%
|
49.5
%
|
51.6%
|
|
48.9%
|
50.6%
|
Total
consolidated operating income
|
36,331
|
33,027
|
|
108,065
|
101,964
|
Operating
income %
|
15.5%
|
17.5%
|
|
15.3%
|
17.3%
|
Revenue
In
the three months
ended September 29, 2006, total revenue increased by $46.4 million or 25%,
as
compared to the same corresponding period in fiscal 2005. The increase resulted
from a strong revenue growth across all segments. Engineering and Construction
revenue increased $28.2 million, Mobile Solutions increased $9.2 million, Field
Solutions increased $4.3 million, and Advanced Devices increased $4.6 million,
compared to the same corresponding period in fiscal 2005. Revenue growth within
these segments was primarily driven by new product introductions
and increased penetration of existing markets. Engineering and Construction
and Mobile Solution segments also benefited from acquisitions.
In
the nine months
ended September 30, 2006, total revenue increased by $117.9 million or 20%,
as
compared to the same corresponding period in fiscal 2005. The increase was
primarily due to stronger performances in our Engineering and Construction
and
Mobile Solutions segments. The Engineering and Construction and Mobile Solutions
segments increased $81.7 million and $22.8 million, respectively, compared
to
the same corresponding period in fiscal 2005. Revenue growth within these
segments was primarily driven by new product introductions and increased
penetration of existing markets, as well as the impact of acquisitions for
the
nine month period ended September 29, 2006 that were not applicable in the
comparable period in 2005.
During
the third
fiscal quarter of fiscal 2006, sales to customers in the United States
represented 54%, Europe represented 23%, Asia Pacific represented 12% and other
regions represented 11% of our total revenues. During the same corresponding
period in fiscal 2005, sales to customers in the United States represented
54%,
Europe represented 25%, Asia Pacific represented 10% and other regions
represented 11% of our total revenues.
*
Our
individual
segment revenues may be affected by seasonal buying patterns. Typically the
second fiscal quarter has been the strongest quarter for the Company driven
by
the construction buying season. The second quarter has averaged 27% of total
revenue in the last two fiscal years.
Gross
Margin
Gross
margin varies
due to a number of factors including product mix, pricing, distribution channel
used, the effects of production volumes, new product start-up costs, and foreign
currency translations. Gross margin as a percentage of total revenues was 49.5%
and 48.9% for the three and nine months ended September 29, 2006, respectively,
compared to 51.6% and 50.6% for the three and nine months ended September 30,
2005. Gross margin for the three months ended September 29, 2006 decreased
primarily due to the impact of CTCT transactions of $4.7 million previously
recorded in non-operating expenses, amortization of software-related purchased
intangibles of $1.1 million and stock-based compensation expense of $0.3 million
that were not included in gross margin during the third quarter of fiscal 2005,
for a total impact of 3.0%. Gross margin for the nine months ended September
29,
2006 decreased primarily due to the impact of CTCT transactions of $15.1 million
previously recorded in non-operating expenses, amortization of software-related
purchased intangibles of $3.3 million and stock-based compensation expense
of
$0.9 million that were not included in gross margin during the same period
in
fiscal 2005, for a total impact of 2.7%. The decrease in the reported gross
margin was driven by the above-mentioned discrete events. This was offset
by higher revenue and success of higher margin products, including some survey
products, machine control products and higher subscription revenue.
Operating
Income
Operating
income as
a percentage of total revenue was 15.5% and 17.5% for the third quarter of
fiscal 2006 and 2005, respectively and 15.3% and 17.3% for the first nine months
of fiscal 2006 and 2005, respectively. The decrease in operating margin for
the three months ended September 29, 2006 compared to the corresponding period
last year is driven by the impact of CTCT transactions of $4.7 million and
stock-based compensation expense of $2.9 million that were not included in
operating income during the third quarter of fiscal 2005. In addition, expenses
related to acquisitions, namely amortization of purchased intangibles and
purchased in-process research and development expenses, increased by $2.1
million versus the same period last year. The decrease in operating margin
for the nine months ended September 29, 2006 is driven by the impact of CTCT
transactions of $15.1 million and stock-based compensation expense of $9.4
million that were not included in operating income during the same period last
year. In addition, expenses related to acquisitions, namely amortization of
purchased intangibles and purchased in-process research and development
expenses, increased by $4.6 million versus the same period last year. The
decrease in operating margin for both three and nine month periods ended
September 29, 2006 was driven by the above-mentioned discrete events. This
was offset by a strong operating leverage.
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, restructuring charges, non-operating income
(expense), and income taxes.
In
the first fiscal
quarter of 2006, we combined the operating results of the former Components
Technologies and Portfolio Technologies segments and included the combined
operating results in the Advanced Devices segment. The change in presentation
was made in recognition of the small size of each of the businesses relative
to
the total company. The presentation of prior period’s segment operating results
has been changed to conform to our current segment presentation.
The
following table
is a breakdown of revenue and operating income by segment (in thousands, except
percentages):
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
September
29,
|
September
30,
|
|
September
29,
|
September
30,
|
|
2006
|
2005
|
|
2006
|
2005
|
|
|
|
|
|
|
Engineering
and Construction
|
|
|
|
|
|
Revenue
|
$162,370
|
$134,173
|
|
$477,145
|
$395,465
|
Segment
revenue as a percent of total revenue
|
69%
|
71%
|
|
68%
|
67%
|
Operating
income
|
$38,337
|
$34,360
|
|
$103,519
|
$93,022
|
Operating
income as a percent of segment revenue
|
24%
|
26%
|
|
22%
|
24%
|
Field
Solutions
|
|
|
|
|
|
Revenue
|
$29,236
|
$24,882
|
|
$108,598
|
$102,495
|
Segment
revenue as a percent of total revenue
|
12%
|
15%
|
|
15%
|
17%
|
Operating
income
|
$5,634
|
$
3,962
|
|
$30,841
|
$27,583
|
Operating
income as a percent of segment revenue
|
19%
|
16%
|
|
28%
|
27%
|
Mobile
Solutions
|
|
|
|
|
|
Revenue
|
$16,426
|
$7,214
|
|
$43,884
|
$21,051
|
Revenue
as a
percent of total revenue
|
7%
|
4%
|
|
6%
|
4%
|
Operating
income (loss)
|
$1,125
|
($746)
|
|
$1,722
|
($3,261)
|
Operating
income (loss) as a percent of segment revenue
|
7%
|
(10%)
|
|
4%
|
(15%)
|
Advanced
Devices
|
|
|
|
|
|
Revenue
|
$26,819
|
$22,216
|
|
$76,402
|
$69,081
|
Segment
revenue as a percent of total revenue
|
12%
|
12%
|
|
11%
|
12%
|
Operating
income
|
$4,113
|
$2,917
|
|
$8,679
|
$10,726
|
Operating
income as a percent of segment revenue
|
15%
|
13%
|
|
11%
|
17%
|
A
reconciliation of our consolidated segment operating income to consolidated
income before income taxes follows:
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
segment operating income
|
$
|
49,209
|
|
|
$
|
40,492
|
|
|
$
|
144,761
|
|
|
$
|
128,070
|
|
Unallocated
corporate expense
|
|
(9,953)
|
|
|
|
(6,600)
|
|
|
|
(26,742)
|
|
|
|
(20,488)
|
|
Amortization
of purchased intangible assets
|
|
(2,875)
|
|
|
|
(865)
|
|
|
|
(8,955)
|
|
|
|
(5,340)
|
|
In-process
research and development expense
|
|
(50)
|
|
|
|
-
|
|
|
|
(1,000)
|
|
|
|
|
|
Restructuring
charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(278)
|
|
Non-operating
income (expense), net
|
|
2,657
|
|
|
|
(2,446)
|
|
|
|
7,989
|
|
|
|
(8,840)
|
|
Consolidated
income before income taxes
|
$
|
38,988
|
|
|
$
|
30,581
|
|
|
$
|
116,053
|
|
|
$
|
93,124
|
|
Engineering
and
Construction
Engineering
and
Construction revenues increased by $28.2 million or 21% and $81.7 million or
21%
for the three and nine months ended September 29, 2006 compared to the same
corresponding periods in fiscal 2005. Segment operating income increased by
$4.0
million or 12% and $10.5 million or 11% for the three and nine months ended
September 29, 2006 as compared to the same corresponding periods in fiscal
2005.
The
revenue growth
for both the three and nine months ended September 29, 2006 was driven by a
steady market, strong sales of new products, aggressive marketing programs
and
geographic expansion. For the three months ended September 29, 2006, segment
operating income increased as a result of the higher revenues and better product
mix, partially offset by $4.7 million in expenses related to CTCT transactions
and $0.9 million in stock-based compensation expense that were not present
in
the corresponding period of fiscal 2005. For the nine months ended September
29,
2006 segment operating income increased as a result of higher revenues and
increased sales of higher margin products, partially offset by $15.1 million
in
expenses related to CTCT transactions, $3.0 million in stock-based compensation
expense that were not present in the corresponding period of fiscal 2005 and
higher costs incurred due to meeting the requirements of a European lead free
initiative (known as RoHS).
Field
Solutions
Field
Solutions
revenues increased by $4.4 million or 17% and $6.1 million or 6% for the three
and nine months ended September 29, 2006
compared
to the same
corresponding periods in fiscal 2005. Segment operating income increased by
$1.7
million or 42% and $3.3 million or 12% for the three and nine months ended
September 29, 2006 as compared to the same corresponding periods in fiscal
2005.
Revenues
increased
for the three and nine months ended September 29, 2006 compared to the
corresponding period of fiscal 2005 due to growth in both our agricultural
and
GIS businesses. In GIS, growth was due to new products and a continuing shift
to
a higher value, differentiated distribution channel. In agriculture, growth
was
driven by higher demand for both automated and manual guidance products as
farmers increasingly utilized technology to increase yields and improve
productivity. In addition, we benefited from the introduction of our new flow
control products that extend our already strong position in this market.
Operating income increased primarily due to strong operating leverage and new
product introduction, partially offset by the inclusion of stock-based
compensation that was not present in the corresponding periods of fiscal
2005.
Mobile
Solutions
Mobile
Solutions
revenues increased by $9.2 million or 128% and $22.8 million or 108% for the
three and nine months ended September 29, 2006 compared to the same
corresponding periods in fiscal 2005. Segment operating income increased by
$1.9
million or 251% and $5.0 million or 153% for the three and nine months ended
September 29, 2006 as compared to the same corresponding periods in fiscal
2005.
Revenues
for the
three and nine months ended September 29, 2006 compared to the corresponding
periods of fiscal 2005 grew due to increased subscriber growth, an increase
in
recurring revenues, the benefit of acquisitions not in the prior period, and
our
entry into new vertical markets. Operating income increased for three and nine
months ended September 29, 2006 compared to the corresponding periods of fiscal
2005 primarily due to higher subscription revenue and gross margins, partially
offset by the inclusion of stock-based compensation that was not present in
the
corresponding periods of fiscal 2005.
Advanced
Devices
Advanced
Devices
revenues increased by $4.6 million or 21% and $7.2 million or 10% for the three
and nine months ended September 29, 2006 compared to the same corresponding
periods in fiscal 2005. Segment operating income increased by $1.2 million
or
41% and decreased by $2.0 million or 19% for the three and nine months ended
September 29, 2006 as compared to the corresponding period in fiscal 2005.
For
the three and
nine months ended September 29, 2006 compared to the corresponding periods
in
fiscal 2005, the increase in revenue was primarily due to stronger performance
in our Applanix business, a new intellectual property licensing agreement with
Nokia Corporation signed in the third quarter of fiscal 2006 and an increase
of
component sales to our non-automotive Original Equipment Manufacturers
(“OEM’s”). Operating income for the three months ended September 29, 2006
increased compared to the same period in fiscal 2005 due to stronger Applanix
and intellectual property licensing revenue, partially offset by increased
development cost related to the TrimTrac® GSM version and the inclusion of $0.5
million in stock-based compensation that were not present in the corresponding
periods of fiscal 2005. Operating income decreased for the nine months ended
at
September 29, 2006 compared to same period in fiscal 2005, primarily due to
a
reduction in revenue in our automotive and timing businesses, relatively flat
sales in our Military and Advanced Systems product line, increased development
cost related to the TrimTrac® GSM version and inclusion of $1.4 million in
stock-based compensation that were not present in the corresponding periods
of
fiscal 2005, partially offset due to stronger Applanix and intellectual property
licensing revenue.
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
29,
|
|
September
30,
|
|
September
29,
|
|
September
30,
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
Research
and
development
|
25,180
|
|
20,639
|
|
77,234
|
|
63,332
|
Percentage
of
revenue
|
11%
|
|
11%
|
|
11%
|
|
11%
|
Sales
and
marketing
|
34,902
|
|
29,313
|
|
103,356
|
|
88,388
|
Percentage
of
revenue
|
15%
|
|
16%
|
|
15%
|
|
15%
|
General
and
administrative
|
17,981
|
|
13,448
|
|
50,016
|
|
38,204
|
Percentage
of
revenue
|
8%
|
|
7%
|
|
7%
|
|
6%
|
Total
|
78,063
|
|
63,400
|
|
230,606
|
|
189,924
|
Percentage
of
revenue
|
33%
|
|
34%
|
|
33%
|
|
32%
|
Overall,
R&D,
S&M, and G&A expense increased by approximately $14.7 million and $40.6
million for the three and nine months ended September 29, 2006 compared to
the
same corresponding periods in fiscal 2005. Included in the increase were
approximately $2.9 million and $9.4 million of stock-based compensation for
the
three and nine months ended September 29, 2006, respectively, not included
in
the prior year periods.
The
increase in
R&D expenses in the third quarter of fiscal 2006 compared with the third
quarter of fiscal 2005 was primarily due to the inclusion of expenses of $1.7
million from acquisitions not applicable in the prior fiscal quarter, $1.4
million increase in compensation related expenses, $0.6 million in stock-based
compensation expense which was not present in the third quarter of fiscal
2005.
The
increase in
R&D expenses in the first nine months of fiscal 2006 compared with the
corresponding period in fiscal 2005 was primarily due to the to the inclusion
of
expenses of $3.8 million from acquisitions not applicable in the prior
corresponding period, $3.0 million increase in compensation related expenses,
$1.9 million in stock-based compensation expense not present in the nine months
ended September 30, 2005, $0.6 million increase in consulting fees, and $1.1
million increase in R&D materials expenses which was primarily due to
compliance with the European lead free initiative.
All
of our R&D
costs have been expensed as incurred. Cost of software developed for external
sale subsequent to reaching technical feasibility were not considered material
and were expensed as incurred.
*
We believe that
the development and introduction of new products are critical to our future
success and we expect to continue active development of new
products.
The
increase in
S&M expenses in the third quarter of fiscal 2006 as compared with the
corresponding period of fiscal 2005 was primarily due the inclusion of expenses
from acquisitions not applicable in the prior period of $2.4 million, $1.6
million increase in compensation-related expenses, and $0.7 million in
stock-based compensation expense not present in the third quarter of fiscal
2005. The increase in S&M expenses in the first nine months of fiscal 2006
as compared with the corresponding period of fiscal 2005 was primarily due
the
inclusion of expenses from acquisitions not applicable in the prior period
in
the amount of $4.8 million, $5.3 million increase in compensation related
expenses, and $2.1 million in stock-based compensation expense not present
in
the third quarter of fiscal 2005.
*
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 2006 compared with the
corresponding period in fiscal 2005 was primarily due the inclusion of expenses
from acquisitions not applicable in the prior year of $1.1 million, $1.3 million
increase in compensation-related expenses, and $1.4 million in stock-based
compensation expense not present in the third quarter of the fiscal 2005. The
increase in G&A expenses in the first nine months of fiscal 2006 compared
with the corresponding period in fiscal 2005 was primarily due the inclusion
of
expenses from acquisitions not applicable in the prior year of $2.6 million,
$3.8 million increase in compensation-related expenses, and $4.5 million in
stock-based compensation expense not present in the third quarter of fiscal
2005.
Amortization
of Purchased Intangible Assets
Amortization
of
purchased intangible assets was $2.9 million, of which $1.1 million was recorded
in cost of sales, in the third quarter of fiscal 2006, compared with $0.9
million in the third quarter of fiscal 2005. The increase was due to several
acquisitions made by the Company since the last fiscal year. Amortization of
purchased intangible assets was $8.9 million, of which $3.3 million was recorded
in cost of revenue, in the first nine months of fiscal 2006, compared with
$5.3
million in the first nine months of fiscal 2005. The increase was primarily
due
to the acquisition of certain technology and patent intangibles as a result
of
acquisitions not applicable in the comparable period of fiscal
2005.
In-Process
Research and Development
We
recorded
In-process research and development (IPR&D) expense of $50,000 and $1.0
million related to acquisitions during the three and nine month period ended
September 29, 2006, respectively. We did not record any IPR&D expense during
the same corresponding periods in fiscal 2005. 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
We
did not record
any restructuring charges during the third quarter of fiscal 2006 and 2005.
During the first quarter of fiscal 2005, we recorded a restructuring charge
of
approximately $0.3 million associated with the closure of one of our sales
offices as a result of integration efforts of a previous acquisition. There
were
no restructuring charges recorded during the first quarter of 2006. Payments
of
$0.1 million and $0.3 million were made during each of the three and nine months
ended September 29, 2006 and September 30, 2005, respectively, relating to
previous restructuring plans. As of September 29, 2006, the remaining
restructuring accrual balance is $0.2 million, which is related to the office
closure, and is expected to be paid over the next year. The restructuring
accrual is included on the Condensed Consolidated Balance Sheets under the
heading of “Accrued Liabilities.”
Non-operating
Income (Expense), Net
The
components of non-operating income (expense), net, are as follows (in
thousands):
|
Three
Months
Ended
|
|
Nine
Months
Ended
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
September
29,
|
|
|
|
September
30,
|
|
|
|
2006
|
|
|
|
2005
|
|
|
|
2006
|
|
|
|
2005
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
$
|
1,315
|
|
|
$
|
(650)
|
|
|
$
|
2,347
|
|
|
$
|
(1,680)
|
|
Foreign
currency transaction gain, net
|
|
67
|
|
|
|
61
|
|
|
|
995
|
|
|
|
67
|
|
Income
(expenses) for affiliated operations, net
|
|
1,047
|
|
|
|
(1,976)
|
|
|
|
4,238
|
|
|
|
(7,514)
|
|
Other
income,
net
|
|
228
|
|
|
|
119
|
|
|
|
409
|
|
|
|
287
|
|
Total
non-operating income (expense), net
|
$
|
2,657
|
|
|
$
|
(2,446)
|
|
|
$
|
7,989
|
|
|
$
|
(8,840)
|
|
Non-operating
income, net, increased by $5.1 million or 209% for third quarter of fiscal
2006
compared with the corresponding period in fiscal 2005, primarily due to a $3.0
million increase in income from affiliated operations, resulting from the
absence of $2.6 million in net transfer pricing expense with CTCT that was
included in the third quarter of fiscal 2005, but is now included in operating
income in fiscal 2006. In addition, non-operating income increased due to an
increase in net interest income of $1.9 million as a result of interest expense
incurred in the third quarter of fiscal 2005 on debt subsequently repaid, higher
interest income earned on the investment of cash balances and the absence of
a
one-time write-off of debt issuance cost in the third quarter of fiscal 2005.
Non-operating
income, net, increased by $16.8 million or 190% during the first nine months
of
fiscal 2006 compared with the corresponding period in fiscal 2005 primarily
due
to a $11.7 million increase in income from affiliated operations, the absence
of
$8.7 million in transfer pricing expense with CTCT that were included in the
first nine months of fiscal 2005, but now included in operating income in fiscal
2006. In addition, non-operating income increased due to an increase in net
interest income of $4.0 million as a result of interest expense incurred in
the
second quarter of fiscal 2005 on debt subsequently repaid, higher interest
income earned on the investment of cash balances, the absence of a one-time
write-off of debt issuance cost in the third quarter of fiscal 2005, and a
$0.9
million increase in foreign currency transaction gains.
Income
Tax
Provision
Our
income tax
provision reflects a tax rate of 35.0%
and 31.4% for
the three and nine months ended September 29, 2006, respectively. The tax
rate for the comparable periods in fiscal 2005 was 34%. The 2006 year-to-date
tax rate is lower than the 2005 tax rate due to the favorable outcome of two
foreign income tax audits and results from an amended tax return, but offset
by
the impact of the accounting for stock based compensation in
accordance with SFAS 123R.
We
anticipate a tax
rate in the fourth quarter of 2006 of 36%, resulting in an annual tax rate
of
approximately 32%. 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, or other
discrete events in the quarter.
Critical
Accounting Policies
We
believe that there have been no significant changes during the nine months
ended
September 29, 2006 to the items that we disclosed as our critical accounting
policies and estimates in our discussion and analysis of financial condition
and
results of operations in our 2005 Form 10-K, except as noted below.
Stock-based
Compensation
We
have adopted the
Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based
Payment” (“SFAS 123(R)”) using the modified prospective method which requires
the adoption of the accounting standard for fiscal years beginning June 15,
2005. As a result, our financial statements for fiscal periods after December
30, 2005 will include stock-based compensation expenses that are not comparable
to financial statements of fiscal periods prior to December 30, 2005. 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 requisite
service periods of the related employees in the Company’s Condensed Consolidated
Statement of Income. Prior to the adoption of SFAS 123(R), the Company accounted
for stock-based compensation to employees and directors using the intrinsic
value method in accordance with APB Opinion No. 25 as allowed under Statement
of
Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based
compensation expense had been recognized in the Company’s Condensed Consolidated
Statement of Income because the exercise price of the Company’s stock options
granted to employees and directors equaled the fair market value of the
underlying stock at the date of grant.
For
options granted
prior to October 1, 2005, the fair value for these options was estimated at
the
date of grant using the Black-Scholes option-pricing model. For stock options
granted on or after October 1, 2005, the fair value of each award is
estimated on the date of grant using a binomial valuation model. Similar to
the
Black-Scholes model, the binomial model takes into account variables such as
volatility, dividend yield rate, and risk free interest rate. In
addition, the
binomial model
incorporates actual option-pricing behavior and changes in volatility over
the
option’s contractual term. For these reasons, we believe that the binomial model
provides a fair value for stock options that is more representative of actual
experience and future expected experience than the value calculated using the
Black-Scholes model. The
fair value of
rights granted under the Employee Stock Purchase Plan is estimated at the date
of grant using the Black-Scholes option-pricing model.
For
the three and
nine months ended September 29, 2006, we recognized $2.9 million and $9.4
million in net stock-based compensation expense, respectively. This is compared
to the three and nine months ended September 30, 2005 pro forma net stock-based
compensation expense of $2.6 million and $8.4 million, respectively. As of
September 29, 2006, the total unamortized stock option expense is $14.5 million
with a weighted-average recognition period of 1.5 years.
See
Note 3 to the Notes to the Condensed Consolidated Financial Statements for
additional information.
OFF-BALANCE
SHEET FINANCINGS AND LIABILITIES
Other
than lease
commitments incurred in the normal course of business, we do not have any
off-balance sheet financing arrangements or liabilities, guarantee contracts,
retained or contingent interests in transferred assets, or any obligation
arising out of a material variable interest in an unconsolidated entity. We
do
not have any majority-owned subsidiaries that are not included in the condensed
consolidated financial statements. Additionally, we do not have any interest
in,
or relationship with, any special purpose entities.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
|
September
29,
2006
|
|
December
30,
2005
|
(dollars
in thousands)
|
|
|
|
|
|
|
|
Cash
and cash
equivalents
|
$
136,402
|
|
$
73,853
|
Accounts
receivable days sales outstanding
|
59
|
|
66
|
Inventory
turns per year
|
4
|
|
4
|
Total
debt
|
$
757
|
|
$
649
|
|
|
|
|
Nine
Months
Ended
|
September
29,
2006
|
|
September
30,
2005
|
(in
thousands)
|
|
|
|
|
|
|
|
Net
cash
provided by operating activities
|
$
85,767
|
|
$
69,596
|
Net
cash used
in investing activities
|
$
(57,149)
|
|
(35,568)
|
Net
cash
provided (used) in financing activities
|
$
31,311
|
|
(16,979)
|
Net
increase
in cash and cash equivalents
|
$
62,549
|
|
15,421
|
Cash
and Cash
Equivalents
Our
financial
condition further strengthened as cash and cash equivalents totaled $136.4
million at September 29, 2006, compared to $73.9 million at December 30, 2005.
We essentially have no debt at September 29, 2006.
*
For the first nine
months of fiscal 2006, cash provided by operating activities was $85.8 million,
compared to $69.6 million in cash provided by operating activities during the
first nine months of fiscal 2005. This increase of $16.2 million was primarily
driven by a $27.6 million increase in net income before stock-based
compensation expense, partially offset by an $8.8 million decrease in
deferred income taxes. Our ability to continue to generate cash from operations
will depend in large part on profitability, the rate of collections of accounts
receivable, our inventory turns, and our ability to manage other areas of
working capital. Our accounts receivable days for sales outstanding improved
to
59 days at the end of the third quarter of fiscal 2006, from 66 days at the
end
of fiscal 2005. The decrease is primarily due to increased collection efforts
and improvement in monitoring of outstanding receivables. In addition, in the
first quarter of 2006, the Company rolled out a dealer floor plan financing
program in the U.S. and Canada through a non-recourse financing facility. Our
inventory turns were unchanged at four for the first nine months of fiscal
2006
and at fiscal year end 2005.
We
used $57.1
million in net cash for investing activities during the first nine months of
2006, compared to $35.6 million in the first nine months of 2005. The
$21.5 million
increase in spending was due to an increase of $21.6 million in cash used for
acquisitions.
*
We expect fiscal
2006 capital expenditures to be approximately $15 million to $20 million,
primarily for computer equipment, software, manufacturing tools and test
equipment, and leasehold improvements associated with business
expansion. Decisions
related to
how much cash is used for investing are influenced by the expected amount of
cash to be provided by operations.
We
generated $31.3
million in net cash from financing activities in the first nine months of 2006,
compared to $17.0 million in cash used during the first nine months of 2005.
The
$48.3 million improvement was primarily due to a $38.3 million decrease in
repayment of net debt, $8.1 million in excess tax benefits relating to
stock-based compensation upon the exercise of stock options which were not
present in the first nine months of fiscal 2005 and a $3.3 million increase
in
proceeds received from issuance of common stock.
*
We believe that
our cash and cash equivalents, together with our credit facilities ($200 million
as of September 29, 2006), will be sufficient to meet our anticipated operating
cash needs for at least the next twelve months.
Debt
At
September 29,
2006, our total debt was approximately $0.8 million compared to $0.6 million
at
the end of fiscal 2005. This relates to government
loans to
foreign subsidiaries and loans assumed from acquisitions.
On
July 28, 2005, we
entered into a $200 million unsecured revolving credit agreement (“2005 Credit
Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as the
administrative agent. The 2005 Credit Facility replaces our $175 million secured
2003 Credit Facility. The funds available under the new 2005 Credit Facility
may
be used for our general corporate purposes and up to $25 million of the 2005
Credit Facility may be used for letters of credit. We incur a commitment fee
if
the 2005 Credit Facility is not used. The commitment fee is not material to
our
results during all periods presented. As of September 29, 2006, the Company
had
a zero balance outstanding under the 2005 Credit Facility and was in compliance
with all financial covenants.
ITEM
3. QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We
are exposed to
market risk related to changes in interest rates and foreign currency exchange
rates. We use certain derivative financial instruments to manage these risks.
We
do not use derivative financial instruments for speculative purposes. All
financial instruments are used in accordance with policies approved by our
board
of directors.
Market
Interest Rate Risk
There
has been no
change to our market interest rate risk assessment. Refer to our 2005 Annual
Report on Form 10-K.
Foreign
Currency Exchange Rate Risk
We
enter into
foreign exchange forward contracts to minimize the short-term impact of foreign
currency fluctuations on certain trade and inter-company receivables and
payables, primarily denominated in Australian, Canadian, Japanese, New Zealand,
South African and Swedish currencies, the Euro, and the British pound. These
contracts reduce the exposure to fluctuations in exchange rate movements as
the
gains and losses associated with foreign currency balances are generally offset
with the gains and losses on the forward contracts. These instruments are marked
to market through earnings every period and generally range from one to three
months in original maturity. We do not enter into foreign exchange forward
contract for trading purposes.
Foreign
exchange
forward contracts outstanding as of September 29, 2006 are summarized as follows
(in thousands):
|
|
September
29,
2006
|
|
|
Nominal
Amount
|
|
Fair
Value
|
Forward
contracts:
|
|
|
|
|
|
|
Purchased
|
$
|
(16,382)
|
|
$
|
(43)
|
|
Sold
|
$
|
35,298
|
|
$
|
345
|
*
We do not
anticipate any material adverse effect on our consolidated financial position
utilizing our current hedging strategy.
ITEM
4.
CONTROLS AND PROCEDURES
(a)
Disclosure Controls and Procedures.
The
Company's
management, with the participation of the Company's Chief Executive Officer
and
Chief Financial Officer, has evaluated the effectiveness of the Company's
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, the Company's Chief Executive Officer and Chief Financial
Officer have concluded that, as of the end of such period, the Company's
disclosure controls and procedures are effective in recording, processing,
summarizing and reporting, on a timely basis, information required to be
disclosed by the Company in the reports that it files or submits under the
Exchange Act.
(b)
Internal
Control Over Financial Reporting.
There
have not been
any changes in the Company's 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, the Company’s internal control
over financial reporting.
PART
II. OTHER
INFORMATION
ITEM
1.
LEGAL PROCEEDINGS
From
time to time,
the Company is 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 the Company’s overall financial position, results of
operations, or liquidity.
ITEM
1A.
RISK FACTORS
You
should carefully
consider the following risk factors, in addition to the other information
contained in this Form 10-Q and in any other documents to which we refer you
in
this Form 10-Q, before purchasing our securities. The risks and uncertainties
described below are not the only ones we face.
Our
Inability to
Accurately Predict Orders and Shipments May Affect Our Revenue, Expenses and
Earnings per Share.
We
have not been
able in the past to consistently predict when our customers will place orders
and request shipments so that we cannot always accurately plan our manufacturing
requirements. As a result, if orders and shipments differ from what we predict,
we may incur additional expenses and build excess inventory, which may require
additional reserves and allowances. Any significant change in our customers’
purchasing patterns could have a material adverse effect on our operating
results and reported earnings per share for a particular quarter.
Our
Operating
Results in Each Quarter May Be Affected by Special Conditions, Such As
Seasonality, Late Quarter Purchases, Weather, and Other Potential
Issues.
Due
in part to the
buying patterns of our customers, a significant portion of our quarterly
revenues occurs from orders received and immediately shipped to customers in
the
last few weeks and days of each quarter, although our operating expenses tend
to
remain fairly predictable. Engineering and construction purchases tend to occur
in early spring, and governmental agencies tend to utilize funds available
at
the end of the government’s fiscal year for additional purchases at the end of
our third fiscal quarter in September of each year. Concentrations of orders
sometimes also occur at the end of our other two fiscal quarters. Additionally,
a majority of our sales force earns commissions on a quarterly basis which
may
cause concentrations of orders at the end of any fiscal quarter. If for any
reason expected sales are deferred, orders are not received, or shipments are
delayed a few days at the end of a quarter, our operating results and reported
earnings per share for that quarter could be significantly
impacted.
We
Are Dependent
on a Specific Manufacturer and Assembler for Many of Our Products and on
Specific Suppliers of Critical Parts for Our Products.
We
are substantially
dependent upon Solectron Corporation in California, China and Mexico as our
preferred manufacturing partner for many of our GPS products previously
manufactured out of our Sunnyvale facilities. Under the agreement with
Solectron, we provide to Solectron a twelve-month product forecast and place
purchase orders with Solectron at least thirty calendar days in advance of
the
scheduled delivery of products to our customers depending on production lead
time. Although purchase orders placed with Solectron are cancelable, the terms
of the agreement would require us to purchase from Solectron all inventory
not
returnable or usable by other Solectron customers. Accordingly, if we
inaccurately forecast demand for our products, we may be unable to obtain
adequate manufacturing capacity from Solectron to meet customers’ delivery
requirements or we may accumulate excess inventories, if such inventories are
not usable by other Solectron customers. Our current contract with Solectron
continues in effect until either party gives the other ninety days written
notice.
In
addition, we rely
on specific suppliers for a number of our critical components. We have
experienced shortages of components in the past. Our current reliance on
specific or a limited group of suppliers involves several risks, including
a
potential inability to obtain an adequate supply of required components and
reduced control over pricing. Any inability to obtain adequate deliveries or
any
other circumstance that would require us to seek alternative sources of supply
or to manufacture such components internally could significantly delay our
ability to ship our products, which could damage relationships with current
and
prospective customers and could harm our reputation and brand, and could have
a
material adverse effect on our business.
Our
Annual and
Quarterly Performance May Fluctuate.
Our
operating
results have fluctuated and can be expected to continue to fluctuate in the
future on a quarterly and annual basis as a result of a number of factors,
many
of which are beyond our control. Results in any period could be affected by:
·
|
changes
in
market demand,
|
·
|
competitive
market conditions,
|
·
|
market
acceptance of existing or new products,
|
·
|
fluctuations
in foreign currency exchange rates,
|
·
|
the
cost and
availability of components,
|
·
|
our
ability to
manufacture and ship products,
|
·
|
the
mix of our
customer base and sales channels,
|
·
|
the
mix of
products sold,
|
·
|
our
ability to
expand our sales and marketing organization effectively,
|
·
|
our
ability to
attract and retain key technical and managerial employees,
|
·
|
the
timing of
shipments of products under contracts and
|
·
|
general
global
economic conditions.
|
In
addition, demand
for our products in any quarter or year may vary due to the seasonal buying
patterns of our customers in the agricultural and engineering and construction
industries. Due to the foregoing factors, our operating results in one or more
future periods are expected to be subject to significant fluctuations. The
price
of our common stock could decline substantially in the event such fluctuations
result in our financial performance being below the expectations of public
market analysts and investors, which are based primarily on historical models
that are not necessarily accurate representations of the future.
Our
Gross Margin
Is Subject to Fluctuation.
Our
gross margin is
affected by a number of factors, including product mix, product pricing, cost
of
components, foreign currency exchange rates and manufacturing costs. For
example, sales of Nikon-branded products generally have lower gross margins
as
compared to our GPS survey products. Absent other factors, a shift in sales
towards Nikon-branded products would lead to a reduction in our overall gross
margins. A decline in gross margin could potentially negatively impact our
earnings per share.
Failure
to
maintain effective internal controls in compliance with Section 404 of the
Sarbanes-Oxley Act could have an adverse effect on our business and stock
price.
Section
404 of the
Sarbanes-Oxley Act requires us to include an internal control report of
management in our Annual Report on Form 10-K. For fiscal 2004 and 2005 we
satisfied the requirements of Section 404, which requires annual management
assessments of the effectiveness of our internal controls over financial
reporting and a report by our independent auditors addressing these assessments.
A
system of
controls, however well designed and operated, cannot provide absolute assurance
that the objectives of the system will be met. In addition, the design of a
control system is based in part upon certain assumptions about the likelihood
of
future events. Because of the inherent limitations of control systems, there
is
only reasonable assurance that our controls will succeed in achieving their
stated goals under all potential future conditions.
We
Are Dependent
on New Products.
Our
future revenue
stream depends to a large degree on our ability to bring new products to market
on a timely basis. We must continue to make significant investments in research
and development in order to continue to develop new products, enhance existing
products and achieve market acceptance of such products. We may incur problems
in the future in innovating and introducing new products. Our development stage
products may not be successfully completed or, if developed, may not achieve
significant customer acceptance. If we were unable to successfully define,
develop and introduce competitive new products, and enhance existing products,
our future results of operations would be adversely affected. Development and
manufacturing schedules for technology products are difficult to predict, and
we
might not achieve timely initial customer shipments of new products. The timely
availability of these products in volume and their acceptance by customers
are
important to our future success. A delay in new product introductions could
have
a significant impact on our results of operations.
We
Are Dependent
on Proprietary Technology.
Our
future success
and competitive position is dependent upon our proprietary technology, and
we
rely on patent, trade secret, trademark and copyright law to protect our
intellectual property. The patents owned or licensed by us may be invalidated,
circumvented, and challenged. The rights granted under these patents may not
provide competitive advantages to us. Any of our pending or future patent
applications may not be issued within the scope of the claims sought by us,
if
at all.
Others
may develop
technologies that are similar or superior to our technology, duplicate our
technology or design around the patents owned by us. In addition, effective
copyright, patent and trade secret protection may be unavailable, limited or
not
applied for in certain countries. The steps taken by us to protect our
technology might not prevent the misappropriation of such technology.
The
value of our
products relies substantially on our technical innovation in fields in which
there are many current patent filings. We recognize that as new patents are
issued or are brought to our attention by the holders of such patents, it may
be
necessary for us to withdraw products from the market, take a license from
such
patent holders, or redesign our products. We do not believe any of our products
currently infringe patents or other proprietary rights of third parties, but
we
cannot be certain they do not do so. In addition, the legal costs and
engineering time required to safeguard intellectual property or to defend
against litigation could become a significant expense of operations. Such events
could have a material adverse effect on our revenues or
profitability.
Our
products may
contain errors or defects, which could result in damage to our reputation,
lost
revenues, diverted development resources and increased service costs, warranty
claims and litigation.
Our
devices are
complex and must meet stringent requirements. We warrant that our products
will
be free of defect for various periods of time, depending on the product. In
addition, certain of our contracts include epidemic failure clauses. If invoked,
these clauses may entitle the customer to return or obtain credits for products
and inventory, or to cancel outstanding purchase orders even if the products
themselves are not defective.
We
must develop our
products quickly to keep pace with the rapidly changing market, and we have
a
history of frequently introducing new products. Products and services as
sophisticated as ours could contain undetected errors or defects, especially
when first introduced or when new models or versions are released. In general,
our products may not be free from errors or defects after commercial shipments
have begun, which could result in damage to our reputation, lost revenues,
diverted development resources, increased customer service and support costs
and
warranty claims and litigation which could harm our business, results of
operations and financial condition.
We
Are Dependent
on the Availability of Allocated Bands within the Radio Frequency
Spectrum.
Our
GPS technology
is dependent on the use of the Standard Positioning Service (“SPS”) provided by
the US Government’s GPS. The GPS SPS operates in radio frequency bands that are
globally allocated for radio navigation satellite services. International
allocations of radio frequency are made by the International Telecommunications
Union (“ITU”), a specialized technical agency of the United Nations. These
allocations are further governed by radio regulations that have treaty status
and which may be subject to modification every two to three years by the World
Radio Communication Conference.
Any
ITU reallocation
of radio frequency bands, including frequency band segmentation or sharing
of
spectrum, may materially and adversely affect the utility and reliability of
our
products. Many of our products use other radio frequency bands, together with
the GPS signal, to provide enhanced GPS capabilities, such as real-time
kinematic precision. The continuing availability of these non-GPS radio
frequencies is essential to provide enhanced GPS products to our precision
survey and construction machine controls markets. Any regulatory changes in
spectrum allocation or in allowable operating conditions may cause a material
adverse effect on our operating results.
In
addition,
unwanted emissions from mobile satellite services and other equipment operating
in adjacent frequency bands or in-band from licensed and unlicensed devices
may
materially and adversely affect the utility and reliability of our products.
The
FCC continually receives proposals for novel technologies and services, such
as
ultra-wideband technologies, which may seek to operate in, or across, the radio
frequency bands currently used by the GPS SPS and other public safety services.
Adverse decisions by the FCC that result in harmful interference to the delivery
of the GPS SPS and other radio frequency spectrum also used in our products
may
result in a material adverse effect on our business and financial
condition.
Many
of Our
Products Rely on the GPS Satellite System.
The
GPS satellites
and their ground support systems are complex electronic systems subject to
electronic and mechanical failures and possible sabotage. The satellites
currently in orbit were originally designed to have lives of 7.5 years and
are
subject to damage by the hostile space environment in which they operate.
However, of the current deployment of 29 satellites in place, some have already
been in operation for 12 years. To repair damaged or malfunctioning satellites
is currently not economically feasible. If a significant number of satellites
were to become inoperable, there could be a substantial delay before they are
replaced with new satellites. A reduction in the number of operating satellites
may impair the current utility of the GPS system and the growth of current
and
additional market opportunities.
In
2004, a
Presidential policy affirmed a 1996 Presidential Decision Directive that marked
the first time in the evolution of GPS that access for civilian use free of
direct user fees. In addition, Presidential policy has been complemented by
corresponding legislation, that was signed into law. However, there can be
no
assurance that the US Government will remain committed to the operation and
maintenance of GPS satellites over a long period, or that the policies of the
US
Government for the use of GPS without charge will remain unchanged. Because
of
ever-increasing commercial applications of GPS, other US Government agencies
may
become involved in the administration or the regulation of the use of GPS
signals. Any of the foregoing factors could affect the willingness of buyers
of
our products to select GPS-based systems instead of products based on competing
technologies.
Many
of our products
also use signals from systems that augment GPS, such as the Wide Area
Augmentation System (WAAS) and National Differential GPS System (NDGPS). Many
of
these augmentation systems are operated by the federal government and rely
on
continued funding and maintenance of these systems. In addition, some of our
products also use satellite signals from the Russian Glonass System. Any
curtailment of the operating capability of these systems could result in
decreased user capability thereby impacting our markets.
The
European
governments have begun development of an independent satellite navigation
system, known as Galileo. We have access to the preliminary signal design,
which
is subject to change. Although an operational Galileo system is several years
away, if we are unable to timely develop a commercial product, it may have
a
materially adverse effect on our business and operating results.
We
may be
Materially Affected by New Regulatory Requirements.
We
are subject to
various federal, state and local environmental laws and regulations that govern
our operations, including the handling and disposal of non-hazardous and
hazardous wastes, and emissions and discharges into the environment. Failure
to
comply with such laws and regulations could result in costs for corrective
action, penalties, or the imposition of other liabilities.
In
particular, under
certain of these laws and regulations, a current or previous owner or operator
of property may be liable for the costs of remediating hazardous substances
or
petroleum products on or from its property, without regard to whether the owner
or operator knew of, or caused, the contamination, as well as incur liability
to
third parties impacted by such contamination. In addition, we face increasing
complexity in our product design and procurement operations as we adjust to
new
and upcoming requirements relating to the materials composition of many of
our
products. The European Union (“EU”) has adopted new directives to facilitate the
recycling of electrical and electronic equipment sold in the EU. One of these
is
the Restriction on the Use of Certain Hazardous Substances in Electrical and
Electronic Equipment (“RoHS”) directive. The RoHS directive restricts the use of
lead, mercury and certain other substances in electrical and electronic products
placed on the market in the European Union after July 1, 2006.
Similar
laws and
regulations have been or may be enacted in other regions, including in the
United States, China and Japan. Other environmental regulations may require
us
to reengineer our products to utilize components which are more environmentally
compatible and such reengineering and component substitution may result in
additional costs to us. Although we do not anticipate any material adverse
effects based on the nature of our operations and the effect of such laws,
there
is no assurance that such existing laws or future laws will not have a material
adverse effect on our business.
Our
Business is
Subject to Disruptions and Uncertainties Caused by War or Terrorism.
Acts
of war or acts
of terrorism could have a material adverse impact on our business, operating
results, and financial condition. The threat of terrorism and war and heightened
security and military response to this threat, or any future acts of terrorism,
may cause further disruption to our economy and create further uncertainties.
To
the extent that such disruptions or uncertainties result in delays or
cancellations of orders, or the manufacture or shipment of our products,
our
business, operating results, and financial condition could be materially
and
adversely affected.
We
Are Exposed
to Fluctuations in Currency Exchange Rates.
A
significant
portion of our business is conducted outside the US, and as such, we face
exposure to movements in non-US currency exchange rates. These exposures may
change over time as business practices evolve and could have a material adverse
impact on our financial results and cash flows. Fluctuation in currency impacts
our operating results.
Currently,
we hedge
only those currency exposures associated with certain assets and liabilities
denominated in non-functional currencies. The hedging activities undertaken
by
us are intended to offset the impact of currency fluctuations on certain
non-functional currency assets and liabilities. Our attempts to hedge against
these risks may not be successful resulting in an adverse impact on our net
income.
We
Face Risks in
Investing in and Integrating New Acquisitions.
We
have recently
acquired several companies and may in the future acquire other companies.
Acquisitions of companies, divisions of companies, or products entail numerous
risks, including:
·
|
potential
inability to successfully integrate acquired operations and products
or to
realize cost savings or other anticipated benefits from integration;
|
·
|
diversion
of
management’s attention;
|
·
|
loss
of key
employees of acquired operations;
|
·
|
the
difficulty
of assimilating geographically dispersed operations and personnel
of the
acquired companies;
|
·
|
the
potential
disruption of our ongoing business;
|
·
|
unanticipated
expenses related to such integration;
|
·
|
the
correct
assessment of the relative percentages of in-process research and
development expense that can be immediately written off as compared
to the
amount which must be amortized over the appropriate life of the asset;
|
·
|
the
impairment
of relationships with employees and customers of either an acquired
company or our own business;
|
·
|
the
potential
unknown liabilities associated with acquired business; and
|
·
|
inability
to
recover strategic investments in development stage entities.
|
As
a result of such
acquisitions, we have significant assets that include goodwill and other
purchased intangibles. The testing of these intangibles under established
accounting guidelines for impairment requires significant use of judgment and
assumptions. Changes in business conditions could require adjustments to the
valuation of these assets. In addition, losses incurred by a company in which
we
have an investment may have a direct impact on our financial statements or
could
result in our having to write-down the value of such investment. Any such
problems in integration or adjustments to the value of the assets acquired
could
harm our growth strategy and have a material adverse effect on our business,
financial condition and compliance with debt covenants.
We
May Not Be
Able to Enter Into or Maintain Important Alliances.
We
believe that in
certain business opportunities our success will depend on our ability to form
and maintain alliances with industry participants, such as Caterpillar, Nikon,
and CNH Global. Our failure to form and maintain such alliances, or the
pre-emption of such alliances by actions of other competitors or us, will
adversely affect our ability to penetrate emerging markets. No assurances can
be
given that we will not experience problems from current or future alliances
or
that we will realize value from any such strategic alliances.
We
Face
Competition in Our Markets.
Our
markets are
highly competitive and we expect that both direct and indirect competition
will
increase in the future. Our overall competitive position depends on a number
of
factors including the price, quality and performance of our products, the level
of customer service, the development of new technology and our ability to
participate in emerging markets. Within each of our markets, we encounter direct
competition from other GPS, optical and laser suppliers and competition may
intensify from various larger US and non-US competitors and new market entrants,
particularly from emerging markets such as China and India, some of which may
be
our current customers. The competition in the future may, in some cases, result
in price reductions, reduced margins or loss of market share, any of which
could
materially and adversely affect our business, operating results and financial
condition. We believe that our ability to compete successfully in the future
against existing and additional competitors will depend largely on our ability
to execute our strategy to provide systems and products with significantly
differentiated features compared to currently available products. We may not
be
able to implement this strategy successfully, and our products may not be
competitive with other technologies or products that may be developed by our
competitors, many of whom have significantly greater financial, technical,
manufacturing, marketing, sales and other resources than we do.
We
Must
Carefully Manage Our Future Growth.
Growth
in our sales
or continued expansion in the scope of our operations could strain our current
management, financial, manufacturing and other resources, and may require us
to
implement and improve a variety of operating, financial and other systems,
procedures, and controls. We have recently implemented a new enterprise resource
planning software system and we may experience in our financial and order
management processing as a result of new procedures. Problems associated with
any improvement or expansion of these systems, procedures or controls may
adversely affect our operations and these systems, procedures or controls may
not be designed, implemented or improved in a cost-effective and timely manner.
Any failure to implement, improve and expand such systems, procedures, and
controls in a timely and efficient manner could harm our growth strategy and
adversely affect our financial condition and ability to achieve our business
objectives.
We
Are Subject
to the Impact of Governmental and Other Similar Certifications.
We
market certain
products that are subject to governmental and similar certifications before
they
can be sold. For example, CE certification for radiated emissions is required
for most GPS receiver and data communications products sold in the European
Union. An inability to obtain such certifications in a timely manner could
have
an adverse effect on our operating results. Also, some of our products that
use
integrated radio communication technology require an end user to obtain
licensing from the Federal Communications Commission (FCC) for frequency-band
usage. These are secondary licenses that are subject to certain restrictions.
An
inability or delay in obtaining such certifications or changes to the rules
by
the FCC could adversely affect our ability to bring our products to market
which
could harm our customer relationships and have a material adverse effect on
our
business.
We
Are Subject
to the Adverse Impact of Radio Frequency Congestion.
We
have certain
products, such as GPS RTK systems, and surveying and mapping systems that use
integrated radio communication technology requiring access to available radio
frequencies allocated by the FCC (or the NTIA in the case of federal government
users of this equipment) for which the end user is required to obtain a license
in order to operate their equipment. In addition, access to these frequencies
by
state agencies is under management by state radio communications coordinators.
Some bands are experiencing congestion that excludes their availability for
access by state agencies in some states. To reduce congestion, the FCC announced
that it will require migration of radio technology from wideband to narrowband
operations in these bands. The rules require migration of users to narrowband
channels by 2011. In the meantime congestion could cause FCC coordinators to
restrict or refuse licenses. An inability to obtain access to these radio
frequencies by end users could have an adverse effect on our operating
results.
The
Volatility
of Our Stock Price Could Adversely Affect Your Investment in Our Common
Stock.
The
market price of
our common stock has been, and may continue to be, highly volatile. During
the
third fiscal quarter of 2006, our stock price ranged from $42.58 to $51.10.
We
believe that a variety of factors could cause the price of our common stock
to
fluctuate, perhaps substantially, including:
·
|
announcements
and rumors of developments related to our business or the industry
in
which we compete;
|
·
|
quarterly
fluctuations in our actual or anticipated operating results and order
levels;
|
·
|
general
conditions in the worldwide economy, including fluctuations in interest
rates;
|
·
|
announcements
of technological innovations;
|
· |
acquisition
announcements; |
·
|
new
products
or product enhancements by us or our competitors;
|
·
|
developments
in patents or other intellectual property rights and
litigation;
|
·
|
developments
in our relationships with our customers and suppliers;
and
|
·
|
any
significant acts of terrorism against the United
States.
|
In
addition, in
recent years the stock market in general and the markets for shares of
"high-tech" companies in particular, have experienced extreme price fluctuations
which have often been unrelated to the operating performance of affected
companies. Any such fluctuations in the future could adversely affect the market
price of our common stock, and the market price of our common stock may
decline.
Provisions
in
Our Charter Documents and Under California Law Could Prevent or Delay a Change
of Control, which Could Reduce the Market Price of Our Common
Stock.
Certain
provisions
of our articles of incorporation, as amended and restated, our bylaws, as
amended and restated, and the California General Corporation Law may be deemed
to have an anti-takeover effect and could discourage a third party from
acquiring, or make it more difficult for a third party to acquire, control
of us
without approval of our board of directors. These provisions could also limit
the price that certain investors might be willing to pay in the future for
shares of our common stock. Certain provisions allow the board of directors
to
authorize the issuance of preferred stock with rights superior to those of
the
common stock.
We
have adopted a
Preferred Shares Rights Agreement, commonly known as a "poison pill." The
provisions described above, our poison pill and provisions of the California
General Corporation Law may discourage, delay or prevent a third party from
acquiring us.
ITEM
6.
EXHIBITS
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.
(7)
|
3.6
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed March
4, 2004.
(8)
|
3.7
|
Bylaws
of the
Company, amended and restated through July 20, 2006.
(10)
|
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. (9)
|
4.4
|
First
Amended
and Restated Stock and Warrant Purchase Agreement between and among
the
Company and the investors thereto dated January 14, 2002.
(4)
|
4.5
|
Form
of
Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(5)
|
4.6
|
Form
of
Warrant dated April 12, 2002. (6)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 3, 2006. (10)
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 3, 2006. (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
3, 2006. (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
3, 2006. (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 Current
Report on
Form 8-K filed on January 16, 2002.
|
(5)
|
Incorporated
by reference to exhibit number 4.2 to the registrant's Current
Report on
Form 8-K filed on January 16, 2002.
|
(6)
|
Incorporated
by reference to exhibit number 4.1 to the registrant’s Registration
Statement on Form S-3 filed on April 19, 2002.
|
(7)
|
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.
|
(8)
|
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.
|
(9)
|
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.
|
(10)
|
Filed
herewith.
|
SIGNATURES
Pursuant
to the
requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto
duly
authorized.
TRIMBLE
NAVIGATION LIMITED
(Registrant)
By:
/s/
Rajat Bahri
Rajat Bahri
Chief Financial Officer
(Authorized Officer and Principal
Financial Officer)
DATE:
November 3,
2006
EXHIBIT
INDEX
Exhibit
No. Description
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.
(7)
|
3.6
|
Certificate
of
Amendment of Articles of Incorporation of the Company filed March
4, 2004.
(8)
|
3.7
|
Bylaws
of the
Company, amended and restated through July 20, 2006.
(10)
|
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. (9)
|
4.4
|
First
Amended
and Restated Stock and Warrant Purchase Agreement between and among
the
Company and the investors thereto dated January 14, 2002.
(4)
|
4.5
|
Form
of
Warrant to Purchase Shares of Common Stock dated January 14, 2002.
(5)
|
4.6
|
Form
of
Warrant dated April 12, 2002. (6)
|
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 3, 2006. (10)
|
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 dated November 3, 2006. (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
3, 2006. (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
3, 2006. (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 Current
Report on
Form 8-K filed on January 16, 2002.
|
(5)
|
Incorporated
by reference to exhibit number 4.2 to the registrant's Current
Report on
Form 8-K filed on January 16, 2002.
|
(6)
|
Incorporated
by reference to exhibit number 4.1 to the registrant’s Registration
Statement on Form S-3 filed on April 19, 2002.
|
(7)
|
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.
|
(8)
|
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.
|
(9)
|
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.
|
(10)
|
Filed
herewith.
|