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Trimble Inc.
935 Stewart Drive
Post Office Box 3642
Sunnyvale, CA 94085
1.408.481.8000 phone
1.408.481.7781 fax

  NEWS RELEASE

 

Trimble Reports Third Quarter 2014 Results

Third Quarter 2014 Revenue $584.8Million, Up 5 Percent
GAAP Operating Margin 1.9 Percent; Non-GAAP Operating Margin 20.3 Percent
GAAP Diluted Earnings Per Share $0.04; Non-GAAP Diluted Earnings Per Share $0.33

SUNNYVALE, Calif., Oct. 30, 2014 /PRNewswire/ -- Trimble (NASDAQ: TRMB) today announced financial results for the third quarter of 2014.

Third Quarter 2014 Financial Highlights

  • Third quarter 2014 revenue of $584.8 million was up 5 percent as compared to the third quarter of 2013. Engineering and Construction revenue was $342.3 million, up 10 percent, with growth across all major product categories. Field Solutions revenue was $88.8 million, down 11 percent due to weakness in sales of agriculture products, partially offset by an increase in Geographic Information System (GIS) sales. Mobile Solutions revenue was $121.2 million, up 7 percent due to double-digit growth in sales of transportation and logistics solutions. Advanced Devices revenue was $32.6 million, down 1 percent. Geographic results were mixed in the quarter. North America grew year-over-year in line with the second quarter, but Europe slowed overall, particularly in agriculture. Asia Pacific growth slowed in the quarter, with mixed performance across the region. Rest of World grew in the quarter, also with mixed performance across the geographies.  
  • Both GAAP and non-GAAP profitability were negatively impacted by third quarter acquisitions, including the impact of non-cash write downs on pre-acquisition deferred revenue. The acquisitions are expected to be dilutive to fourth quarter 2014, and accretive to fiscal year 2015.  In addition, GAAP results were negatively impacted by a $52 million reserve for legal matters primarily related to a jury verdict in the U.S. which the company plans to appeal. This legal reserve is excluded from non-GAAP results.     
  • GAAP operating income was $11.1 million, down 82 percent as compared to the third quarter of 2013. GAAP operating margin was 1.9 percent of revenue as compared to 11.3 percent of revenue in the third quarter of 2013. Non-GAAP operating income of $118.4 million was up 0.2 percent as compared to the third quarter of 2013. Non-GAAP operating margin was 20.3 percent of revenue as compared to 21.2 percent of revenue in the third quarter of 2013.
  • GAAP net income was $11.8 million, down 78 percent as compared to the third quarter of 2013. Diluted GAAP earnings per share were $0.04 as compared to diluted GAAP earnings per share of $0.21 in the third quarter of 2013. Non-GAAP net income of $87.1 million was down 15 percent as compared to the third quarter of 2013. Diluted non-GAAP earnings per share were $0.33 as compared to diluted non-GAAP earnings per share of $0.39 in the third quarter of 2013.
  • The GAAP effective tax rate for the quarter was a benefit of (66 percent), as compared to a provision of 14 percent in the third quarter of 2013, primarily due to the tax effect of the $52 million reserve for legal matters. Excluding the tax impact of the legal reserve, the non-GAAP tax rate in the quarter was 25 percent, and was higher than expected due to differences in the geographic mix of pre-tax income.
  • Operating cash flow in the quarter was $95.9 million. Year-to-date operating cash flow was $310.5 million, an increase of 12 percent over fiscal 2013 year-to-date.

"While we recorded a year-over-year increase in revenue, the quarter was unimpressive. Our results in agriculture and Europe were both weaker than we originally anticipated," said Steven W. Berglund, Trimble's president and chief executive officer. "Although we expect a challenging fourth quarter compared to last year's performance, we believe we are improving our overall position in key markets."

Forward Looking Guidance

For the fourth quarter of 2014 Trimble expects revenue to be between $560 million and $590 million with GAAP earnings per share of $0.09 to $0.15 and non-GAAP earnings per share of $0.26 to $0.32. Non-GAAP guidance excludes the amortization of intangibles of $39 million related to previous acquisitions, anticipated acquisition costs of $4 million, and the anticipated impact of stock-based compensation expense of $12 million. Both GAAP and non-GAAP earnings per share assume a 21 to 23 percent tax rate and approximately 264 million shares outstanding.

Investor Conference Call / Webcast Details

Trimble will hold a conference call on October 30, 2014 at 1:30 p.m. PT to review its third quarter 2014 results. It will be broadcast live on the Web at http://investor.trimble.com. Investors without Internet access may dial into the call at (800) 528-9198 (U.S.) or (702) 928-6633 (international). The pass code is 22273266. The replay will also be available on the Web at the address above.

Use of Non-GAAP Financial Information

To help our investors understand our past financial performance and our future results, as well as our performance relative to competitors, we supplement the financial results that we provide in accordance with generally accepted accounting principles, or GAAP, with non-GAAP financial measures. These non-GAAP measures can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business, and to make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. Further, we believe some of our investors track our "core operating performance" as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations.  Core operating performance excludes items that are non-cash, not expected to recur or not reflective of ongoing financial results. Management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period to period comparisons.

The specific non-GAAP measures, which we use along with a reconciliation to the nearest comparable GAAP measures and the explanation for why these non-GAAP measures provide useful information to investors regarding our financial condition and results of operations and why management chose to exclude selected items can be found at the end of this release. The method we use to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies. Our non-GAAP results are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of our non-GAAP financial measures to the comparable GAAP results, which is attached to this earnings release. Additional financial information about our use of non-GAAP results can be found on the investor relations page of our Web site at http://investor.trimble.com.

About Trimble

Trimble applies technology to make field and mobile workers in businesses and government significantly more productive. Solutions are focused on applications requiring position or location—including surveying, construction, agriculture, fleet and asset management, public safety and mapping. In addition to utilizing positioning technologies, such as GPS, lasers and optics, Trimble solutions may include software content specific to the needs of the user. Wireless technologies are utilized to deliver the solution to the user and to ensure a tight coupling of the field and the back office. Founded in 1978, Trimble is headquartered in Sunnyvale, Calif.

For more information visit: www.trimble.com.

Safe Harbor

Certain statements made in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include expectations for future financial market and economic conditions, the impact of acquisitions, the ability to deliver revenue, earnings per share and other financial projections that Trimble has guided for the fourth quarter, the expected tax rate, the anticipated impact of stock-based compensation expense, the amortization of intangibles related to previous acquisitions and the anticipated number of shares outstanding and interest costs. These forward-looking statements are subject to change, and actual results may materially differ from those set forth in this press release due to certain risks and uncertainties. The Company's results may be adversely affected if the Company is unable to market, manufacture and ship new products, obtain new customers, or integrate new acquisitions. The Company's results would also be negatively impacted by weakening in the macro environment. Any failure to achieve predicted results could negatively impact the Company's revenues, cash flow from operations, and other financial results. The Company's financial results will also depend on a number of other factors and risks detailed from time to time in reports filed with the SEC, including its quarterly reports on Form 10-Q and its annual report on Form 10-K, such as changes in economic conditions, critical part supply chain shortages, possible write-offs of goodwill, and regulatory proceedings affecting GPS. Undue reliance should not be placed on any forward-looking statement contained herein, especially in light of greater uncertainty than normal in the economy in general. These statements reflect the Company's position as of the date of this release. The Company expressly disclaims any undertaking to release publicly any updates or revisions to any statements to reflect any change in the Company's expectations or any change of events, conditions, or circumstances on which any such statement is based.

FTRMB









CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)










Third Quarter of


First Three Quarters of










2014


2013


2014


2013









Revenues:








        Product

$ 415,490


$ 401,565


$1,327,054


$1,240,232

        Service

98,366


85,521


291,747


251,628

        Subscription

70,940


69,416


212,915


197,046

Total revenues

584,796


556,502


1,831,716


1,688,906









Cost of sales:








        Product

189,331


187,865


605,452


587,059

        Service

36,759


31,959


108,605


95,351

        Subscription

21,876


21,223


58,460


62,190

        Amortization of purchased intangible assets

20,057


20,402


60,963


59,938

Total cost of sales

268,023


261,449


833,480


804,538









Gross margin

316,773


295,053


998,236


884,368

Gross margin (%)

54.2%


53.0%


54.5%


52.4%









Operating expenses








    Research and development

78,954


71,622


237,137


221,785

    Sales and marketing

95,843


85,507


288,818


254,437

    General and administrative

111,399


53,648


230,196


158,378

    Restructuring

219


31


1,345


4,602

    Amortization of purchased intangible assets

19,269


21,216


56,806


60,775

       Total operating expenses

305,684


232,024


814,302


699,977

















Operating income 

11,089


63,029


183,934


184,391









Non-operating income (loss), net








    Interest expense, net

(2,975)


(4,122)


(9,822)


(13,448)

    Foreign currency transaction loss

(3,200)


(157)


(3,809)


(1,126)

    Income from equity method investments, net

2,840


4,494


11,528


15,908

    Other income (loss), net

(599)


268


12,567


847

       Total non-operating income (loss), net

(3,934)


483


10,464


2,181









Income before taxes

7,155


63,512


194,398


186,572









Income tax provision (benefit)

(4,720)


8,892


36,371


28,067

Net income

11,875


54,620


158,027


158,505

Less: Net gain (loss) attributable to noncontrolling interests 

43


151


(263)


(353)

Net income attributable to Trimble Navigation Ltd.

$  11,832


$  54,469


$   158,290


$   158,858









Earnings per share attributable to Trimble Navigation Ltd.








     Basic

$      0.05


$      0.21


$        0.61


$        0.62

     Diluted

$      0.04


$      0.21


$        0.60


$        0.61









Shares used in calculating earnings per share:








    Basic

260,329


257,037


260,398


256,135

    Diluted

264,419


261,137


265,053


260,664

 

CONDENSED CONSOLIDATED BALANCE SHEETS


(In thousands)


(Unaudited)












Third Quarter of


Fiscal Year End

As of


2014


2013

Assets










Current assets:





   Cash and cash equivalents


$         139,477


$         147,227

   Accounts receivables, net


358,504


337,932

   Other receivables


29,791


23,143

   Inventories, net


278,028


254,311

   Deferred income taxes


44,743


38,597

   Other current assets


45,659


35,807

      Total current assets


896,202


837,017






Property and equipment, net


153,823


142,975

Goodwill


2,051,560


1,989,470

Other purchased intangible assets, net


571,923


619,399

Other non-current assets


126,027


111,979






      Total assets


$      3,799,535


$      3,700,840






Liabilities 










Current liabilities:





   Current portion of long-term debt


$           69,020


$         106,402

   Accounts payable


104,758


112,522

   Accrued compensation and benefits


87,980


95,866

   Deferred revenue


205,714


159,295

   Accrued warranty expense


20,422


17,781

   Other accrued liabilities


85,074


85,124

      Total current liabilities


572,968


576,990






Non-current portion of long-term debt


577,720


652,056

Non-current deferred revenue


25,274


20,431

Deferred income taxes


114,337


136,399

Other non-current liabilities


145,567


80,982

      Total liabilities


1,435,866


1,466,858






Commitments and contingencies










Equity










Shareholders' equity:





   Common stock


1,197,146


1,106,017

   Retained earnings


1,184,228


1,081,695

   Accumulated other comprehensive income (loss)


(29,509)


33,194

Total Trimble Navigation Ltd. shareholders' equity


2,351,865


2,220,906

Noncontrolling interests 


11,804


13,076

      Total equity


2,363,669


2,233,982






      Total liabilities and equity


$      3,799,535


$      3,700,840

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)


First Three Quarters of


2014


2013





Cash flow from operating activities:




    Net Income

$         158,027


$ 158,505





    Adjustments to reconcile net income to net cash provided by




       operating activities:




         Depreciation expense

24,068


19,630

         Amortization expense

117,769


120,713

         Provision for doubtful accounts

2,887


1,204

         Deferred income taxes

(1,193)


(13,520)

         Stock-based compensation

32,125


26,158

         Income from equity method investments

(11,528)


(15,908)

         Gain on an equity sale

(15,091)


-

         Excess tax benefit for stock-based compensation

(14,094)


(8,803)

         Provision for excess and obsolete inventories

3,553


1,551

         Other non-cash items

5,422


738





    Add decrease (increase) in assets:




         Accounts receivables

(12,742)


(28,466)

         Other receivables

(4,709)


4,047

         Inventories

(27,234)


2,645

         Other current and non-current assets

(12,929)


(22,765)





    Add increase (decrease) in liabilities:




         Accounts payable

(6,745)


(22,467)

         Accrued compensation and benefits

(9,321)


(2,738)

         Deferred revenue

41,861


46,891

         Accrued warranty expense

2,735


347

         Other liabilities

37,603


10,646

 Net cash provided by operating activities 

310,464


278,408





 Cash flow from investing activities: 




      Acquisitions of businesses, net of cash acquired 

(170,863)


(200,401)

      Acquisitions of property and equipment 

(34,952)


(57,646)

      Acquisitions of intangible assets 

(7,007)


(105)

      (Purchases) sales of equity method investments 

(10,939)


2,429

      Dividends received from equity method investments 

25,850


7,672

      Increase in restricted cash 

-


(6,696)

      Other 

(4,532)


(1,661)

 Net cash used in investing activities 

(202,443)


(256,408)





 Cash flow from financing activities: 




      Issuance of common stock, net of tax withholdings 

53,601


37,667

      Repurchase and retirement of common stock 

(64,978)


-

      Excess tax benefit for stock-based compensation 

14,094


8,803

      Proceeds from debt and revolving credit lines 

32,027


332,021

      Payments on debt and revolving credit lines 

(143,274)


(440,886)

 Net cash used in financing activities 

(108,530)


(62,395)





 Effect of exchange rate changes on cash and cash equivalents 

(7,241)


(2,119)





 Net decrease in cash and cash equivalents 

(7,750)


(42,514)

 Cash and cash equivalents - beginning of period 

147,227


157,771





 Cash and cash equivalents - end of period 

$         139,477


$ 115,257

 

REPORTING SEGMENTS

(Dollars in thousands)

(Unaudited)



























Reporting Segments





Engineering











and


Field


Mobile


Advanced





Construction


Solutions


Solutions


Devices












THIRD QUARTER OF FISCAL 2014 :









Revenues


$     342,272


$    88,791


$  121,171


$    32,562













Operating income before corporate allocations:

$      70,553


$    25,185


$    18,209


$     9,091



Operating margin (% of segment external net revenues)

20.6%


28.4%


15.0%


27.9%












THIRD QUARTER OF FISCAL 2013 :









Revenues


$     310,611


$    99,466


$  113,570


$    32,855













Operating income before corporate allocations:

$      73,488


$    31,373


$    15,276


$     8,420



Operating margin (% of segment external net revenues)

23.7%


31.5%


13.5%


25.6%












FIRST THREE QUARTERS OF FISCAL 2014 :









Revenue


$  1,019,620


$  341,412


$  362,679


$  108,005













Operating income before corporate allocations:

$     219,952


$  116,794


$    54,764


$    32,850



Operating margin (% of segment external net revenues)

21.6%


34.2%


15.1%


30.4%












FIRST THREE QUARTERS OF FISCAL 2013 :









Revenue


$     890,928


$  362,811


$  339,258


$    95,909













Operating income before corporate allocations:

$     183,301


$  134,271


$    42,284


$    21,419



Operating margin (% of segment external net revenues)

20.6%


37.0%


12.5%


22.3%

 

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share data)

(Unaudited)





















Third Quarter of


First Three Quarters of






2014


2013


2014


2013






Dollar

% of


Dollar

% of


Dollar

% of


Dollar

% of






Amount

Revenue


Amount

Revenue


Amount

Revenue


Amount

Revenue


GROSS MARGIN:















GAAP gross margin:


$ 316,773

54.2%


$ 295,053

53.0%


$   998,236

54.5%


$ 884,368

52.4%




Restructuring

( A )

108

0.0%


8

0.0%


325

0.0%


829

0.0%




Amortization of purchased intangible assets

( B )

20,057

3.4%


20,402

3.7%


60,963

3.3%


59,938

3.6%




Stock-based compensation

( C )

776

0.1%


609

0.1%


2,286

0.1%


1,816

0.1%




Amortization of acquisition-related inventory step-up

( D )

586

0.1%


378

0.1%


662

0.1%


1,505

0.1%



Non-GAAP gross margin: 


$ 338,300

57.8%


$ 316,450

56.9%


$1,062,472

58.0%


$ 948,456

56.2%


















OPERATING EXPENSES:















GAAP operating expenses:


$ 305,684

52.3%


$ 232,024

41.7%


$   814,302

44.5%


$ 699,977

41.4%




Restructuring

( A )

(219)

0.0%


(31)

0.0%


(1,345)

-0.1%


(4,602)

-0.3%




Amortization of purchased intangible assets

( B )

(19,269)

-3.3%


(21,216)

-3.9%


(56,806)

-3.1%


(60,775)

-3.6%




Stock-based compensation

( C )

(10,262)

-1.8%


(8,296)

-1.5%


(29,839)

-1.6%


(24,342)

-1.4%




Acquisition / divestiture items

( E )

(4,056)

-0.7%


(2,891)

-0.5%


(7,416)

-0.4%


(9,285)

-0.5%




Litigation

( G )

(52,011)

-8.9%


(1,335)

-0.2%


(52,011)

-2.9%


(1,335)

-0.1%



Non-GAAP operating expenses:


$ 219,867

37.6%


$ 198,255

35.6%


$   666,885

36.4%


$ 599,638

35.5%


















OPERATING INCOME:















GAAP operating income:


$   11,089

1.9%


$   63,029

11.3%


$   183,934

10.0%


$ 184,391

10.9%




Restructuring

( A )

327

0.1%


39

0.0%


1,670

0.1%


5,431

0.3%




Amortization of purchased intangible assets

( B )

39,326

6.7%


41,618

7.5%


117,769

6.4%


120,713

7.2%




Stock-based compensation

( C )

11,038

1.9%


8,905

1.6%


32,125

1.8%


26,158

1.5%




Amortization of acquisition-related inventory step-up

( D )

586

0.1%


378

0.1%


662

0.0%


1,505

0.1%




Acquisition / divestiture items

( E )

4,056

0.7%


2,891

0.5%


7,416

0.4%


9,285

0.6%




Litigation

( G )

52,011

8.9%


1,335

0.2%


52,011

2.9%


1,335

0.1%



Non-GAAP operating income: 


$ 118,433

20.3%


$ 118,195

21.2%


$   395,587

21.6%


$ 348,818

20.7%


















NON-OPERATING INCOME (LOSS), NET:















GAAP non-operating income (loss), net:


$    (3,934)



$       483



$     10,464



$     2,181





Acquisition / divestiture items

( E )

1,699



14



6,004



(846)





Gain on an equity sale

( F )

-



-



(15,091)



-




Non-GAAP non-operating income, net: 


$    (2,235)



$       497



$       1,377



$     1,335
























GAAP and 



GAAP and 



GAAP and 



GAAP and 







Non-GAAP



Non-GAAP



Non-GAAP



Non-GAAP







Tax Rate %

( K )


Tax Rate %

( K )


Tax Rate %

( K )


Tax Rate %

( K )

INCOME TAX PROVISION (BENEFIT):















GAAP income tax provision (benefit):


$    (4,720)

-66%


$     8,892

14%


$     36,371

19%


$   28,067

15%




Non-GAAP items tax effected

( H )

13,930



7,725



36,360



24,062





Tax on gain on an equity sale

( I )

-



-



(5,836)



-





Tax on RDS litigation

( J )

19,840



-



19,840



-




Non-GAAP income tax provision: 


$   29,049

25%


$   16,617

14%


$     86,735

22%


$   52,129

15%


















NET INCOME:  















GAAP net income attributable to Trimble Navigation Ltd.


$   11,832



$   54,469



$   158,290



$ 158,858





Restructuring

( A )

327



39



1,670



5,431





Amortization of purchased intangible assets

( B )

39,326



41,618



117,769



120,713





Stock-based compensation

( C )

11,038



8,905



32,125



26,158





Amortization of acquisition-related inventory step-up

( D )

586



378



662



1,505





Acquisition / divestiture items

( E )

5,755



2,905



13,420



8,439





Gain on an equity sale

( F )

-



-



(15,091)



-





Litigation

( G )

52,011



1,335



52,011



1,335





Non-GAAP tax adjustments

(H ), (I), (J)

(33,770)



(7,725)



(50,364)



(24,062)




Non-GAAP net income attributable to Trimble Navigation Ltd.


$   87,105



$ 101,924



$   310,492



$ 298,377



















DILUTED NET INCOME PER SHARE:















GAAP diluted net income per share attributable to Trimble Navigation Ltd.


$      0.04



$      0.21



$        0.60



$      0.61





Restructuring

( A )

-



-



0.01



0.02





Amortization of purchased intangible assets

( B )

0.15



0.16



0.44



0.45





Stock-based compensation

( C )

0.04



0.03



0.12



0.10





Amortization of acquisition-related inventory step-up

( D )

-



-



-



0.01





Acquisition / divestiture items

( E )

0.02



0.01



0.05



0.03





Gain on an equity sale

( F )

-



-



(0.06)



-





Litigation

( G )

0.20



0.01



0.20



0.01





Non-GAAP tax adjustments

(H ), (I), (J)

(0.12)



(0.03)



(0.19)



(0.09)




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

$      0.33



$      0.39



$        1.17



$      1.14



















OPERATING LEVERAGE:















Increase in non-GAAP operating income


$       238



$   12,889



$     46,769



$   36,541




Increase in revenue


$  28,294



$   51,739



$   142,810



$ 164,316




Operating leverage (increase in non-GAAP operating 















income as a % of increase in revenue)


0.8%



24.9%



32.7%



22.2%



 

GAAP TO NON-GAAP RECONCILIATION (CONTINUED)

(Dollars in thousands, except per share data)

(Unaudited)


















































Third Quarter of


First Three Quarters of





2014


2013


2014


2013






% of Segment



% of Segment



% of Segment



% of Segment

SEGMENT OPERATING INCOME:



Revenue



Revenue



Revenue



Revenue


Engineering and Construction















GAAP operating income before corporate allocations:


$ 70,553

20.6%


$ 73,488

23.7%


$ 219,952

21.6%


$ 183,301

20.6%



Stock-based compensation

( L )

3,599

1.1%


2,950

0.9%


11,030

1.1%


8,702

1.0%



Non-GAAP operating income before corporate allocations:


$ 74,152

21.7%


$ 76,438

24.6%


$ 230,982

22.7%


$ 192,003

21.6%

















Field Solutions















GAAP operating income before corporate allocations:


$ 25,185

28.4%


$ 31,373

31.5%


$ 116,794

34.2%


$ 134,271

37.0%



Stock-based compensation

( L )

909

1.0%


714

0.8%


2,585

0.8%


2,258

0.6%



Non-GAAP operating income before corporate allocations:


$ 26,094

29.4%


$ 32,087

32.3%


$ 119,379

35.0%


$ 136,529

37.6%

















Mobile Solutions















GAAP operating income before corporate allocations:


$ 18,209

15.0%


$ 15,276

13.5%


$   54,764

15.1%


$  42,284

12.5%



Stock-based compensation

( L )

1,313

1.1%


934

0.8%


3,773

1.0%


2,794

0.8%



Non-GAAP operating income before corporate allocations:


$ 19,522

16.1%


$ 16,210

14.3%


$   58,537

16.1%


$  45,078

13.3%

















Advanced Devices















GAAP operating income before corporate allocations:


$   9,091

27.9%


$   8,420

25.6%


$   32,850

30.4%


$  21,419

22.3%



Stock-based compensation

( L )

514

1.6%


900

2.8%


1,516

1.4%


2,650

2.8%



Non-GAAP operating income before corporate allocations:


$   9,605

29.5%


$   9,320

28.4%


$   34,366

31.8%


$  24,069

25.1%

 

FOOTNOTES TO GAAP TO NON-GAAP RECONCILIATION


(Unaudited)














Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. The non-GAAP financial measures included in the previous table as well as detailed explanations to the adjustments to comparable GAAP measures, are set forth below:

Non-GAAP gross margin

We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions and manufacturing costs influence our business.  Non-GAAP gross margin excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation and amortization of acquisition-related inventory step-up from GAAP gross margin. We believe that these exclusions offer investors additional information that may be useful to view trends in our gross margin performance.

Non-GAAP operating expenses

We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue. Non-GAAP operating expenses exclude restructuring costs, amortization of purchased intangible assets, stock-based compensation, acquisition/divestiture costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs from GAAP operating expenses, and litigation expenses. We believe that these exclusions offer investors supplemental information to facilitate comparison of our operating expenses to our prior results. 

Non-GAAP operating income

We believe our investors benefit by understanding our non-GAAP operating income trends which are driven by revenue, gross margin, and spending. Non-GAAP operating income excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition/divestiture costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs and litigation expenses. We believe that these exclusions offer an alternative means for our investors to evaluate current operating performance compared to results of other periods. 

Non-GAAP non-operating income, net

We believe this measure helps investors evaluate our non-operating income trends. Non-GAAP non-operating income, net excludes acquisition and divestiture gains/losses associated with unusual acquisition related items such as adjustments to the fair value of earn-out liabilities, intangible asset impairment charges and gains or losses related to the acquisition or sale of certain businesses and investments, and a gain on an equity sale. These gains/losses are specific to particular acquisitions and divestitures and vary significantly in amount and timing. We believe that these exclusions provide investors with a supplemental view of our ongoing financial results.

 

Non-GAAP income tax provision (benefit)

Investors benefit from the exclusion of the tax impact on an equity sale and on the $51.3 million accrued for the RDS litigation because it facilitates comparisons to our past income tax provision. Non-GAAP items tax effected adjusts the provision for income taxes to reflect the effect of certain non-GAAP items on non-GAAP net income. We believe this information is useful to investors because it provides for consistent treatment of the excluded items in our non-GAAP presentation.

Non-GAAP net income

This measure provides a supplemental view of net income trends which are driven by non-GAAP income before taxes and our non-GAAP tax rate. Non-GAAP net income excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a gain on an equity sale, litigation expenses and non-GAAP tax adjustments from GAAP net income. We believe our investors benefit from understanding these exclusions and from an alternative view of our net income performance as compared to our past net income performance.

Non-GAAP diluted net income per share

We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company. Non-GAAP diluted net income per share excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a gain on an equity sale, litigation expenses and non-GAAP tax adjustments from GAAP diluted net income per share. We believe that these exclusions offer investors a useful view of our diluted net income per share as compared to our past diluted net income per share. 

Non-GAAP operating leverage

We believe this information is beneficial to investors as a measure of how much incremental revenue contributed to our operating income. Non-GAAP operating leverage is the increase in non-GAAP operating income as a percentage of the increase in revenue. We believe that this information offers investors supplemental information to evaluate our current performance and to compare to our past non-GAAP operating leverage. 

 

Non-GAAP segment operating income

Non-GAAP segment operating income excludes stock-based compensation from GAAP segment operating income. We believe this information is useful to investors because some may exclude stock-based compensation as an alternative view when assessing trends in the operating income of our segments. 

These non-GAAP measures can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. We believe some of our investors track our "core operating performance" as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations. Core operating performance excludes items that are non-cash, not expected to recur or not reflective of ongoing financial results.  Management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period to period comparisons.  Accordingly, management excludes from non-GAAP those items relating to restructuring, amortization of purchased intangible assets, stock based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a gain on an equity sale, and non-GAAP tax adjustments.  For detailed explanations of the adjustments made to comparable GAAP measures, see items (A) - ( L ) below,















( A )

Restructuring costs.Included in our GAAP presentation of cost of sales and operating expenses, restructuring costs recorded are primarily for employee compensation resulting from reductions in employee headcount in connection with our company restructurings.  We exclude restructuring costs from our non-GAAP measures because we believe they do not reflect expected future operating expenses, they are not indicative of our core operating performance, and they are not meaningful in comparisons to our past operating performance.  We have incurred restructuring expense in each of the periods presented however the amount incurred can vary significantly based on whether a restructuring has occurred in the period and the timing of headcount reductions. 














( B )

Amortization of purchased intangible assets.Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. US GAAP accounting requires that intangible assets are recorded at fair value and amortized over their useful lives. Consequently, the timing and size of our acquisitions will cause our operating results to vary from period to period, making a comparison to past performance difficult for investors. This accounting treatment may cause differences when comparing our results to companies that grow internally because the fair value assigned to the intangible assets acquired through acquisition may significantly exceed the equivalent expenses that a company may incur for similar efforts when performed internally. Furthermore, the useful life that we expense our intangible assets over may be substantially different from the time period that an internal growth company incurs and recognizes such expenses. We believe that by excluding the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed, it provides an alternative way for investors to compare our operations pre-acquisition to those post-acquisitions and to those of our competitors that have pursued internal growth strategies. However, we note that companies that grow internally will incur costs to develop intangible assets that will be expensed in the period incurred, which may make a direct comparison more difficult.     














( C )

Stock-based compensation. Included in our GAAP presentation of cost of sales and operating expenses, stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not reflective of our core operating performance as it is a non-cash expense.   For the third quarter and the first three quarters of fiscal 2014 and 2013, stock-based compensation was allocated as follows: 



















Third Quarter of


First Three Quarters of




(Dollars in thousands)



2014


2013


2014


2013




Cost of sales



$         776


$        609


$      2,286


$      1,816




Research and development



1,600


1,265


4,815


3,644




Sales and Marketing



2,062


1,816


6,022


5,341




General and administrative



6,600


5,215


19,002


15,357







$    11,038


$      8,905


$    32,125


$     26,158















( D )

Amortization of acquisition-related inventory step-up.  The purchase accounting entries associated with our business acquisitions require us to record inventory at its fair value, which is sometimes greater than the previous book value of the inventory.  Included in our GAAP presentation of cost of sales, the increase in inventory value is amortized to cost of sales over the period that the related product is sold.  We exclude inventory step-up amortization from our non-GAAP measures because it is a non-cash expense that we do not believe is indicative of our ongoing operating results.  We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.














( E )

Acquisition / divestiture items.  Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal, due diligence, and integration costs.  Included in our GAAP presentation of non-operating income (loss) net, acquisition / divestiture items includes unusual acquisition, investment, or divestiture gains/losses such as adjustments to the fair value of earn-out liabilities, and gains/losses on acquisitions or divestitures of certain businesses and investments. Although we do numerous acquisitions, the costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.














( F )

Gain on an equity sale.   Included in our GAAP presentation of non-operating income, net this amount represents a gain on a partial equity sale of Virtual Site Solutions.  We excluded the gain from our non-GAAP measures. We believe that investors benefit from excluding this item from our non-GAAP measures because it facilitates an evaluation of our non-operating income trends.














( G )

Litigation.   In the third quarter of 2013 this amount represents a settlement of litigation related to a pre-acquisition agreement with a contract manufacturer. In the third quarter of 2014 this amount includes $51.3M of estimated costs based on a jury verdict in favor of the plaintiff, Recreational Data Services, Inc. against the Company as well as $0.7M of costs based on an arbitration agreement.  We have excluded these costs from our non-GAAP measures because they are non-recurring expenses that are not indicative of our ongoing operating results. We further believe that excluding these items from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.              














( H )

Non-GAAP items tax effected.   This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items ( A ) - ( E ) on non-GAAP net income.   We believe this information is useful to investors because it provides for consistent treatment of the excluded items in this non-GAAP presentation. 














( I )

Tax on gain on an equity sale.  This amount represents the tax effect of a gain on a partial equity sale of Virtual Site Solutions.  We excluded this item as it represents the tax effect of a non-recurring gain.  We believe that investors benefit from excluding this item from our non-GAAP income tax provision because it facilitates a comparison of the non-GAAP tax rate in the current period to the non-GAAP tax rates in prior periods.





















( J )

Tax on Recreational Data Services, Inc. litigation.  This amount represents the tax effect of a loss recorded as a result of a jury verdict in favor of Recreational Data Services, Inc.  We excluded this item as it represents the tax effect of a non-recurring expense.  We believe that investors benefit from excluding this item from our non-GAAP income tax provision because it allows for period-over-period comparability.















( K )

GAAP and non-GAAP tax rate %.  These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes.   We believe that investors benefit from a presentation of non-GAAP tax rate percentage as a way of facilitating a comparison to non-GAAP tax rates in prior periods.














( L )

Stock-based compensation. The amounts consist of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. As referred to above we exclude stock-based compensation here because investors may view it as not reflective of our core operating performance as it is a non-cash expense. However, management does include stock-based compensation for budgeting and incentive plans as well as for reviewing internal financial reporting. We discuss our operating results by segment with and without stock-based compensation expense, as we believe it is useful to investors. Stock-based compensation not allocated to the reportable segments was approximately $4.7 million and $3.4 million for the third quarter of fiscal 2014 and 2013, respectively, and $13.2 million and $9.8 million for the first three quarters of fiscal 2014 and 2013, respectively.

 

SOURCE Trimble

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