Trimble Navigation Limited — FY 2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010 (52 weeks). The filing identifies the registrant as Trimble Navigation Limited, a provider of positioning, GNSS, software, and connected hardware solutions for construction, agriculture, fleet management, mapping, and other commercial and government markets.
Financial performance
| Metric | FY 2010 | FY 2009 |
|---|---|---|
| Revenue | $1,293.9 million | $1,126.3 million |
| Gross margin | $645.5 million; 49.9% | $549.9 million; 48.8% |
| Operating income | $127.6 million; 9.9% of revenue | $85.8 million; 7.6% |
| Net income attributable to Trimble | $103.7 million | $63.4 million |
| Diluted EPS | $0.84 | $0.52 |
| Operating cash flow | $124.0 million | $194.6 million |
- Revenue rose 15%, led by Engineering and Construction (+24%) and Field Solutions (+9%). Mobile Solutions revenue was nearly flat; Advanced Devices increased 1%.
- Engineering and Construction generated $719.1 million revenue and $111.0 million segment operating income. Field Solutions generated $318.1 million revenue and $116.4 million segment operating income. Mobile Solutions operating income fell to $1.9 million from $14.3 million; Advanced Devices operating income was $18.3 million.
- Cash and cash equivalents were $220.8 million at year-end, down from $273.8 million. Total debt was $153.2 million, including $151.0 million drawn on a $300 million revolving facility. The company reported compliance with debt covenants. Current assets were $714.4 million and current liabilities $251.8 million.
- Cash used in investing was $156.4 million, principally reflecting acquisitions. Financing used $20.2 million, including $73.9 million of share repurchases. Inventory increased to $192.9 million from $144.0 million; inventory turns improved to 3.8 from 3.4.
Material changes and unusual items
- FY 2010 revenue recovery followed a 15% decline in FY 2009, which management attributed chiefly to recession-related weakness in U.S. and European construction markets. FY 2010 Engineering and Construction sales improved across the U.S. and international markets; agriculture demand also strengthened.
- Gross margin improved 1.1 percentage points, attributed mainly to product mix in Engineering and Construction and Field Solutions, partly offset by the loss of a large, high-margin Mobile Solutions customer. Mobile Solutions operating income also faced higher acquisition-related operating costs.
- Operating cash flow declined by $70.6 million, reflecting higher inventory spending and a $49.7 million cash payment related to an IRS settlement. The settlement concerned the valuation and payment arrangement for an intercompany intellectual-property license; the filing reports a $27.5 million net tax charge and approximately $2.5 million of additional state taxes and interest.
- FY 2010 included numerous acquisitions, including ThingMagic, Punch Telematix, Cengea, and Tata AutoComp Mobility Telematics. Cash paid for business acquisitions, net of cash acquired, was $136.4 million. Goodwill increased to $828.7 million; management reported that estimated fair values exceeded carrying values by substantial margins in annual impairment testing.
- GAAP net income was $103.7 million; company-defined non-GAAP net income was $199.5 million. The non-GAAP measure excludes, among other items, acquired-intangible amortization, stock compensation, restructuring, acquisition costs, and specified tax items. It is not a substitute for GAAP results.
- Fourth-quarter revenue was $323.3 million, gross margin $163.3 million, net income attributable to Trimble $36.6 million, and diluted EPS $0.29. The comparable prior-year quarter reported $277.5 million revenue, $130.7 million gross margin, $9.5 million attributable net income, and $0.08 diluted EPS.
Outlook, risks, and contingencies
- Management expects continued investment in research and development and states that cash plus operating cash flow should meet anticipated operating needs, planned stock repurchases, and credit-facility repayment for at least the next 12 months. The filing provides no specific revenue or earnings guidance.
- Management sees further opportunity in underpenetrated markets, new products, international expansion, and acquisitions. It also notes limited visibility into orders and shipments, seasonal demand, and quarter-end sales concentration; backlog is not considered a meaningful indicator of future revenue.
- Key risks include dependence on Flextronics and certain critical component suppliers; customer and dealer access to credit; acquisition integration and goodwill valuation; competition and product execution; currency exposure; and reliance on GPS/GNSS availability and radio spectrum. The filing specifically discusses potential GPS interference from the proposed LightSquared use of adjacent spectrum and U.S. narrowband radio-migration requirements by 2013.
- The company was subject to ongoing federal, state, and foreign tax examinations; it said it could not reliably estimate the timing of cash settlement for $17.8 million of unrecognized tax benefits, including interest and penalties. Maximum remaining acquisition earn-outs and holdbacks were $25.8 million, payable through 2013. No material pending litigation was reported.
- The revolving credit facility was due to mature in February 2012, and Trimble said it was exploring refinancing or replacement options. The company had no declared cash dividends and intended to retain earnings.
Important facts for investors to verify
- Whether the Engineering and Construction recovery and stronger agricultural demand continued, and whether margins held as product mix and pricing changed.
- Whether Mobile Solutions recovered profitability after losing a large, high-margin customer, and how acquired businesses affected results and cash needs.
- Whether inventory growth converted into sales and cash generation; operating cash flow fell substantially despite higher earnings.
- Progress on refinancing the $300 million revolving facility before its February 2012 maturity, and continuing covenant compliance.
- Resolution and cash impact of tax examinations, including the remaining unrecognized tax benefits and any potential tax on foreign earnings.
- Developments in GPS spectrum regulation and interference risk, as well as supply continuity with Flextronics and other critical suppliers.