Business context and reporting period
Trimble Navigation Limited’s unaudited Form 10-Q covers the three months ended April 1, 2011, compared with the three months ended April 2, 2010. Trimble provides positioning, communications and software solutions across Engineering and Construction, Field Solutions, Mobile Solutions and Advanced Devices. Results are not necessarily indicative of the full year; the company says its second fiscal quarter is typically strongest, driven by construction seasonality.
Financial performance and liquidity
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Revenue | $384.3 million | $319.0 million |
| Gross margin | $191.5 million; 49.8% | $159.0 million; 49.8% |
| Operating income | $43.7 million; 11.4% of revenue | $36.1 million; 11.3% |
| Net income attributable to Trimble | $39.7 million; diluted EPS $0.32 | $27.9 million; diluted EPS $0.23 |
| Operating cash flow | $27.9 million | $55.5 million |
| Cash used in investing | $43.2 million | $29.9 million |
At April 1, 2011, cash and equivalents were $244.3 million, total debt $153.3 million, total assets $2.00 billion and total liabilities $510.7 million. The $151.0 million revolving-facility balance was classified as current because the facility matured in February 2012; total debt was nearly unchanged from year-end 2010. Operating cash flow fell $27.6 million year over year, primarily due to higher receivables, lower accounts payable and lower accrued compensation. Receivables were $265.7 million; inventory was $203.0 million. Days sales outstanding were 63, and annual inventory turns were 3.7.
GAAP results compare with management’s non-GAAP measures, which exclude restructuring, acquired-intangible amortization, stock compensation, acquisition-related inventory step-up and certain acquisition costs. Non-GAAP operating income was $70.1 million (18.2% margin), versus $57.1 million (17.9%); non-GAAP diluted EPS was $0.50 versus $0.34. These are company-defined measures and should be read alongside GAAP results.
Material changes versus the prior period
- Revenue rose 20%, with Engineering and Construction up 21% and Field Solutions up 28%, primarily reflecting recovering markets and increased agricultural demand.
- Field Solutions operating income increased to $52.5 million from $39.3 million; its operating margin rose to 43% from 41%.
- Mobile Solutions revenue grew 17%, but the segment swung to a $1.3 million operating loss from $1.9 million income. Management cited product mix, a prior large-customer loss and acquisition-related revenue; $4.4 million of previously deferred revenue was recognized.
- Advanced Devices revenue declined 3% and operating income fell to $3.9 million from $5.6 million, primarily due to product mix and lower timing-device sales.
- Operating expenses increased, including R&D, sales and marketing and G&A, while each remained approximately flat as a share of revenue. Acquisitions contributed to expense and intangible amortization growth.
- The effective tax rate declined to 16% from 29%, mainly reflecting the prior IRS settlement concerning an intellectual-property license arrangement and reinstatement of the federal R&D credit.
Outlook, risks and unusual items
- No numeric earnings or revenue guidance is provided. Management said cash plus availability under the new credit facility should cover anticipated operating needs and stock repurchases for at least 12 months; planned capital spending will also use cash.
- Subsequent to quarter-end, Trimble announced a tender offer for Finland-based Tekla Corporation at EUR 15 per share, an indicated equity value of about EUR 337 million (approximately $489 million). The offer was expected to run May 19–June 17, 2011; one shareholder holding about 38% had committed to tender. Completion was not assured.
- On May 6, Trimble entered a new unsecured credit agreement totaling $1.1 billion: a $700 million five-year revolver and a $400 million five-year term facility, with potential increases up to $300 million. It borrowed $151 million to repay the prior facility and expected to borrow about $400 million for the Tekla offer. Management warns greater debt could constrain cash flow and flexibility; covenants and default provisions apply.
- Quarter acquisitions included OmniSTAR GNSS correction-service assets, the GEDO CE rail survey system and Mesta software. The filing also reports $73.2 million of unconditional purchase obligations, $64.1 million of future operating lease commitments, and acquisition earn-outs and holdbacks subject to a maximum remaining payment of $23.5 million.
- Foreign exchange and interest-rate exposure are managed partly with derivatives; the filing reports no significant change in market-risk assessments. Management reported effective disclosure controls and no material change in internal control over financial reporting. No material legal proceedings were reported beyond ordinary-course matters.
Important facts for investors to verify
- Whether the Tekla tender offer completed, its final purchase price and the actual borrowing required; these were subsequent events and remained prospective in this filing.
- Whether operating cash conversion improves, given the sharp year-over-year decline in operating cash flow and higher receivables.
- Whether Mobile Solutions returns to profitability and whether Advanced Devices’ margin decline persists.
- How the new debt, interest costs, covenant headroom and acquisition integration affect liquidity and earnings.
- The sustainability of the 16% tax rate, and the assumptions and exclusions behind management’s non-GAAP results.