CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

First Quarter of

2013

2012

Revenues:

        Product

$412,787

$398,538

        Service

81,596

57,430

        Subscription

61,728

46,299

Total revenues

556,111

502,267

Cost of sales:

        Product

198,701

193,044

        Service

30,843

22,521

        Subscription

19,972

14,431

        Amortization of purchased intangible assets

19,681

13,121

Total cost of sales

269,197

243,117

Gross margin

286,914

259,150

Gross margin (%)

51.6%

51.6%

Operating expenses

    Research and development

73,608

60,235

    Sales and marketing

83,623

76,024

    General and administrative

51,970

46,886

    Restructuring

1,605

481

    Amortization of purchased intangible assets

19,651

15,676

       Total operating expenses

230,457

199,302

Operating income 

56,457

59,848

Non-operating income (expense), net

    Interest expense, net

(5,071)

(3,863)

    Foreign currency transaction loss, net

(1,569)

(2,213)

    Income from equity method investments, net

4,257

6,192

    Other income, net

295

363

       Total non-operating income (expense), net

(2,088)

479

Income before taxes

54,369

60,327

Income tax provision

5,437

10,255

Net income

48,932

50,072

Less: Net loss attributable to noncontrolling interests 

(876)

(746)

Net income attributable to Trimble Navigation Ltd.

$  49,808

$  50,818

Earnings per share attributable to Trimble Navigation Ltd.

     Basic

$     0.20

$     0.20

     Diluted

$     0.19

$     0.20

Shares used in calculating earnings per share:

    Basic

255,181

248,740

    Diluted

260,299

255,520

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

First Quarter

Fiscal Year End

As of

2013

2012

Assets

Current assets:

   Cash and cash equivalents

$    143,552

$         157,771

   Accounts receivables, net

388,850

323,477

   Other receivables

14,168

17,327

   Inventories, net

260,596

240,529

   Deferred income taxes

43,198

43,473

   Other current assets

39,586

33,396

      Total current assets

889,950

815,973

Property and equipment, net

105,603

96,890

Goodwill

1,837,937

1,815,699

Other purchased intangible assets, net

636,696

644,419

Other non-current assets

95,535

96,123

      Total assets

$  3,565,721

$      3,469,104

Liabilities 

Current liabilities:

   Current portion of long-term debt

$      91,117

$           38,092

   Accounts payable

120,838

124,532

   Accrued compensation and benefits

75,621

86,064

   Deferred revenue

187,551

138,920

   Accrued warranty expense

17,476

17,066

   Other accrued liabilities

63,851

63,996

      Total current liabilities

556,454

468,670

Non-current portion of long-term debt

829,322

873,066

Non-current deferred revenue

10,927

7,262

Deferred income taxes

136,308

148,260

Other non-current liabilities

66,842

58,322

      Total liabilities

1,599,853

1,555,580

Commitments and contingencies

Equity

Shareholders' equity:

   Common stock

1,036,779

1,006,818

   Retained earnings

916,158

868,026

   Accumulated other comprehensive income (loss)

(3,144)

22,611

Total Trimble Navigation Ltd. shareholders' equity

1,949,793

1,897,455

Noncontrolling interests 

16,075

16,069

      Total equity

1,965,868

1,913,524

      Total liabilities and equity

$  3,565,721

$      3,469,104

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)

First Quarter of

2013

2012

Cash flow from operating activities:

    Net Income

$         48,932

$          50,072

    Adjustments to reconcile net income to net cash provided by

       operating activities:

         Depreciation expense

6,193

5,562

         Amortization expense

39,332

28,797

         Provision for doubtful accounts

65

587

         Deferred income taxes

(11,809)

146

         Stock-based compensation

8,818

7,789

         Income from equity method investments

(4,257)

(6,192)

         Excess tax benefit for stock-based compensation

(4,784)

(7,580)

         Provision for excess and obsolete inventories

584

3,111

         Other non-cash items

104

(977)

    Add decrease (increase) in assets:

         Accounts receivables

(61,956)

(46,425)

         Other receivables

5,027

2,211

         Inventories

(20,218)

5,928

         Other current and non-current assets

(10,867)

(7,972)

    Add increase (decrease) in liabilities:

         Accounts payable

(6,081)

4,205

         Accrued compensation and benefits

(12,037)

(1,895)

         Deferred revenue

51,964

29,569

         Accrued warranty expense

439

(728)

         Other current and non-current liabilities

7,939

1,450

 Net cash provided by operating activities 

37,388

67,658

 Cash flow from investing activities: 

      Acquisitions of businesses, net of cash acquired 

(65,192)

(101,392)

      Acquisitions of property and equipment 

(14,927)

(7,644)

      Acquisitions of intangible assets 

-

(755)

      Sales of equity method investments 

2,430

-

      Dividends received 

1,284

-

      Other 

-

251

 Net cash used in investing activities 

(76,405)

(109,540)

 Cash flow from financing activities: 

      Issuance of common stock, net 

14,437

26,682

      Excess tax benefit for stock-based compensation 

4,784

7,580

      Proceeds from long-term debt and revolving credit lines 

113,000

181,500

      Payments on short-term and long-term debt  

(103,981)

(122,850)

 Net cash provided by financing activities 

28,240

92,912

 Effect of exchange rate changes on cash and cash equivalents 

(3,442)

3,495

 Net increase (decrease) in cash and cash equivalents 

(14,219)

54,525

 Cash and cash equivalents - beginning of period 

157,771

154,621

 Cash and cash equivalents - end of period 

$        143,552

$         209,146

REPORTING SEGMENTS

(Dollars in thousands)

(Unaudited)

Reporting Segments

Engineering

and

Field

Mobile

Advanced

Construction

Solutions

Solutions

Devices

FIRST QUARTER OF FISCAL 2013 :

Revenues

$    266,871

$  147,481

$  110,164

$    31,595

Operating income before corporate allocations:

$      42,973

$    59,526

$    11,573

$     6,485

Operating margin (% of segment external net revenues)

16.1%

40.4%

10.5%

20.5%

FIRST QUARTER OF FISCAL 2012 :

Revenues

$    248,885

$  147,499

$    78,383

$    27,500

Operating income before corporate allocations:

$      40,077

$    62,361

$     7,358

$     3,339

Operating margin (% of segment external net revenues)

16.1%

42.3%

9.4%

12.1%

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share data)

(Unaudited)

First Quarter of

2013

2012

Dollar

% of

Dollar

% of

Amount

Revenue

Amount

Revenue

GROSS MARGIN:

GAAP gross margin:

$ 286,914

51.6%

$ 259,150

51.6%

Restructuring

( A )

55

0.0%

45

0.0%

Amortization of purchased intangible assets

( B )

19,681

3.6%

13,121

2.6%

Stock-based compensation

( C )

600

0.1%

520

0.1%

Amortization of acquisition-related inventory step-up

( D )

603

0.1%

8

0.0%

Non-GAAP gross margin: 

$ 307,853

55.4%

$ 272,844

54.3%

OPERATING EXPENSES:

GAAP operating expenses:

$ 230,457

41.4%

$ 199,302

39.7%

Restructuring

( A )

(1,605)

-0.3%

(481)

-0.1%

Amortization of purchased intangible assets

( B )

(19,651)

-3.5%

(15,676)

-3.2%

Stock-based compensation

( C )

(8,218)

-1.5%

(7,269)

-1.4%

Acquisition costs

( E )

(3,418)

-0.6%

(4,766)

-0.9%

Non-GAAP operating expenses:

$ 197,565

35.5%

$ 171,110

34.1%

OPERATING INCOME:

GAAP operating income:

$   56,457

10.2%

$   59,848

11.9%

Restructuring

( A )

1,660

0.3%

526

0.1%

Amortization of purchased intangible assets

( B )

39,332

7.0%

28,797

5.7%

Stock-based compensation

( C )

8,818

1.6%

7,789

1.6%

Amortization of acquisition-related inventory step-up

( D )

603

0.1%

8

0.0%

Acquisition costs

( E )

3,418

0.6%

4,766

1.0%

Non-GAAP operating income: 

$ 110,288

19.8%

$ 101,734

20.3%

NON-OPERATING INCOME, NET:

GAAP non-operating income (expense), net:

$    (2,088)

$       479

Acquisition / divestiture (gain) loss

( E )

(401)

444

Foreign exchange loss associated with acquisitions

( F )

-

1,578

Non-GAAP non-operating income (expense), net: 

$    (2,489)

$     2,501

GAAP and 

GAAP and 

Non-GAAP

Non-GAAP

Tax Rate %

( H )

Tax Rate %

( H )

INCOME TAX PROVISION:

GAAP income tax provision:

$     5,437

10%

$   10,255

17%

Non-GAAP items tax effected

( G )

5,343

7,464

Non-GAAP income tax provision: 

$   10,780

10%

$   17,719

17%

NET INCOME:  

GAAP net income attributable to Trimble Navigation Ltd.

$   49,808

$   50,818

Restructuring

( A )

1,660

526

Amortization of purchased intangible assets

( B )

39,332

28,797

Stock-based compensation

( C )

8,818

7,789

Amortization of acquisition-related inventory step-up

( D )

603

8

Acquisition / divestiture costs, net

( E )

3,017

5,210

Foreign exchange loss associated with acquisitions

( F )

-

1,578

Non-GAAP items tax affected

( G )

(5,343)

(7,464)

Non-GAAP net income attributable to Trimble Navigation Ltd.

$   97,895

$   87,262

DILUTED NET INCOME PER SHARE:

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

$      0.19

$      0.20

Restructuring

( A )

0.01

-

Amortization of purchased intangible assets

( B )

0.15

0.11

Stock-based compensation

( C )

0.04

0.03

Amortization of acquisition-related inventory step-up

( D )

-

-

Acquisition / divestiture costs, net

( E )

0.01

0.02

Foreign exchange loss associated with acquisitions

( F )

-

0.01

Non-GAAP items tax affected

( G )

(0.02)

(0.03)

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

$      0.38

$      0.34

OPERATING LEVERAGE:

Increase in non-GAAP operating income

$     8,554

$   31,632

Increase in revenue

$   53,844

$ 117,974

Operating leverage (increase in non-GAAP operating 

income as a % of increase in revenue)

15.9%

26.8%

GAAP TO NON-GAAP RECONCILIATION (CONTINUED)

(Dollars in thousands, except per share data)

(Unaudited)

First Quarter of

2013

2012

% of Segment

% of Segment

SEGMENT OPERATING INCOME:

Revenue

Revenue

Engineering and Construction

GAAP operating income before corporate allocations:

$ 42,973

16.1%

$ 40,077

16.1%

Stock-based compensation

( I )

2,862

1.1%

2,756

1.1%

Non-GAAP operating income before corporate allocations:

$ 45,835

17.2%

$ 42,833

17.2%

Field Solutions

GAAP operating income before corporate allocations:

$ 59,526

40.4%

$ 62,361

42.3%

Stock-based compensation

( I )

717

0.4%

643

0.4%

Non-GAAP operating income before corporate allocations:

$ 60,243

40.8%

$ 63,004

42.7%

Mobile Solutions

GAAP operating income before corporate allocations:

$ 11,573

10.5%

$   7,358

9.4%

Stock-based compensation

( I )

912

0.8%

793

1.0%

Non-GAAP operating income before corporate allocations:

$ 12,485

11.3%

$   8,151

10.4%

Advanced Devices

GAAP operating income before corporate allocations:

$   6,485

20.5%

$   3,339

12.1%

Stock-based compensation

( I )

849

2.7%

632

2.3%

Non-GAAP operating income before corporate allocations:

$   7,334

23.2%

$   3,971

14.4%

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 and acquisition 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. 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 and acquisition costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs. 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 (expense), net

We believe this measure helps investors evaluate our non-operating income trends. Non-GAAP non-operating income (expense), net excludes acquisition and divestiture gains (losses) associated with unusual acquisition related items such as adjustments to the fair value of earn-out liabilities and gains or losses related to the acquisition or sale of certain businesses and investments. These gains and losses are specific to particular acquisitions  and vary significantly in amount and timing. Non-GAAP non-operating income (expense), net also excludes foreign exchange loss specifically associated with a hedge for one of our acquisitions. We believe that these exclusions provide investors with a supplemental view of our ongoing financial results.

Non-GAAP 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 foreign exchange loss from a hedge associated with one of our acquisitions, 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 foreign exchange loss from a hedge associated with one of our acquisitions, 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 is 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 foreign exchange loss from a hedge associated with one of our acquisitions, and non-GAAP tax adjustments.  For detailed explanations of the adjustments made to comparable GAAP measures, see items (A) - ( I ) 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 last three years 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 first quarter of fiscal 2013 and 2012, stock-based compensation was allocated as follows: 

First Quarter of

(Dollars in thousands)

2013

2012

Cost of sales

$  600

$  520

Research and development

1,147

1,229

Sales and Marketing

1,764

1,791

General and administrative

5,307

4,249

$   8,818

$   7,789

( 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 activities such as legal, due diligence, and integration costs.  Included in our GAAP presentation of non-operating income (expense), net, acquisition / divestiture (gain) loss includes unusual acquisition or divestiture related items such as adjustments to the fair value of earn-out liabilities and gains on 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 )

Foreign exchange loss associated with acquisitions.    This amount represents a loss on foreign exchange hedge associated with one of our acquisitions.  We excluded the foreign exchange loss from our non-GAAP measures because we believe that the exclusion of this item provides investors an enhanced view of the cost structure of our operations and facilitates comparisons with the results of other periods.                     

( G )

Non-GAAP items tax effected.   This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items ( A ) - ( F ) 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. 

( H )

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.

( I )

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 $3.5 million and $3.0 million for the first quarter of fiscal 2013 and 2012, respectively.