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Trimble Reports First Quarter 2014 Results

First Quarter 2014 Revenue $604.7 Million, Up 9 Percent; GAAP Operating Margin 12.5 Percent; Non-GAAP Operating Margin 21.2 Percent; GAAP Diluted Earnings Per Share $0.26; Non-GAAP Diluted Earnings Per Share $0.39

(PRNewswire) — Trimble (NASDAQ: TRMB) today announced financial results for the first quarter of 2014.

First Quarter 2014 Financial Highlights

Forward Looking Guidance

For the second quarter of 2014 Trimble expects revenue to be between $605 million and $630 million with GAAP earnings per share of $0.22 to $0.26 and non-GAAP earnings per share of $0.38 to $0.42. Non-GAAP guidance excludes the amortization of intangibles of $37 million related to previous acquisitions, anticipated acquisition costs of $4 million and the anticipated impact of stock-based compensation expense of $11 million. Both GAAP and non-GAAP earnings per share assume a 20 to 22 percent tax rate and approximately 265 million shares outstanding.

"We did not meet our original expectations in the quarter," said Steven W. Berglund, Trimble's president and chief executive officer. "The shortfall to expectation was focused in the North American agriculture business, which was adversely affected by a number of factors including weather conditions. The rest of the company demonstrated double-digit revenue growth and a significant increase in profitability. In particular, we are seeing an improving environment in construction. In the short term, we anticipate some volatility in agriculture, but the long-term growth prospects are unchanged and we remain optimistic about the second half of the year."

Investor Conference Call / Webcast Details

Trimble will hold a conference call on May 6, 2014 at 1:30 p.m. PT to review its first 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 6694146.  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 second quarter and full year 2014, 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)





First Quarter of





2014

2013



Revenues:



        Product

$ 442,569

$ 412,787

        Service

93,319

81,596

        Subscription

68,833

61,728

Total revenues

604,721

556,111



Cost of sales:



        Product

203,752

198,701

        Service

34,179

30,843

        Subscription

19,010

19,972

        Amortization of purchased intangible assets

20,888

19,681

Total cost of sales

277,829

269,197



Gross margin

326,892

286,914

Gross margin (%)

54.1%

51.6%



Operating expenses



    Research and development

76,376

73,608

    Sales and marketing

97,354

83,623

    General and administrative

57,433

51,970

    Restructuring

337

1,605

    Amortization of purchased intangible assets

19,681

19,651

       Total operating expenses

251,181

230,457








Operating income 

75,711

56,457



Non-operating income (loss), net



    Interest expense, net

(3,683)

(5,071)

    Foreign currency transaction loss, net

(155)

(1,569)

    Income from equity method investments, net

3,463

4,257

    Other income, net

13,139

295

       Total non-operating income (loss), net

12,764

(2,088)



Income before taxes

88,475

54,369



Income tax provision

20,350

5,437

Net income

68,125

48,932

Less: Net loss attributable to noncontrolling interests 

(499)

(876)

Net income attributable to Trimble Navigation Ltd.

$   68,624

$  49,808



Earnings per share attributable to Trimble Navigation Ltd.



     Basic

$      0.26

$      0.20

     Diluted

$      0.26

$      0.19



Shares used in calculating earnings per share:



    Basic

259,789

255,181

    Diluted

264,784

260,299



 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)








First Quarter of

Fiscal Year End

As of

2014

2013

Assets








Current assets:



   Cash and cash equivalents

$        165,226

$         147,227

   Accounts receivables, net

397,740

337,932

   Other receivables

21,505

23,143

   Inventories, net

266,700

254,311

   Deferred income taxes

40,186

38,597

   Other current assets

39,514

35,807

      Total current assets

930,871

837,017



Property and equipment, net

149,609

142,975

Goodwill

1,990,457

1,989,470

Other purchased intangible assets, net

583,075

619,399

Other non-current assets

123,571

111,979



      Total assets

$     3,777,583

$      3,700,840



Liabilities 








Current liabilities:



   Current portion of long-term debt

$         52,054

$         106,402

   Accounts payable

120,148

112,522

   Accrued compensation and benefits

83,011

95,866

   Deferred revenue

207,497

159,295

   Accrued warranty expense

18,136

17,781

   Other accrued liabilities

82,126

85,124

      Total current liabilities

562,972

576,990



Non-current portion of long-term debt

612,598

652,056

Non-current deferred revenue

23,127

20,431

Deferred income taxes

138,962

136,399

Other non-current liabilities

86,373

80,982

      Total liabilities

1,424,032

1,466,858



Commitments and contingencies








Equity








Shareholders' equity:



   Common stock

1,159,907

1,106,017

   Retained earnings

1,150,304

1,081,695

   Accumulated other comprehensive income 

31,802

33,194

Total Trimble Navigation Ltd. shareholders' equity

2,342,013

2,220,906

Noncontrolling interests 

11,538

13,076

      Total equity

2,353,551

2,233,982



      Total liabilities and equity

$     3,777,583

$      3,700,840



 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In thousands)

(Unaudited)

First Quarter of

2014

2013



Cash flow from operating activities:



    Net Income

$          68,125

$  48,932



    Adjustments to reconcile net income to net cash provided by



       operating activities:



         Depreciation expense

7,520

6,193

         Amortization expense

40,569

39,332

         Provision for doubtful accounts

516

65

         Deferred income taxes

(1,454)

(11,809)

         Stock-based compensation

10,112

8,818

         Income from equity method investments

(3,463)

(4,257)

         Gain on an equity sale

(15,091)

-

         Excess tax benefit for stock-based compensation

(10,211)

(4,784)

         Provision for excess and obsolete inventories

1,089

584

         Other non-cash items

(728)

104



    Add decrease (increase) in assets:



         Accounts receivables

(61,875)

(61,956)

         Other receivables

(1,661)

5,027

         Inventories

(13,395)

(20,218)

         Other current and non-current assets

(2,224)

(10,867)



    Add increase (decrease) in liabilities:



         Accounts payable

10,487

(6,081)

         Accrued compensation and benefits

(11,503)

(12,037)

         Deferred revenue

47,077

51,964

         Accrued warranty expense

382

439

         Other liabilities

19,123

7,939

 Net cash provided by operating activities 

83,395

37,388



 Cash flow from investing activities: 



      Acquisitions of businesses, net of cash acquired 

(10,961)

(65,192)

      Acquisitions of property and equipment 

(13,574)

(14,927)

      Dividends received from equity method investments 

12,443

1,284

      Other 

(2,050)

2,430

 Net cash used in investing activities 

(14,142)

(76,405)



 Cash flow from financing activities: 



      Issuance of common stock, net of tax withholdings 

32,465

14,437

      Excess tax benefit for stock-based compensation 

10,211

4,784

      Proceeds from debt and revolving credit lines 

17,000

113,000

      Payments on debt and revolving credit lines 

(110,805)

(103,981)

 Net cash provided by (used in) financing activities 

(51,129)

28,240



 Effect of exchange rate changes on cash and cash equivalents 

(125)

(3,442)



 Net increase (decrease) in cash and cash equivalents 

17,999

(14,219)

 Cash and cash equivalents - beginning of period 

147,227

157,771



 Cash and cash equivalents - end of period 

$        165,226

$ 143,552



 

REPORTING SEGMENTS

(Dollars in thousands)

(Unaudited)
























Reporting Segments


Engineering









and

Field

Mobile

Advanced


Construction

Solutions

Solutions

Devices









FIRST QUARTER OF FISCAL 2014 :








Revenues

$     309,276

$  138,165

$  118,628

$    38,652










Operating income before corporate allocations:

$      57,515

$    52,937

$    16,170

$    11,676

Operating margin (% of segment external net revenues)

18.6%

38.3%

13.6%

30.2%









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%

 

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share data)

(Unaudited)
















First Quarter of





2014

2013





Dollar

% of

Dollar

% of





Amount

Revenue

Amount

Revenue

GROSS MARGIN:








GAAP gross margin:

$ 326,892

54.1%

$ 286,914

51.6%


Restructuring

( A )

47

0.0%

55

0.0%


Amortization of purchased intangible assets

( B )

20,888

3.5%

19,681

3.6%


Stock-based compensation

( C )

747

0.1%

600

0.1%


Amortization of acquisition-related inventory step-up

( D )

51

0.0%

603

0.1%

Non-GAAP gross margin: 

$ 348,625

57.7%

$ 307,853

55.4%











OPERATING EXPENSES:








GAAP operating expenses:

$ 251,181

41.5%

$ 230,457

41.4%


Restructuring

( A )

(337)

-0.1%

(1,605)

-0.3%


Amortization of purchased intangible assets

( B )

(19,681)

-3.3%

(19,651)

-3.5%


Stock-based compensation

( C )

(9,365)

-1.5%

(8,218)

-1.5%


Acquisition / divestiture items

( E )

(1,396)

-0.2%

(3,418)

-0.6%

Non-GAAP operating expenses:

$ 220,402

36.4%

$ 197,565

35.5%











OPERATING INCOME:








GAAP operating income:

$  75,711

12.5%

$  56,457

10.2%


Restructuring

( A )

384

0.1%

1,660

0.3%


Amortization of purchased intangible assets

( B )

40,569

6.7%

39,332

7.0%


Stock-based compensation

( C )

10,112

1.7%

8,818

1.6%


Amortization of acquisition-related inventory step-up

( D )

51

0.0%

603

0.1%


Acquisition / divestiture items

( E )

1,396

0.2%

3,418

0.6%

Non-GAAP operating income: 

$ 128,223

21.2%

$ 110,288

19.8%











NON-OPERATING INCOME (LOSS), NET:








GAAP non-operating income (loss), net:

$  12,764

$   (2,088)



Acquisition / divestiture items

( E )

1,693

(401)



Gain on an equity sale

( F )

(15,091)

-


Non-GAAP non-operating loss, net: 

$      (634)

$   (2,489)


















GAAP and 

GAAP and 






Non-GAAP

Non-GAAP






Tax Rate %

( I )

Tax Rate %

( I )

INCOME TAX PROVISION:








GAAP income tax provision:

$  20,350

23%

$    5,437

10%


Non-GAAP items tax effected

( G )

11,004

5,343



Tax on gain on an equity sale

( H )

(5,836)

-


Non-GAAP income tax provision: 

$  25,518

20%

$  10,780

10%











NET INCOME:  








GAAP net income attributable to Trimble Navigation Ltd.

$  68,624

$  49,808



Restructuring

( A )

384

1,660



Amortization of purchased intangible assets

( B )

40,569

39,332



Stock-based compensation

( C )

10,112

8,818



Amortization of acquisition-related inventory step-up

( D )

51

603



Acquisition / divestiture items

( E )

3,089

3,017



Gain on an equity sale

( F )

(15,091)

-



Non-GAAP tax adjustments

( G ), ( H )

(5,168)

(5,343)


Non-GAAP net income attributable to Trimble Navigation Ltd.

$ 102,570

$  97,895












DILUTED NET INCOME PER SHARE:








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

$      0.26

$      0.19



Restructuring

( A )

-

0.01



Amortization of purchased intangible assets

( B )

0.16

0.15



Stock-based compensation

( C )

0.04

0.04



Amortization of acquisition-related inventory step-up

( D )

-

-



Acquisition / divestiture items

( E )

0.01

0.01



Gain on an equity sale

( F )

(0.06)

-



Non-GAAP tax adjustments

( G ), ( H )

(0.02)

(0.02)


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

$      0.39

$      0.38












OPERATING LEVERAGE:








Increase in non-GAAP operating income

$  17,935

$    8,554


Increase in revenue

$  48,610

$  53,844


Operating leverage (increase in non-GAAP operating income as a % of increase in revenue)

 

36.9%

15.9%












 

GAAP TO NON-GAAP RECONCILIATION (CONTINUED)

(Dollars in thousands, except per share data)

(Unaudited)

































First Quarter of



2014

2013




% of Segment

% of Segment

SEGMENT OPERATING INCOME:


Revenue

Revenue

Engineering and Construction








GAAP operating income before corporate allocations:

$ 57,515

18.6%

$ 42,973

16.1%

 Stock-based compensation

( J )

3,591

1.2%

2,862

1.1%

Non-GAAP operating income before corporate allocations:

$ 61,106

19.8%

$ 45,835

17.2%









Field Solutions








GAAP operating income before corporate allocations:

$ 52,937

38.3%

$ 59,526

40.4%

 Stock-based compensation

( J )

770

0.6%

717

0.4%

Non-GAAP operating income before corporate allocations:

$ 53,707

38.9%

$ 60,243

40.8%









Mobile Solutions








GAAP operating income before corporate allocations:

$ 16,170

13.6%

$ 11,573

10.5%

 Stock-based compensation

( J )

1,178

1.0%

912

0.8%

Non-GAAP operating income before corporate allocations:

$ 17,348

14.6%

$ 12,485

11.3%









Advanced Devices








GAAP operating income before corporate allocations:

$ 11,676

30.2%

$   6,485

20.5%

 Stock-based compensation

( J )

496

1.3%

849

2.7%

Non-GAAP operating income before corporate allocations:

$ 12,172

31.5%

$   7,334

23.2%








 




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/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. 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/divestiture 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 (loss), net

We believe this measure helps investors evaluate our non-operating income (loss) trends. Non-GAAP non-operating loss, 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, 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

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 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 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) - ( J ) 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 2014 and 2013, stock-based compensation was allocated as follows: 















First Quarter of


(Dollars in thousands)

2014

2013


Cost of sales

$     747

$   600


Research and development

1,477

1,147


Sales and Marketing

1,862

1,764


General and administrative

6,026

5,307





$ 10,112

$ 8,818











( 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 (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 (loss) trends.











( G )

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. 











( H )

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.











( I )

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.











( J )

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 $4.1 million and $3.5 million for the first quarter of fiscal 2014 and 2013, respectively.

 

SOURCE Trimble

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