Trimble Inc.
TRIMBLE NAVIGATION LTD /CA/ (Form: 10-Q, Received: 05/12/2014 17:30:25)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________ 
FORM 10-Q
___________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED APRIL 4, 2014
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO             
Commission file number: 001-14845
___________________________________ 
TRIMBLE NAVIGATION LIMITED
(Exact name of registrant as specified in its charter)
___________________________________ 
California
 
94-2802192
(State or other jurisdiction of
 
(I.R.S. Employer Identification Number)
incorporation or organization)
 
 
935 Stewart Drive, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)
Telephone Number (408) 481-8000
(Registrant’s telephone number, including area code)
___________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large Accelerated Filer
ý
Accelerated Filer
¨
 
 
 
 
 
Non-accelerated Filer
¨   (Do not check if a smaller reporting company)
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
As of May 7, 2014, there we re 260,879,910 sh ares of Common Stock (no par value) outstanding.


Table of Contents

TRIMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter Ended April 4, 2014
TABLE OF CONTENTS
 
PART I.
Page
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 6.
 
 

2

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)  
 
First Quarter of
 
Fiscal Year End
As of
2014
 
2013
(In thousands)
 
 
 
ASSETS
 
 
 
Current assets :
 
 
 
Cash and cash equivalents
$
165,226

 
$
147,227

Accounts receivable, 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 current 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:
 
 
 
Preferred stock, no par value; 3,000 shares authorized; none outstanding

 

Common stock, no par value; 360,000 shares authorized; 260,832 and 258,711 shares issued and outstanding as of the first quarter of fiscal 2014 and fiscal year end 2013, respectively
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

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
First Quarter of
(In thousands, except per share data)
2014
 
2013
Revenue:
 
 
 
Product
$
442,569

 
$
412,787

Service
93,319

 
81,596

Subscription
68,833

 
61,728

Total revenue
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

Operating expense
 
 
 
Research and development
76,376

 
73,608

Sales and marketing
97,354

 
83,623

General and administrative
57,433

 
51,970

Restructuring charges
337

 
1,605

Amortization of purchased intangible assets
19,681

 
19,651

Total operating expense
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
(155
)
 
(1,569
)
Income from equity method investments
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

Basic earnings per share
$
0.26

 
$
0.20

Shares used in calculating basic earnings per share
259,789

 
255,181

Diluted earnings per share
$
0.26

 
$
0.19

Shares used in calculating diluted earnings per share
264,784

 
260,299

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Net income
$
68,125

 
$
48,932

Foreign currency translation adjustments
(1,402
)
 
(25,683
)
Net unrealized actuarial gain (loss)
9

 
(71
)
Comprehensive income
66,732

 
23,178

Less: Comprehensive loss attributable to noncontrolling interests
(499
)
 
(876
)
Comprehensive income attributable to Trimble Navigation Ltd.
$
67,231

 
$
24,054

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
First Quarter of
(Dollars in thousands)
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 receivable
(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:
 
 
 
Issuances of common stock, net of tax withholding
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

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
NOTE 1. OVERVIEW AND BASIS OF PRESENTATION
Trimble Navigation Limited (Trimble or the Company) began operations in 1978 and incorporated in California in 1981. The Company provides technology solutions that enable professionals and field mobile workers to improve or transform their work processes. The solutions are used across a range of industries including agriculture, architecture, civil engineering, construction, environmental management, government, natural resources, transportation and utilities. Representative customers include engineering and construction firms, contractors, surveying companies, farmers and agricultural companies, enterprise firms with large-scale fleets, energy, mining and utility companies, and state, federal and municipal governments.

Products frequently provide a good return on investment for customers through lower operational costs, higher productivity, improved quality, enhanced safety and compliance and reduced environmental impact. Product examples include: equipment that automates large industrial equipment such as tractors and bulldozers; surveying instruments; integrated systems that track fleets of vehicles and workers and provide real-time information and powerful analytics to the back-office; data collection systems that enable the management of large amounts of geo-referenced information; software solutions that connect all aspects of a construction site or farm; and building information modeling (BIM) software that is used throughout the design, build, and operation of buildings. The Company also manufactures components for in-vehicle navigation and telematics systems and timing modules used in the synchronization of wireless networks.
The Company has a 52-53 week fiscal year, ending on the Friday nearest to December 31, which for fiscal 2013 was January 3, 2014 . The first quarter of fiscal 2014 and 2013 ended on April 4, 2014 and March 29, 2013 , respectively. Fiscal 2014 is a 52-week year and 2013 is a 53-week year. Unless otherwise stated, all dates refer to the Company’s fiscal year and fiscal periods.
The Condensed Consolidated Financial Statements include the results of the Company and its consolidated subsidiaries. Inter-company accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling shareholders’ proportionate share of the net assets and results of operations of the Company’s consolidated subsidiaries.
The accompanying financial data as of the first quarter of fiscal 2014 and for the first quarter of fiscal 2014 and 2013 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with U.S. generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. The Condensed Consolidated Balance Sheet as of fiscal year end 2013 is derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2013 . The following discussion should be read in conjunction with the Company’s 2013 Annual Report on Form 10-K.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in its Condensed Consolidated Financial Statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.
In the opinion of management, all adjustments necessary have been made to present a fair statement of results for the interim periods presented. The results of operations for the first quarter of fiscal 2014 are not necessarily indicative of the operating results for the full fiscal year or any future periods. Individual segment revenue may be affected by seasonal buying patterns and general economic conditions.
The Company has evaluated all subsequent events through the date that these financial statements have been filed with the Securities and Exchange Commission.
The Company has presented revenue and cost of sales separately for products, service and subscriptions. Product revenue includes primarily hardware, software licenses, parts and accessories; service revenue includes primarily hardware and software maintenance and support, training and professional services; subscription revenue includes software as a service (SaaS).
On March 20, 2013 the Company effected a 2 -for-1 split of all outstanding shares of the Company's Common Stock to shareholders of record on March 6, 2013. All shares and per share information presented has been adjusted to reflect the stock split on a retroactive basis for all periods presented.
Certain immaterial amounts from prior periods have been reclassified to conform to the current period presentation, including certain line items within the Condensed Consolidated Statement of Cash Flows.
NOTE 2. UPDATES TO SIGNIFICANT ACCOUNTING POLICIES

7


There have been no material changes to the Company’s significant accounting polices during the first quarter of fiscal 2014 from those disclosed in the Company’s 2013 Form 10-K.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that generally requires the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Condensed Consolidated Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Trimble adopted this new standard on a prospective basis in the first quarter of fiscal 2014. The implementation had no material impact on its Condensed Consolidated Financial Statements.
In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014; however, early adoption is permitted as is a retrospective application. The Company will adopt the amendments beginning in the first quarter of fiscal 2015. The Company does not anticipate a material impact on its Condensed Consolidated Financial Statements as a result of this change.
NOTE 3. GAIN ON EQUITY SALE
In October, 2008, VirtualSite Solutions (VSS), a business formed by the Company and Caterpillar began operations. The Company originally had a 65% ownership and Caterpillar had a 35% ownership in VSS. VSS develops software for fleet management and connected worksite solutions for both Caterpillar and Trimble and in turn, sells software subscription services to Caterpillar and Trimble, which are sold through Caterpillar's and the Company's respective distribution channels. For financial reporting purposes, VSS’s assets and liabilities were consolidated with those of the Company, as were its results of operations, which were reported under the Engineering and Construction segment. Caterpillar’s 35% interest was included in the overall Consolidated Financial Statements as Noncontrolling interest.
Effective January 4, 2014, the Company sold 15% of its ownership in VSS to Caterpillar resulting in both the Company and Caterpillar owning 50% of the VSS joint venture. Following closing the Company no longer held a controlling interest in VSS. The sale of the 15% ownership resulted in the deconsolidation of VSS and a gain in the amount of $15.1 million . Of this amount, $8.5 million relates to the remeasurement of the Company's retained interest to fair value which was measured using a combination of the income and market approaches. The total gain is included in Other income, net on the Company's Condensed Consolidated Statements of Income. The new 50% investment in VSS is classified as an equity method investment.
NOTE 4. SHAREHOLDERS’ EQUITY
Stock Repurchase Activities
In October 2011, the Company’s Board of Directors approved a stock repurchase program (“2011 Stock Repurchase Program”), authorizing the Company to repurchase up to $100.0 million of Trimble’s common stock. No shares of common stock were repurchased during the first quarter of fiscal 2014 or 2013 . The timing and actual number of future shares repurchased will depend on a variety of factors including price, regulatory requirements, capital availability and other market conditions. The program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without public notice.
Stock-Based Compensation Expense
The Company accounts for its employee stock options, restricted stock units and employee stock purchase plan (ESPP) under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s Condensed Consolidated Statements of Income.
The following table summarizes stock-based compensation expense related to employee stock-based compensation (for all plans) included in the unaudited Condensed Consolidated Statements of Income for the first quarter of fiscal 2014 and 2013 .

8


 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
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

Total operating expenses
9,365

 
8,218

Total stock-based compensation expense
$
10,112

 
$
8,818

Fair value of Trimble Options
Stock option expense recognized in the unaudited Condensed Consolidated Statements of Income is based on the fair value of the portion of share-based payment awards that is expected to vest during the period and is net of estimated forfeitures. The Company’s compensation expense for stock options is recognized using the straight-line single option method. The fair values for stock options are estimated on the date of grant using the binomial valuation model. The binomial model takes into account variables such as volatility, dividend yield rate and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For options granted during the first quarter of fiscal 2014 and 2013 , the following weighted average assumptions were used:
 
 
First Quarter of
 
2014
 
2013
Expected dividend yield
 
Expected stock price volatility
35.4%
 
40.3%
Risk free interest rate
0.9%
 
0.6%
Expected life of options
3.8 years
 
4.1 years
Expected Dividend Yield – The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.
Expected Stock Price Volatility – The Company’s computation of expected volatility is based on a combination of implied volatilities from traded options on the Company’s stock and historical volatility, commensurate with the expected life of the stock options.
Expected Risk Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock options.
Expected Life Of Options – The Company’s expected life represents the period that the Company’s stock options are expected to be outstanding and is determined based on historical experience of similar stock options with consideration to the contractual terms of the stock options, vesting schedules and expectations of future employee behavior.
Fair value of Restricted Stock Units
Restricted stock units are converted into shares of Trimble common stock upon vesting on a one-for-one basis. Vesting of restricted stock units is subject to the employee’s continuing service to the Company. The compensation expense related to these awards is determined using the fair value of Trimble’s common stock on the date of grant, and the expense is recognized on a straight-line basis over the vesting period. Restricted stock units typically vest at the end of three years.
Fair value of Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, rights to purchase shares are generally granted during the second and fourth quarter of each year. The fair value of rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using the Black-Scholes option-pricing model.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Intangible Assets
Intangible Assets consisted of the following:
 

9


   
First Quarter of Fiscal 2014
 
Fiscal Year End 2013
 
Gross
 
 
 
 
 
Gross
 
 
 
 
As of
Carrying
 
Accumulated
 
Net Carrying
 
Carrying
 
Accumulated
 
Net Carrying
(Dollars in thousands)
Amount
 
Amortization
 
Amount
 
Amount
 
Amortization
 
Amount
Developed product technology
$
704,027

 
$
(388,228
)
 
$
315,799

 
$
699,479

 
$
(363,389
)
 
$
336,090

Trade names and trademarks
46,257

 
(30,175
)
 
16,082

 
46,195

 
(28,699
)
 
17,496

Customer relationships
424,597

 
(201,697
)
 
222,900

 
424,630

 
(189,338
)
 
235,292

Distribution rights and other intellectual properties
79,553

 
(51,259
)
 
28,294

 
79,844

 
(49,323
)
 
30,521

 
$
1,254,434

 
$
(671,359
)
 
$
583,075

 
$
1,250,148

 
$
(630,749
)
 
$
619,399

The estimated future amortization expense of purchased intangible assets as of the first quarter of fiscal 2014 was as follows:
 
(Dollars in thousands)
 
2014 (Remaining)
$
111,334

2015
139,355

2016
120,590

2017
98,843

2018
68,474

Thereafter
44,479

Total
$
583,075

Goodwill
The changes in the carrying amount of goodwill by segment for the first quarter of fiscal 2014 were as follows:
 
 
Engineering
and
Construction
 
Field
Solutions
 
Mobile
Solutions
 
Advanced
Devices
 
Total
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Balance as of fiscal year end 2013
$
1,080,240

 
$
88,651

 
$
796,094

 
$
24,485

 
$
1,989,470

Additions due to acquisitions
1,553

 

 

 

 
1,553

Purchase price adjustments
574

 
46

 

 

 
620

Foreign currency translation adjustments
990

 
18

 
(1,188
)
 
(533
)
 
(713
)
Write off
$

 
$

 
$
(473
)
 
$

 
$
(473
)
Balance as of the first quarter of fiscal 2014
$
1,083,357

 
$
88,715

 
$
794,433

 
$
23,952

 
$
1,990,457

The Company determined the total consideration paid for each of its acquisitions as well as the fair value of the assets acquired and liabilities assumed as of the date of acquisition. For certain acquisitions completed in fiscal 2013 and the first quarter of fiscal 2014 , the fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted as the Company obtains additional information, primarily related to adjustments for the true up of acquired net working capital in accordance with certain purchase agreements, and estimated values of certain net tangible assets and liabilities including tax balances, pending the completion of final studies and analyses. If there are adjustments made for these items, the fair value of intangible assets and goodwill could be impacted. Thus the provisional measurements of fair value are subject to change. Such changes could be significant. The Company expects to finalize the valuation of the net tangible and intangible assets as soon as practicable, but not later than one-year from the acquisition date.
NOTE 6. INVENTORIES
Inventories, net, consisted of the following:  

10


 
First Quarter of
 
Fiscal Year End
As of
2014
 
2013
(Dollars in thousands)
 
 
 
Raw materials
$
93,084

 
$
94,988

Work-in-process
7,444

 
6,871

Finished goods
166,172

 
152,452

Total inventories, net
$
266,700

 
$
254,311

Deferred costs of sales for the short-term deferral of hardware and related product revenues are included within finished goods and were $12.2 million as of the first quarter of fiscal 2014 and $12.6 million as of fiscal year end 2013 .
NOTE 7 . SEGMENT INFORMATION
Trimble is a designer and distributor of positioning products and applications enabled by GPS, optical, laser, and wireless communications technology. The Company provides products for diverse applications in its targeted markets.
To achieve distribution, marketing, production and technology advantages, the Company manages its operations in the following four segments:
Engineering and Construction — Consists of hardware and software solutions for a variety of applications including:  survey, heavy civil and building construction, infrastructure, geospatial, railway, mining and utilities.

Field Solutions — Consists of hardware and software solutions for applications including agriculture, mapping and geographic information systems (GIS), utilities, and energy distribution.

Mobile Solutions — Consists of hardware and software solutions that enable end-users to monitor and manage their mobile work, mobile workers and mobile assets.
Advanced Devices — The various operations that comprise this segment are aggregated on the basis that these operations, taken as a whole, do not exceed 10% of the Company’s total revenue, operating income and assets. This segment is comprised of the Embedded Technologies and Timing, Military and Advanced Systems, Applanix, Trimble Outdoors, and ThingMagic businesses.
The Company’s Chief Operating Decision Maker (CODM), its Chief Executive Officer, evaluates each of its segment’s performance and allocates resources based on segment operating income before income taxes and some corporate allocations. The Company and each of its segments employ consistent accounting policies. In each of its segments the Company sells many individual products. For this reason it is impractical to segregate and identify revenue for each of these individual products or groups of products.
The following table presents revenue, operating income, depreciation expense and identifiable assets for the four segments. Operating income is revenue less cost of sales and operating expense, excluding general corporate expense, amortization of purchased intangible assets, amortization of acquisition-related inventory step-up, acquisition costs and restructuring costs. The identifiable assets that CODM views by segment are accounts receivable, inventories and goodwill.

11


 
Reporting Segments
 
Engineering
and
Construction
 
Field
Solutions
 
Mobile
Solutions
 
Advanced
Devices
 
Total
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
First Quarter of Fiscal 2014
 
 
 
 
 
 
 
 
 
Segment revenue
$
309,276

 
$
138,165

 
$
118,628

 
$
38,652

 
$
604,721

Operating income
57,515

 
52,937

 
16,170

 
11,676

 
138,298

       Depreciation expense
3,157

 
164

 
1,222

 
179

 
4,722

First Quarter of Fiscal 2013
 
 
 
 
 
 
 
 
 
Segment revenue
$
266,871

 
$
147,481

 
$
110,164

 
$
31,595

 
$
556,111

Operating income
42,973

 
59,526

 
11,573

 
6,485

 
120,557

       Depreciation expense
2,968

 
134

 
979

 
197

 
4,278

As of the First Quarter of Fiscal 2014
 
 
 
 
 
 
 
 
 
Accounts receivable
$
212,770

 
$
86,554

 
$
71,250

 
$
27,166

 
$
397,740

Inventories
174,158

 
50,574

 
26,416

 
15,552

 
266,700

Goodwill
1,083,357

 
88,715

 
794,433

 
23,952

 
1,990,457

As of Fiscal Year End 2013
 
 
 
 
 
 
 
 
 
Accounts receivable
$
185,634

 
$
62,859

 
$
70,174

 
$
19,265

 
$
337,932

Inventories
171,863

 
39,554

 
27,664

 
15,230

 
254,311

Goodwill
1,080,240

 
88,651

 
796,094

 
24,485

 
1,989,470

A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:  
 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Consolidated segment operating income
$
138,298

 
$
120,557

Unallocated corporate expense
(20,622
)
 
(21,350
)
Amortization of purchased intangible assets
(40,569
)
 
(39,332
)
Acquisition costs
(1,396
)
 
(3,418
)
Consolidated operating income
75,711

 
56,457

Non-operating income (loss), net
12,764

 
(2,088
)
Consolidated income before taxes
$
88,475

 
$
54,369

Unallocated corporate expense includes general corporate expense, amortization of acquisition-related inventory step-up and restructuring costs.
NOTE 8. DEBT, COMMITMENTS AND CONTINGENCIES
Debt consisted of the following:
 

12


 
First Quarter of
 
Fiscal Year End
As of
2014
 
2013
(Dollars in thousands)
 
 
 
Credit Facilities:
 
 
 
Term loan
$
656,250

 
$
665,000

Revolving credit facility

 
85,000

Promissory notes and other debt
8,402

 
8,458

Total debt
664,652

 
758,458

Less current portion of long-term debt
52,054

 
106,402

Non-current portion
$
612,598

 
$
652,056

Credit Facilities
On November 21, 2012 , the Company entered into an amended and restated credit agreement with a group of lenders (the “2012 Credit Facility”). This credit facility provides for unsecured credit facilities in the aggregate principal amount of $1.4 billion , comprised of a five -year revolving loan facility of $700.0 million and a five -year $700.0 million term loan facility. Subject to the terms of the 2012 Credit Facility, the revolving loan facility may be increased, and/or additional term loan commitments may be established, in an aggregate principal amount up to $300.0 million . The Company also has two $75 million uncommitted revolving loan facilities (the “Uncommitted Facilities”), which are callable by the bank at any time and have no covenants. The interest rate for the Uncommitted Facilities is 0.9% to 1.00% plus either LIBOR or the bank’s cost of funds or as otherwise agreed upon by the bank and the Company.
As of the first quarter of fiscal 2014 , total debt was comprised primarily of a term loan of $656.3 million . Of the total outstanding balance, $612.5 million of the term loan is classified as long-term in the Condensed Consolidated Balance Sheet.
The funds available under the 2012 Credit Facility may be used for general corporate purposes, the financing of certain acquisitions and the payment of transaction fees and expenses related to such acquisitions. Under the 2012 Credit Facility, the Company may borrow, repay and reborrow funds under the revolving loan facility until its maturity on November 21, 2017 , at which time the revolving facility will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not borrowed under the revolving facility will be subject to a commitment fee, to be paid in arrears on the last day of each fiscal quarter, ranging from 0.15% to 0.35%  per annum depending on the Company's leverage ratio as of the most recently ended fiscal quarter. The term loan will be repaid in quarterly installments, with the last quarterly payment to be made on September 29, 2017, with the remaining outstanding balance being due and payable at maturity on November 21, 2017 . On an annualized basis, the amortization of the term loan is as follows: 5% , 5% , 10% , 10% and 70% for years one through five respectively. The term loan may be prepaid in whole or in part, subject to certain minimum thresholds, without penalty or premium. Amounts repaid or prepaid with respect to the term loan facility may not be reborrowed.
The Company may borrow funds under the 2012 Credit Facility in U.S. Dollars, Euros or in certain other agreed currencies, and borrowings will bear interest, at the Company’s option, at either: (i) a floating per annum base rate based on the administrative agent’s prime rate or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.00% and 1.00% , depending on the Company's leverage ratio as of the most recently ended fiscal quarter, or (ii) a reserve-adjusted fixed per annum rate based on LIBOR, EURIBOR, or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 1.00% and 2.00% , depending on the Company's leverage ratio as of the most recently ended fiscal quarter. Interest will be paid on the last day of each fiscal quarter with respect to borrowings bearing interest based on a floating rate, or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at a fixed rate. The Company's obligations under the 2012 Credit Facility are guaranteed by several of the Company's domestic subsidiaries.
The 2012 Credit Facility contains various customary representations and warranties by the Company, which include customary use of materiality, material adverse effect and knowledge qualifiers. The 2012 Credit Facility also contains customary affirmative and negative covenants including, among other requirements, negative covenants that restrict the Company's ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions and make investments. Further, the 2012 Credit Facility contains financial covenants that require the maintenance of minimum interest coverage and maximum leverage ratios. Specifically, the Company must maintain as of the end of each fiscal quarter a ratio of (a) EBITDA (as defined in the 2012 Credit Facility) to (b) interest expenses for the most recently ended period of four fiscal quarters of not less than 3.00 to 1. The Company must also maintain, at the end of each fiscal quarter, a ratio of (x) total indebtedness to (y) EBITDA (as defined in the 2012 Credit Facility) for the most recently ended period of four fiscal quarters of not greater than 3 to 1; provided, that on the completion of a material acquisition, the Company may increase the ratio by 0.25 for the fiscal quarter during which such acquisition occurred and each of the three subsequent fiscal quarters.

13


The Company was in compliance with these covenants as of the first quarter of fiscal 2014 .
The 2012 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company's obligations under the 2012 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.
The weighted average interest rate on the current portion of the long-term debt outstanding under the 2012 Credit Facility and Uncommitted Facilities was 1.66% and 1.31% at the end of the first quarter of fiscal 2014 and fiscal year end 2013 , respectively. The interest rate on the non-current debt outstanding under the 2012 Credit Facility was 1.66% and 1.67% at the end of the first quarter of fiscal 2014 and fiscal year end 2013 , respectively.
Promissory Notes and Other Debt
As of the first quarter of fiscal 2014 and fiscal year end 2013 , the Company had promissory notes and other debt totaling approximately $8.4 million and $8.5 million , respectively, of which $0.1 million for both periods was classified as long-term in the Condensed Consolidated Balance Sheet.
Leases and Other Commitments
The estimated future minimum operating lease commitments as of the first quarter of fiscal 2014 are as follows (dollars in thousands):
 
 
 
2014 (Remaining)
$
23,515

2015
24,347

2016
18,753

2017
13,383

2018
8,370

Thereafter
26,067

Total
$
114,435

As of the first quarter of fiscal 2014 , the Company had unconditional purchase obligations of approximately $137.2 million . These unconditional purchase obligations primarily represent open non-cancelable purchase orders for material purchases with the Company’s vendors. Purchase obligations exclude agreements that are cancelable without penalty.
NOTE 9. FAIR VALUE MEASUREMENTS
The Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Where available, fair value is based on observable market prices or parameters. Where observable prices or inputs are not available, valuation models are applied. Hierarchical levels, defined by the guidance on fair value measurements are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:
Level I—Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II—Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level III—Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Fair Value on a Recurring Basis

14


Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.
 
 
Fair Values as of the First Quarter of Fiscal 2014
 
Fair Values as of Fiscal Year End 2013
(Dollars in thousands)
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds(1)
$
2

 
$

 
$

 
$
2

 
$
2

 
$

 
$

 
$
2

Deferred compensation plan assets (2)
17,468

 

 

 
17,468

 
16,545

 

 

 
16,545

Derivative assets (3)

 
1,012

 

 
1,012

 

 
196

 

 
196

Total
$
17,470

 
$
1,012

 
$

 
$
18,482

 
$
16,547

 
$
196

 
$

 
$
16,743

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation plan liabilities (2)
$
17,468

 
$

 
$

 
$
17,468

 
$
16,545

 
$

 
$

 
$
16,545

Derivative liabilities (3)

 
350

 

 
350

 

 
635

 

 
635

Contingent consideration liabilities (4)

 

 
5,414

 
5,414

 

 

 
2,401

 
2,401

Total
$
17,468

 
$
350

 
$
5,414

 
$
23,232

 
$
16,545

 
$
635

 
$
2,401

 
$
19,581

 

(1)
The money market funds are highly liquid investments. The fair values are determined using observable quoted prices in active markets. Money market funds are included in Cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheets.
(2)
The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. The plan assets and liabilities are invested in actively traded mutual funds and individual stocks valued using observable quoted prices in active markets. Deferred compensation plan assets and liabilities are included in Other non-current assets and Other non-current liabilities on the Company's Condensed Consolidated Balance Sheets.
(3)
Derivative assets and liabilities primarily represent forward currency exchange contracts. The Company typically enters into these contracts to minimize the short-term impact of foreign currency exchange rates on certain trade and inter-company receivables and payables. Derivative assets and liabilities are included in Other current assets and Other current liabilities on the Company's Condensed Consolidated Balance Sheets.
(4)
Contingent consideration liabilities represent arrangements to pay the former owners of certain companies the Company acquired. The undiscounted maximum payment under the arrangements is $12.7 million at the end of the first quarter of fiscal 2014 , based on estimated future revenues or gross margins. Contingent consideration liabilities are included in Other current liabilities and Other non-current liabilities on the Company's Condensed Consolidated Balance Sheets.
Additional Fair Value Information
The following table provides additional fair value information relating to the Company’s financial instruments outstanding:
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
As of
First Quarter of Fiscal 2014
 
Fiscal Year End 2013
(Dollars in thousands)
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
165,226

 
$
165,226

 
$
147,227

 
$
147,227

Forward foreign currency exchange contracts
1,012

 
1,012

 
196

 
196

Liabilities:
 
 
 
 
 
 
 
Credit facilities
$
656,250

 
$
656,250

 
$
750,000

 
$
750,000

Forward foreign currency exchange contracts
350

 
350

 
635

 
635

Promissory notes and other debt
8,402

 
8,402

 
8,458

 
8,458

The fair value of cash and cash equivalents is based on quoted prices in active markets for identical assets or liabilities, and is categorized as Level I in the fair value hierarchy. The fair value of the bank borrowings and promissory notes has been calculated using an estimate of the interest rate the Company would have had to pay on the issuance of notes with a similar maturity and

15


discounting the cash flows at that rate, and is categorized as Level II in the fair value hierarchy. The fair values do not give an indication of the amount that the Company would currently have to pay to extinguish any of this debt.
NOTE 10. PRODUCT WARRANTIES
The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support, labor costs, and costs incurred by third parties performing work on the Company’s behalf. The Company’s expected future costs are primarily estimated based upon historical trends in the volume of product returns within the warranty period and the costs to repair or replace the equipment. The products sold are generally covered by a warranty for periods ranging from 90 days to 5.5 years.
While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.
Changes in the Company’s product warranty liability during the first quarter of fiscal 2014 are as follows:  
(Dollars in thousands)
 
Balance as of fiscal year end 2013
$
17,781

Acquired warranties
18

Accruals for warranties issued
4,356

Changes in estimates
340

Warranty settlements (in cash or in kind)
(4,359
)
Balance as of the first quarter of fiscal 2014
$
18,136

NOTE 11. EARNINGS PER SHARE
Basic earnings per share is computed by dividing Net income attributable to Trimble Navigation Ltd. by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing Net income attributable to Trimble Navigation Ltd. by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s employee stock purchase plan and unvested restricted stock units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
The following table shows the computation of basic and diluted earnings per share:
 
First Quarter of
 
2014
 
2013
(Dollars in thousands, except per share amounts)
 
 
 
Numerator:
 
 
 
Net income attributable to Trimble Navigation Ltd.
$
68,624

 
$
49,808

Denominator:
 
 
 
Weighted average number of common shares used in basic earnings per share
259,789

 
255,181

Effect of dilutive securities
4,995

 
5,118

Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share
264,784

 
260,299

Basic earnings per share
$
0.26

 
$
0.20

Diluted earnings per share
$
0.26

 
$
0.19

For the first quarter of fiscal 2014 and 2013 , the Company excluded 0.1 million and 2.5 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share because their effect would have been antidilutive.

16


NOTE 12. INCOME TAXES
In the first quarter of fiscal 2014 , the Company’s effective income tax rate was 23% as compared to 10% in the corresponding period in 2013 , primarily due to the tax effect of a gain on a partial equity sale of VSS, the retroactive reinstatement of the 2012 federal R&D credit in the first quarter of 2013 as well as the expiration of the federal R&D credit for tax years after December 31, 2013 and the differences in the geographic mix of pretax income.
The Company's effective tax rates for the first quarter of fiscal years 2014 and 2013 are lower than the U.S. federal statutory rate of 35% primarily due to favorable tax rates associated with certain earnings from operations in lower-tax jurisdictions. The Company has not provided U.S. taxes for all of such earnings due to the indefinite reinvestment of some of those earnings outside the U.S. The effective tax rate for the first quarter of fiscal year 2013 also reflects the reinstatement of the 2012 federal R&D credit.
The Company and its subsidiaries are subject to U.S. federal and state, and foreign income tax. The Company is currently in different stages of multiple year examinations by the Internal Revenue Service as well as various state and foreign taxing authorities. Although timing of the resolution of audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits as of April 4, 2014 will materially change in the next twelve months.
The unrecognized tax benefits of $40.1 million and $38.1 million as of the first quarter of fiscal 2014 and fiscal year end 2013, respectively, if recognized, would favorably affect the effective income tax rate in future periods. Unrecognized tax benefits are recorded in Other non-current liabilities and in the deferred tax accounts in the accompanying Condensed Consolidated Balance Sheets.
The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company's unrecognized tax benefit liabilities include interest and penalties as of the first quarter of fiscal 2014 and fiscal year end 2013, of $4.3 million and $3.6 million, respectively, which were recorded in Other non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.
NOTE 13. LITIGATION
On August 9, 2013, the Harbinger Plaintiffs filed a lawsuit against Deere & Co., Garmin International, Inc., the Company and two other defendants in the U.S. District Court in Manhattan in connection with the Harbinger Plaintiffs’ investment in LightSquared. The Harbinger Plaintiffs allege, among other things, fraud and negligent misrepresentation, claiming that the defendants were
aware of material facts that caused the Federal Communications Commission to take adverse action against LightSquared and affirmatively misrepresented and failed to disclose those facts prior to the Harbinger Plaintiffs’ investment in LightSquared. The Harbinger Plaintiffs seek $1.9 billion in damages from the defendants. On November 1, 2013, debtor LightSquared, Inc. and two related parties (“LightSquared Plaintiffs”) filed suit against the same defendants in the U.S. Bankruptcy Court in Manhattan. The LightSquared Plaintiffs assert claims similar to those made by the Harbinger Plaintiffs, as well as additional claims, including breach of contract and tortious interference, and allege that LightSquared invested billions of dollars in reliance on the promises and representations of defendants. On January 31, 2014, the U.S. District Court granted defendants’ motion to withdraw the LightSquared action from the U.S. Bankruptcy Court so it will proceed together with the Harbinger action before the U.S. District Court. Although an unfavorable outcome of these litigation matters may have a material adverse effect on the Company's operating results, liquidity, or financial position, the Company believes the claims in these lawsuits are without merit and intends to vigorously contest these lawsuits.
From time to time, the Company is also involved in litigation arising out of the ordinary course of our business. There are no other material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of the Company's or its subsidiaries' property is subject.

17


This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Actual results could differ materially from those indicated in the forward-looking statements due to a number of factors including, but not limited to, the risk factors discussed in “Risk Factors” below and elsewhere in this report as well as in the Company’s Annual Report on Form 10-K for fiscal year 2013 and other reports and documents that the Company files from time to time with the Securities and Exchange Commission. The Company has attempted to identify forward-looking statements in this report by placing an asterisk (*) before paragraphs. Discussions containing such forward-looking statements may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, and the Company disclaims any obligation to update these statements or to explain the reasons why actual results may differ.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations are based upon our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the U. S. The preparation of these financial statements requires us to make estimates and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on our best knowledge of current events and actions that may impact us in the future, actual results may be different from the estimates.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no material changes to our significant accounting polices during the first quarter of fiscal 2014 from those disclosed in our 2013 Form 10-K.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that generally requires the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Condensed Consolidated Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. We adopted this new standard on a prospective basis in the first quarter of fiscal 2014. The implementation had no material impact on our Condensed Consolidated Financial Statements.
In April 2014, the FASB issued amendments to guidance for reporting discontinued operations and disposals of components of an entity. The amended guidance requires that a disposal representing a strategic shift that has (or will have) a major effect on an entity’s financial results or a business activity classified as held for sale should be reported as discontinued operations. The amendments also expand the disclosure requirements for discontinued operations and add new disclosures for individually significant dispositions that do not qualify as discontinued operations. The amendments are effective prospectively for fiscal years, and interim reporting periods within those years, beginning after December 15, 2014; however, early adoption is permitted as is a retrospective application. We will adopt the amendments beginning in the first quarter of fiscal 2015. We do not anticipate a material impact on our Condensed Consolidated Financial Statements as a result of this change.
EXECUTIVE LEVEL OVERVIEW
Trimble's focus is on integrating its broad technological and application capabilities to create system-level solutions that transform how work is done within the industries we serve, enhancing productivity, accuracy, safety and regulatory compliance for our customers. The majority of our markets are end-user markets, including engineering and construction firms, surveyors, farmers, governmental organizations, energy and utility companies and organizations that must manage fleets of mobile workers and assets. We also provide components to original equipment manufacturers to incorporate into their products. In the end-user markets, we provide stand-alone systems which may consist of software, hardware or some combination of the two, as well as integrated enterprise or workflow solutions which address the entire work process. We manage our operations in the following four segments: Engineering and Construction, Field Solutions, Mobile Solutions, and Advanced Devices.
Solutions targeted at the end-user make up a significant majority of our revenue. With the exception of our Mobile Solutions and Advanced Devices segments, our products are primarily sold through a dealer channel, and it is crucial that we maintain a proficient, global, third-party distribution channel.
Some of the more significant developments in our business during the quarter included:

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Table of Contents

Engineering and Construction Segment
We expanded our Trimble Connected Site® portfolio of solutions to add new functionality to the Trimble VisionLink® fleet, asset and site productivity management solution. VisionLink version 2.10 allows project managers to remotely manage daily or total payload reporting from Trimble LOADRITE X2350 excavator scales and LT2180 wheel loader scales. We introduced the Trimble SNM41 Connected Site Gateway. The new ruggedized telematics device is used for tracking and managing the efficiency of site assets, light equipment and haul vehicles. Coupled with VisionLink version 2.10, the low-cost SNM451 provides project owners, fleet managers and equipment rental companies the critical information they need to more effectively allocate resources and improve the productivity of their mixed fleet. Also in the heavy civil construction market, we introduced a new Trimble PCS900 Paving Control System for GOMACO slip-form concrete pavers, which will be available through GOMACO in North America. The PCS900 system allows contractors to pave an accurate and consistent concrete surface with increased productivity and yield. We also announced expanded collaboration with Caterpillar to better serve global customers from project design through completion, with critical technologies and services focused on fleet management and site productivity across a contractor’s entire equipment fleet, regardless of brand.
We released SketchUp 2014, a major enhancement to the world’s most widely used 3D modeling software. The release includes expansion of the 3D Warehouse to enable users to view and orbit 3D models before importing them into their projects. To provide increased efficiency and interoperability with Building Information Modeling (BIM) workflows, SketchUp Pro 2014 includes functions for classification of objects and exports to industry-standard IFC 2x3 formats.
We announced that AECOM, one of the world's largest providers of professional, technical and management support services for transportation, facilities, environment, energy, water and government, will deploy several solutions from Trimble's Design-Build-Operate (DBO) software portfolio to improve project workflows, increase visibility and accuracy while enhancing team collaboration for construction projects. AECOM will use a range of Trimble software solutions including SketchUp Pro, Tekla Structures, Vico Office, WinEst, Modelogix, Prolog, Quantm, Plancal Nova, Trimble AutoBid Mechanical and Trimble Accubid Enterprise Estimating. The software packages provide 3D design, building information modeling, virtual construction, estimation, cost modeling, project management, alignment planning and integrated CAD/BIM computations.
We also announced that BSF Swissphoto, a Swiss-German company providing a comprehensive portfolio of geodata service in Europe, Africa and the Americas, deployed the Trimble AX60 airborne LiDAR system in its fixed-wing aircraft and helicopters. The AX60 provides data collection capabilities at high altitudes with consistent point distribution in mountainous and topographically challenging areas. BSF Swissphoto will use the system as part of its geodata services portfolio for various wide area and corridor mapping applications.
Our continued execution of our global SITECH distribution strategy resulted in establishing a new SITECH Technology Dealer in Poland.
Field Solutions Segment
We added the Trimble UX5 unmanned aircraft system (UAS) to our portfolio for the Agriculture solutions portfolio. When used for aerial imaging and mapping, the UX5 enables service providers to capture aerial images for scouting and monitoring crop health, and detecting pests, weeds and nitrogen deficiencies. The system can locate cattle and their available forage over large areas, measure crop height and generate topographic maps and models for land leveling and drainage applications.
Mobile Solutions segment
We extended our capabilities in the forestry market with the introduction of the next generation Enterprise Forest Management software solution. The solution provides a platform for managing asset inventory as well as developing short- and long-term strategic and operational plans. As part of Trimble’s Connected Forest solutions, Trimble's Enterprise Forest Management software can help organizations analyze options and priorities, optimally allocate resources, track progress and roll information up to a management level. We also announced that Hindustan Petroleum Corporation Limited (HPCL) will deploy the Trimble trako Fleet Management and Visual Cargo™ consignment management solutions in their outbound logistics fleet that transports finished products to locations across India. HPCL markets its petroleum products through its retail pumps as well as terminals and depots across India.
Advanced Devices segment
We announced that our ThingMagic® Micro and Micro-LTE UHF RFID modules now operate within the recently ratified 920 MHz ultra-high frequency (UHF) standard in Japan, an example of our continuing focus to provide solutions for specific markets and needs.

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Table of Contents

RECENT BUSINESS DEVELOPMENTS
The following companies or business assets were acquired during the fifteen months ended April 4, 2014 and are combined in our results of operations since the date of acquisition:
Field3D
On March 10, 2014, we acquired SVS Innovations’ (SVSi) construction software business and its advanced Field3D mobile technology of Tampere, Finland. Field3D is an easy-to-use 3D collaboration software solution for BIM that works on mobile devices, enabling stakeholders in a construction workflow to access complete 3D model information for an entire building on smartphones and tablets. Field3D's performance is reported under our Engineering and Construction business segment.
GeoDesy Kft
On February 24, 2014, we acquired the assets of privately-held GeoDesy and GeoDesy Free Space Optics (FSO) of Budapest, Hungary. GeoDesy is a European engineering and development company focused on delivering accessories for the geomatics, surveying, mapping and construction industries. GeoDesy Kft's performance is reported under our Engineering and Construction business segment.
IQ Irrigation Assets
On August 30, 2013, we acquired the assets of privately-held IQ Irrigation of Christchurch, New Zealand. IQ Irrigation is a provider of a hardware and software solution for controlling linear and pivot irrigation systems. IQ Irrigation's performance is reported under our Field Solutions business segment.
RainWave and Hydro-Engineering
On August 23, 2013, we acquired the assets of privately-held RainWave, LLC and Hydro-Engineering Solutions, LLC of Auburn, Alabama. RainWave provides precipitation monitoring services for agribusinesses, construction and engineering, government and consumer industries. Hydro-Engineering Solutions is a civil engineering company that specializes in hydrology and hydraulics. RainWave and Hydro-Engineering's performance is reported under our Field Solutions business segment.
Actronic Holdings Limited
On June 5, 2013, we acquired privately-held Actronic Holdings Limited of Auckland, New Zealand. Actronic Technologies is a provider of weighing technology and payload information systems for construction, aggregates, mining and waste markets. Actronic Holdings' performance is reported under our Engineering and Construction business segment.
Trade Service Company, LLC
On May 31, 2013, we acquired privately-held Trade Service Company, LLC based in San Diego, California. Trade Service is a provider in content acquisition, aggregation, management, publishing and distribution of product and pricing information used by manufacturers, distributors and contractors in the Architecture, Engineering, and Construction (AEC) industry. Trade Service’s performance is reported under our Engineering and Construction business segment.
Penmap Software
On January 11, 2013, we acquired a suite of software solutions from Penmap.com Ltd. of Bradford, United Kingdom. Penmap.com's solutions include both office and field data collection software specifically designed for the cadastral and surveying markets. Penmap Software’s performance is reported under our Engineering and Construction business segment.
Seasonality of Business
* Our individual segment revenue may be affected by seasonal buying patterns. Historically, the second fiscal quarter has been the strongest quarter for the Company driven by the construction buying season. However, as a result of diversification of our business into software and subscription revenue, we may experience less seasonality in the future.
RESULTS OF OPERATIONS
Overview
The following table is a summary of revenue, gross margin and operating income for the periods indicated and should be read in conjunction with the narrative descriptions below.
 

20


 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Revenue:
 
 
 
Product
$
442,569

 
$
412,787

Service
93,319

 
81,596

Subscription
68,833

 
61,728

Total revenue
604,721

 
556,111

Gross margin
$
326,892

 
$
286,914

Gross margin %
54.1
%
 
51.6
%
Operating income
$
75,711

 
$
56,457

Operating income %
12.5
%
 
10.2
%
Revenue
In the first quarter of fiscal 2014 , total revenue increased by $48.6 million or 9% , as compared to the first quarter of fiscal 2013 . Of this increase, product revenue increased $29.8 million or 7% , service revenue increased $11.7 million or 14% , and subscription revenue increased $7.1 million or 12% .
The product, service, and subscription revenue increases were driven primarily by growth across Engineering and Construction, and to a lesser extent, Mobile Solutions and Advanced Devices. The growth included organic growth as well as the impact of the acquisitions which were not applicable in the prior period. The product revenue growth was partially offset by a decrease in Field Solutions revenue primarily due to softness in agriculture markets. We consider organic growth to include all revenue except for revenue associated with acquisitions made within the last four quarters.
On a segment basis, Engineering and Construction revenue for the first quarter of fiscal 2014 increased $42.4 million or 16% , Mobile Solutions increased $8.5 million or 8% , and Advanced Devices increased $7.1 million or 22% , partially offset by a decrease in Field Solutions of $9.3 million or 6% , as compared to the first quarter of fiscal 2013 .
Revenue growth within Engineering and Construction was driven by growth due to global sales of building construction, heavy civil and survey products, in both the U.S. and Europe. Mobile Solutions increased due to growth in the transportation and logistics market. Advanced Devices revenue increased primarily due to stronger sales of Applanix product solutions. Field Solutions revenue decreased primarily due to softness in agriculture markets.
Gross Margin
Gross margin varies due to a number of factors including product mix, pricing, distribution channel, production volumes and foreign currency translations.
Gross margin increased by $40.0 million for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 . The increase was primarily due to increased sales and gross margin expansion in Engineering and Construction and to a lesser extent in Mobile Solutions. Gross margin as a percentage of total revenue for the first quarter of fiscal 2014 was 54.1% , as compared to 51.6% for the first quarter of fiscal 2013 . The increase was primarily due to an increase in sales of higher margin products, primarily software, maintenance, and subscription revenue, primarily due to organic growth, particularly in Engineering and Construction and to a lesser extent, in Mobile Solutions.
Operating Income
Operating income increased by $19.3 million for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 . Operating income as a percentage of total revenue was 12.5% for the first quarter of fiscal 2014 , as compared to 10.2% for the first quarter of fiscal 2013 .
The increase in operating income in the first quarter was primarily driven by higher revenue and gross margin expansion, partially offset by an increase in operating expenses. The increase in operating income percentage was primarily driven by higher margin software, maintenance, and subscription revenue, particularly in Engineering and Construction.
Results by Segment

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To achieve distribution, marketing, production and technology advantages in our targeted markets, we manage our operations in the following four segments: Engineering and Construction, Field Solutions, Mobile Solutions and Advanced Devices. Operating income equals net revenue less cost of sales and operating expense, excluding general corporate expense, amortization of purchased intangible assets, amortization of inventory step-up charges, acquisition costs and restructuring costs. Operating leverage is defined as an increase in operating income as a percentage of the increase in revenue.
The following table is a summary of revenue and operating income by segment:
 
 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Engineering and Construction
 
 
 
Revenue
$
309,276

 
$
266,871

Segment revenue as a percent of total revenue
51
%
 
48
%
Operating income
$
57,515

 
$
42,973

Operating income as a percent of segment revenue
19
%
 
16
%
Field Solutions
 
 
 
Revenue
$
138,165

 
$
147,481

Segment revenue as a percent of total revenue
23
%
 
27
%
Operating income
$
52,937

 
$
59,526

Operating income as a percent of segment revenue
38
%
 
40
%
Mobile Solutions
 
 
 
Revenue
$
118,628

 
$
110,164

Segment revenue as a percent of total revenue
20
%
 
20
%
Operating income
$
16,170

 
11,573

Operating income as a percent of segment revenue
14
%
 
11
%
Advanced Devices
 
 
 
Revenue
$
38,652

 
$
31,595

Segment revenue as a percent of total revenue
6
%
 
5
%
Operating income
$
11,676

 
$
6,485

Operating income as a percent of segment revenue
30
%
 
21
%
A reconciliation of our consolidated segment operating income to consolidated income before taxes follows:
 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Consolidated segment operating income
$
138,298

 
$
120,557

Unallocated corporate expense
(20,622
)
 
(21,350
)
Amortization of purchased intangible assets
(40,569
)
 
(39,332
)
Acquisition costs
(1,396
)
 
(3,418
)
Consolidated operating income
75,711

 
56,457

Non-operating income (loss), net
12,764

 
(2,088
)
Consolidated income before taxes
$
88,475

 
$
54,369

Unallocated corporate expense includes general corporate expense, amortization of inventory step-up charges and restructuring costs.
Engineering and Construction

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Engineering and Construction revenue increased by $42.4 million or 16% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 . Segment operating income increased $14.5 million or 34% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 .
Revenue growth for the first quarter of fiscal 2014 was driven by continued organic growth due to global sales of building construction, heavy civil and survey products primarily in the U.S. and Europe, as well as growth from acquisitions. The primary drivers were increased market penetration due to continuing adoption of our products, particularly in the construction industry as technology is playing a broader role. For example, our newer product solutions, that cover both civil and building construction, integrate both hardware and software across an entire work flow. There was also continued improvement in the residential and commercial construction markets. Segment operating income increased primarily due to higher revenue and product mix, including higher software, maintenance and subscription revenue.
Field Solutions
Field Solutions revenue decreased by $9.3 million or 6% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 . Segment operating income decreased by $6.6 million or 11% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 .
Field Solution revenue decreased for the first quarter of fiscal 2014 , primarily due to softness in agriculture markets. Harsh weather conditions in the first quarter of the year, particularly in North America, among other factors, including channel execution challenges, contributed to slower than anticipated agriculture sales.  North American weather conditions for the second year in a row included drought conditions in the West and extremely wet condition in much of the East, which kept farmers out of the field for much of what is usually a high activity period.  Segment operating income decreased due to reduced operating leverage in our agriculture business.   The agriculture decrease was partially offset by an increase in Geographic Information System (GIS) sales. 
Mobile Solutions
Mobile Solutions revenue increased by $8.5 million or 8% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 . Segment operating income increased by $4.6 million or 40% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 .
Mobile Solutions revenue increased for the first quarter of fiscal 2014 , primarily due to continued organic growth in the transportation and logistics market, which focuses on enterprise solutions. The majority of the sales are in the U.S., however there is continuing focus on geographic expansion. Operating income increased due to increased revenue and product mix, including higher software, maintenance and subscription revenue.
Advanced Devices
Advanced Devices revenue increased by $7.1 million or 22% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 . Segment operating income increased by $5.2 million or 80% for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 .
The increase in revenue and operating income for the first quarter of fiscal 2014 was due to increased sales of timing, embedded and inertial/GNSS positioning and orientation systems.
Research and Development, Sales and Marketing and General and Administrative Expense
Research and development (R&D), sales and marketing (S&M) and general and administrative (G&A) expense are summarized in the following table:

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Table of Contents

 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Research and development
76,376

 
73,608

Percentage of revenue
13
%
 
13
%
Sales and marketing
97,354

 
83,623

Percentage of revenue
16
%
 
15
%
General and administrative
57,433

 
51,970

Percentage of revenue
9
%
 
10
%
Total
231,163

 
209,201

Percentage of revenue
38
%
 
38
%
Overall, R&D, S&M and G&A expense increased by approximately $22.0 million for the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 .
Research and development expense increased by $2.8 million for the first quarter of fiscal 2014 , as compared to the corresponding period of fiscal 2013 . Research and development spending overall was at approximately 13% of revenue in both the first quarter of fiscal 2014 and 2013 . The cost of software developed for external sale subsequent to reaching technical feasibility was not material and was expensed as incurred.
The increase in R&D expense in the first quarter of fiscal 2014 , as compared to the corresponding period of fiscal 2013 was primarily due to the inclusion of expense of $2.6 million from acquisitions not applicable in the prior corresponding period, a $4.3 million increase in compensation related expense due to headcount increases, partially offset by $4.0 million increase in cost reimbursement from joint ventures.
* We believe that the development and introduction of new products are critical to our future success and we expect to continue active development of new products.
Sales and marketing expense increased by $13.7 million for the first quarter of fiscal 2014 , as compared to the corresponding period of fiscal 2013 . Sales and marketing spending overall was at approximately 16% of revenue in the first quarter of fiscal 2014 , as compared to 15% of revenue in the first quarter of fiscal 2013 .
The increase in Sales and marketing expense in the first quarter of fiscal 2014 , as compared to the corresponding period of fiscal 2013 was primarily due to a $4.5 million increase in travel/marketing cost due to two global dealer meetings, a $4.4 million increase in compensation related expense, $3.1 million of expense from acquisitions not applicable in the prior period, and a $1.7 million increase in other expense.
* Our future growth will depend in part on the timely development and continued viability of the markets in which we currently compete, as well as our ability to continue to identify and develop new markets for our products.
General and administrative expense increased by $5.5 million for the first quarter of fiscal 2014 , as compared to the corresponding period of fiscal 2013 . General and administrative spending overall was at approximately 9% of revenue in the first quarter of fiscal 2014 , as compared to 10% of revenue in the first quarter of fiscal 2013 .
The increase in G&A expenses in the first quarter of fiscal 2014 , as compared to the first quarter of fiscal 2013 was primarily due to a $3.2 million increase in compensation related expense, $2.4 million of expense from acquisitions not applicable in the first quarter of fiscal 2013 , a $0.6 million increase in bad debt expense and a $1.3 million increase in other expense, partially offset by a $2.0 million decrease in merger and acquisition costs.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets was $40.6 million in the first quarter of fiscal 2014 , as compared to $39.3 million in the first quarter of fiscal 2013 . Of the total $40.6 million in the first quarter of fiscal 2014 , $19.7 million is presented as a separate line within Operating expense and $20.9 million is presented as a separate line within Cost of sales on our Condensed Consolidated Statements of Income. The increase was due to acquisitions not included in the first quarter of fiscal 2013 , partially offset by the expiration of amortization for prior acquisitions. As of the first quarter of fiscal 2014 , future amortization of intangible assets is expected to be $111.3 million during the remaining three quarters of fiscal 2014 , $139.4 million during 2015 , $120.6 million during 2016 , $98.8 million during 2017 , $68.5 million during 2018 and $44.5 million thereafter.

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Table of Contents

Non-operating Income (Loss), Net
The components of non-operating income (loss), net, were as follows:
 
 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Interest expense, net
(3,683
)
 
(5,071
)
Foreign currency transaction loss
(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
)
Non-operating income (loss), net increased $14.9 million for the first quarter of fiscal 2014 as compared to the first quarter of fiscal 2013 . The increase for the first quarter of fiscal 2014 was primarily due to a gain on a partial equity sale of Virtual Site Solutions (VSS) and lower interest expense, as well as favorable foreign currency fluctuations.
Income Tax Provision
Our effective income tax rate for the first quarter of fiscal 2014 was 23% , as compared to 10% in the corresponding period in 2013 , primarily due to the tax effect of a gain on a partial equity sale of VSS, the retroactive reinstatement of the 2012 federal R&D credit in the first quarter of 2013 as well as the expiration of the federal R&D credit for tax years after December 31, 2013 and the differences in the geographic mix of our pretax income.
Our effective tax rates for the first quarter of fiscal years 2014 and 2013 are lower than the U.S. federal statutory rate of 35% primarily due to favorable tax rates associated with certain earnings from operations in lower-tax jurisdictions. We have not provided U.S. taxes for all of such earnings due to the indefinite reinvestment of some of those earnings outside the U.S. The effective tax rate for the first quarter of fiscal year 2013 also reflects the reinstatement of the 2012 federal R&D credit.
OFF-BALANCE SHEET FINANCINGS AND LIABILITIES
Other than lease commitments incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the Condensed Consolidated Financial Statements. Additionally, we do not have any interest in, or relationship with, any special purpose entities.
In the normal course of business to facilitate sales of our products, we indemnify other parties, including customers, lessors and parties to other transactions with us, with respect to certain matters. We have agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification obligations to our agents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements were not material and no liabilities have been recorded for these obligations on the Condensed Consolidated Balance Sheets as of the first quarter of fiscal 2014 and fiscal year end 2013 .
LIQUIDITY AND CAPITAL RESOURCES
 

25


 
First Quarter of
 
Fiscal Year End
As of
2014
 
2013
(Dollars in thousands)
 
 
 
Cash and cash equivalents
$
165,226

 
$
147,227

Total debt
664,652

 
758,458

 
First Quarter of
 
2014
 
2013
(Dollars in thousands)
 
 
 
Cash provided by operating activities
$
83,395

 
$
37,388

Cash used in investing activities
(14,142
)
 
(76,405
)
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
As of the first quarter of fiscal 2014 , cash and cash equivalents totaled $165.2 million as compared to $147.2 million as of fiscal year end 2013 . Debt was $664.7 million as of the first quarter of fiscal 2014 , as compared to $758.5 million as of fiscal year end 2013 .
* Our ability to continue to generate cash from operations will depend in large part on profitability, the rate of collections of accounts receivable, our inventory turns and our ability to manage other areas of working capital.
*We believe that our cash and cash equivalents, together with borrowings under our 2012 Credit Facility as described below under the heading “Debt”, will be sufficient to meet our anticipated operating cash needs, debt service, planned capital expenditures, and stock purchases under the stock repurchase program for at least the next twelve months.
* We anticipate that planned capital expenditures primarily for an upgrade of our Oracle ERP system, as well as computer equipment, software, manufacturing tools and test equipment and leasehold improvements associated with business expansion, will constitute a partial use of our cash resources. Decisions related to how much cash is used for investing are influenced by the expected amount of cash to be provided by operations.
Operating Activities
Cash provided by operating activities was $83.4 million for the first quarter of fiscal 2014 , as compared to $37.4 million for the first quarter of fiscal 2013 . The increase of $46.0 million was primarily driven by an increase in net income before non-cash depreciation and amortization, a decrease in inventories and an increase in accounts payable.
Investing Activities
Cash used in investing activities was $14.1 million for the first quarter of fiscal 2014 , as compared to $76.4 million for the first quarter of fiscal 2013 . The decrease of $62.3 million was due to lower cash requirements for business acquisitions.
Financing Activities
Cash used in financing activities was $51.1 million for the first quarter of fiscal 2014 , as compared to cash provided of $28.2 million for the first quarter of fiscal 2013 . The decrease of $79.4 million was primarily due to payments on term loan debt and revolving credit lines.
Accounts Receivable and Inventory Metrics
 
 
First Quarter of
 
Fiscal Year End
As of
2014
 
2013
Accounts receivable days sales outstanding
60

 
55

Inventory turns per year
4.1

 
4.1


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Accounts receivable days sales outstanding were 60 days as of the end of the first quarter of fiscal 2014 , as compared to 55 days as of the end of fiscal 2013 . The increase in DSO was primarily due to non-linearity of sales and billings within the quarter. Accounts receivable days sales outstanding are calculated based on ending accounts receivable, net, divided by revenue for the corresponding fiscal quarter, times a quarterly average of 91 days. Our inventory turns were both 4.1 as of the end of the first quarter of fiscal 2014 and the end of fiscal 2013 . Our inventory turnover is calculated based on total cost of sales for the most recent twelve months divided by average ending inventory, net, for this same twelve month period.
Repatriation of Foreign Earnings and Income Taxes
At the end of the first quarter of fiscal 2014 , $131.8 million of cash and cash equivalents was held by our foreign subsidiaries. If these funds are needed for our operations in the U.S., we would not be required to accrue and pay U.S. taxes to repatriate these funds due to intercompany financing arrangements with our foreign subsidiaries. While a significant portion of our foreign earnings continue to be permanently reinvested in our foreign subsidiaries, it is anticipated this reinvestment will not impede cash needs at the parent company level. In our determination of which foreign earnings are permanently reinvested, we consider numerous factors, including the financial requirements of the U.S. parent company, the financial requirements of the foreign subsidiaries, and the tax consequences of remitting the foreign earnings back to the U.S. There are no other material impediments to our ability to access sources of liquidity and our resulting ability to meet short and long-term liquidity needs, other than in the event we are not in compliance with the covenants under our 2012 Credit Facility or the potential tax costs of remitting foreign earnings back to the U.S.
Credit Facilities
On November 21, 2012, we entered into an amended and restated credit agreement with a group of lenders (the “2012 Credit Facility”). This credit facility provides for unsecured credit facilities in the aggregate principal amount of $1.4 billion, comprised of a five-year revolving loan facility of $700.0 million and a five-year $700.0 million term loan facility. Subject to the terms of the 2012 Credit Facility, the revolving loan facility and the term loan facility may be increased by $300.0 million in the aggregate. We also have two $75 million uncommitted revolving loan facilities (the “Uncommitted Facilities”), which are callable by the bank at any time and have no covenants. The interest rate is 0.9% to 1.00% plus either LIBOR or the bank’s cost of funds or as otherwise agreed upon by the bank and us.
As of the first quarter of 2014 , our total debt was comprised primarily of a term loan of $656.3 million . Of the total outstanding balance, $612.5 million of the term loan is classified as long-term in the Condensed Consolidated Balance Sheet.
The funds available under the 2012 Credit Facility may be used for general corporate purposes, the financing of certain acquisitions and the payment of transaction fees and expenses related to such acquisitions. Under the 2012 Credit Facility, we may borrow, repay and reborrow funds under the revolving loan facility until its maturity on November 21, 2017, at which time the revolving facility will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not borrowed under the revolving facility will be subject to a commitment fee, to be paid in arrears on the last day of each fiscal quarter, ranging from 0.15% to 0.35% per annum depending on our leverage ratio as of the most recently ended fiscal quarter. The term loan will be repaid in quarterly installments, with the last quarterly payment to be made on September 29, 2017, with the remaining outstanding balance being due and payable at maturity on November 21, 2017. On an annualized basis, the amortization of the term loan is as follows: 5%, 5%, 10%, 10%, and 70% for years one through five respectively. The term loan may be prepaid in whole or in part, subject to certain minimum thresholds, without penalty or premium. Amounts repaid or prepaid with respect to the term loan facility may not be reborrowed.
We may borrow funds under the 2012 Credit Facility in U.S. Dollars, Euros or in certain other agreed currencies, and borrowings will bear interest, at our option, at either: (i) a floating per annum base rate based on the administrative agent's prime rate or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.00% and 1.00%, depending on our leverage ratio as of the most recently ended fiscal quarter, or (ii) a reserve-adjusted fixed per annum rate based on LIBOR, EURIBOR, or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 1.00% and 2.00%, depending on our leverage ratio as of the most recently ended fiscal quarter. Interest will be paid on the last day of each fiscal quarter with respect to borrowings bearing interest based on a floating rate, or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at a fixed rate. Our obligations under the 2012 Credit Facility are guaranteed by several of our domestic subsidiaries.
The 2012 Credit Facility contains various customary representations and warranties by us, which include customary use of materiality, material adverse effect and knowledge qualifiers. The 2012 Credit Facility also contains customary affirmative and negative covenants including, among other requirements, negative covenants that restrict our ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions and make investments. Further, the 2012 Credit Facility contains financial covenants that require the maintenance of minimum interest coverage and maximum leverage ratios. Specifically, we must maintain as of the end of each fiscal quarter a ratio of (a) EBITDA (as defined in the 2012 Credit Facility)

27

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to (b) interest expenses for the most recently ended period of four fiscal quarters of not less than 3 to 1. We must also maintain, at the end of each fiscal quarter, a ratio of (x) total indebtedness to (y) EBITDA (as defined in the 2012 Credit Facility) for the most recently ended period of four fiscal quarters of not greater than 3 to 1; provided, that on the completion of a material acquisition, we may increase the applicable ratio in the table below by 0.25 for the fiscal quarter during which such acquisition occurred and each of the three subsequent fiscal quarters.
We were in compliance with these covenants as of the first quarter of fiscal 2014 .
The 2012 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate our obligations under the 2012 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.
The weighted average interest rate on the current portion of our long-term debt outstanding under the 2012 Credit Facility and Uncommitted Facilities was 1.66% and 1.31% at the end of the first quarter of fiscal 2014 and fiscal year end 2013 , respectively. The interest rate on our non-current debt outstanding under the 2012 Credit Facility was 1.66% and 1.67% at the end of the first quarter of fiscal 2014 and fiscal year end 2013 , respectively.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
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 tables below 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.

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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 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 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 ) following the tables below.
(Dollars in thousands, except per share data)
 
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

 
 %
 
55

 
 %
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

 
 %
 
603

 
0.1
 %
Non-GAAP gross margin:
 
$
348,625

 
57.7
 %
 
$
307,853

 
54.4
 %
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
)%

29

Table of Contents

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

 
 %
 
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 Non-GAAP Tax Rate %
( I )
 
 

 
GAAP and Non-GAAP 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: