CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)

Second Quarter of

First Two Quarters of

2016

2015

2016

2015

Revenue:

        Product

$  407.0

$  394.6

$  800.6

$  795.2

        Service

109.7

105.7

211.3

206.6

        Subscription

92.9

85.5

180.7

166.6

Total revenue

609.6

585.8

1,192.6

1,168.4

Cost of sales:

        Product

199.4

190.8

389.4

378.5

        Service

44.0

42.2

85.6

83.6

        Subscription

26.6

25.9

53.3

49.7

        Amortization of purchased intangible assets

24.0

23.0

48.1

45.5

Total cost of sales

294.0

281.9

576.4

557.3

Gross margin

315.6

303.9

616.2

611.1

Gross margin (%)

51.8%

51.9%

51.7%

52.3%

Operating expense:

    Research and development

92.0

84.5

179.7

171.7

    Sales and marketing

97.4

96.2

194.1

192.7

    General and administrative

65.6

64.2

133.9

128.9

    Restructuring charges

4.5

5.2

6.3

6.3

    Amortization of purchased intangible assets

15.6

17.8

31.8

36.0

       Total operating expense

275.1

267.9

545.8

535.6

Operating income 

40.5

36.0

70.4

75.5

Non-operating income (expense), net:

    Interest expense

(6.6)

(6.3)

(13.2)

(12.7)

    Foreign currency transaction gain (loss), net

(1.5)

-

(1.6)

1.1

    Income from equity method investments, net

5.8

6.4

8.7

9.4

    Other income, net

0.1

(0.3)

3.4

6.7

       Total non-operating income (expense), net

(2.2)

(0.2)

(2.7)

4.5

Income before taxes

38.3

35.8

67.7

80.0

Income tax provision

2.7

10.0

12.4

20.2

Net income

35.6

25.8

55.3

59.8

(0.1)

(0.1)

(0.2)

(0.2)

Net income attributable to Trimble Navigation Limited

$   35.7

$   25.9

$   55.5

$   60.0

Earnings per share attributable to Trimble Navigation Limited:

     Basic

$   0.14

$   0.10

$    0.22

$   0.23

     Diluted

$   0.14

$   0.10

$    0.22

$   0.23

Shares used in calculating earnings per share:

    Basic

250.5

258.4

250.8

258.9

    Diluted

253.7

261.4

253.9

261.9

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

Second Quarter of

Fiscal Year End

2016

2015

Assets

Current assets:

   Cash and cash equivalents

$                231.9

$             116.0

   Accounts receivable, net

377.5

361.9

   Other receivables

36.1

14.9

   Inventories

241.7

261.1

   Other current assets

49.6

44.5

      Total current assets

936.8

798.4

Property and equipment, net

152.0

159.2

Goodwill

2,107.9

2,106.4

Other purchased intangible assets, net

408.9

487.1

Other non-current assets

146.0

129.6

      Total assets

$              3,751.6

$          3,680.7

Liabilities and Shareholders' Equity

Current liabilities:

   Short-term debt

$                130.3

$             118.3

   Accounts payable

106.7

99.8

   Accrued compensation and benefits

101.3

98.9

   Deferred revenue

280.5

234.6

   Accrued warranty expense

17.8

18.5

   Other current liabilities

84.4

90.8

      Total current liabilities

721.0

660.9

Long-term debt

594.7

611.4

Non-current deferred revenue

34.7

29.6

Deferred income tax liabilities

48.1

51.7

Other non-current liabilities

108.4

106.5

      Total liabilities

1,506.9

1,460.1

Shareholders' equity:

   Common stock

1,276.4

1,238.3

   Retained earnings

1,128.1

1,148.2

   Accumulated other comprehensive loss

(159.7)

(166.8)

Total Trimble Navigation Limited shareholders' equity           

2,244.8

2,219.7

Noncontrolling interests 

(0.1)

0.9

      Total shareholders' equity

2,244.7

2,220.6

      Total liabilities and shareholders' equity

$              3,751.6

$          3,680.7

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 

(In millions)

(Unaudited)

First Two Quarters of

2016

2015

Cash flow from operating activities:

    Net Income

$                   55.3

$  59.8

    Adjustments to reconcile net income to net cash provided by

       operating activities:

         Depreciation expense

18.8

17.9

         Amortization expense

79.9

81.5

         Provision for doubtful accounts

2.4

1.2

         Deferred income taxes

0.5

(0.8)

         Stock-based compensation

26.7

24.5

         Income from equity method investments

(8.7)

(9.4)

         Divestiture gain, net

(2.7)

(5.6)

         Excess tax benefit for stock-based compensation

(3.1)

(0.9)

         Provision for excess and obsolete inventories

8.8

2.0

         Other non-cash items

3.0

10.0

    Decrease (increase) in assets:

         Accounts receivables

(18.2)

1.3

         Other receivables

(1.5)

3.7

         Inventories

11.2

(11.8)

         Other current and non-current assets

(7.8)

(8.3)

    Increase (decrease) in liabilities:

         Accounts payable

6.4

6.1

         Accrued compensation and benefits

2.2

(0.8)

         Deferred revenue

53.8

49.5

         Accrued warranty

(0.7)

(1.4)

         Other liabilities

(33.8)

(14.5)

 Net cash provided by operating activities 

192.5

204.0

 Cash flow from investing activities: 

      Acquisitions of businesses, net of cash acquired 

(20.0)

(59.1)

      Acquisitions of property and equipment 

(12.2)

(26.5)

      Purchases of equity method investments 

(1.5)

(2.8)

      Net proceeds from sale of businesses 

10.7

12.6

      Dividends received from equity method investments 

10.7

7.7

      Other 

(0.3)

0.4

 Net cash used in investing activities 

(12.6)

(67.7)

 Cash flow from financing activities: 

      Issuance of common stock, net of tax withholdings 

25.0

16.0

      Repurchases and retirement of common stock 

(88.3)

(73.0)

      Excess tax benefit for stock-based compensation 

3.1

0.9

      Proceeds from debt and revolving credit lines 

202.0

220.0

      Payments on debt and revolving credit lines 

(207.0)

(312.1)

 Net cash used in financing activities 

(65.2)

(148.2)

 Effect of exchange rate changes on cash and cash equivalents 

1.2

(7.1)

 Net increase (decrease) in cash and cash equivalents 

115.9

(19.0)

 Cash and cash equivalents - beginning of period 

116.0

148.0

 Cash and cash equivalents - end of period 

$                 231.9

$129.0

REPORTING SEGMENTS

(Dollars in millions)

(Unaudited)

Reporting Segments

and

Field

Mobile

Advanced

Construction

Solutions

Solutions

Devices

SECOND QUARTER OF FISCAL 2016 :

Revenue

$        351.2

$    87.1

$   138.1

$      33.2

Operating income before corporate allocations

$          61.8

$    25.5

$     18.9

$      11.5

Operating margin (% of segment external net revenue)

17.6%

29.3%

13.7%

34.6%

SECOND QUARTER OF FISCAL 2015 :

Revenue

$        338.5

$    87.1

$   128.3

$      31.9

Operating income before corporate allocations

$          60.5

$    24.9

$     18.9

$      11.1

Operating margin (% of segment external net revenue)

17.9%

28.6%

14.7%

34.8%

FISCAL YEAR 2016 :

Revenue

$        661.0

$   193.1

$   274.4

$      64.1

Operating income before corporate allocations

$        105.9

$     59.4

$     37.8

$      21.8

Operating margin (% of segment external net revenue)

16.0%

30.8%

13.8%

34.0%

FISCAL YEAR 2015 :

Revenue

$        637.8

$   202.4

$   256.5

$      71.7

Operating income before corporate allocations

$          97.5

$     65.5

$     39.4

$      26.3

Operating margin (% of segment external net revenue)

15.3%

32.4%

15.4%

36.7%

GAAP TO NON-GAAP RECONCILIATION
(Dollars in millions, except per share data)
(Unaudited)

Second Quarter of

First Two Quarters of

2016

2015

2016

2015

Dollar
Amount

% of
Revenue

Dollar
Amount

% of
Revenue

Dollar
Amount

% of
Revenue

Dollar
Amount

% of
Revenue

GROSS MARGIN:

GAAP gross margin:

$  315.6

51.8%

$  303.9

51.9%

$   616.2

51.7%

$  611.1

52.3%

Restructuring charges

( A )

0.4

0.1%

0.3

0.1%

0.7

0.1%

0.5

0.0%

Amortization of purchased intangible assets

( B )

24.0

3.9%

23.0

3.9%

48.1

4.0%

45.5

3.9%

Stock-based compensation

( C )

0.9

0.1%

1.0

0.2%

1.9

0.1%

1.9

0.2%

Non-GAAP gross margin: 

$  340.9

55.9%

$  328.2

56.1%

$   666.9

55.9%

$  659.0

56.4%

OPERATING EXPENSES:

GAAP operating expenses:

$  275.1

45.1%

$  267.9

45.7%

$   545.8

45.8%

$  535.6

45.8%

Restructuring charges

( A )

(4.5)

-0.7%

(5.2)

-0.9%

(6.3)

-0.5%

(6.3)

-0.5%

Amortization of purchased intangible assets

( B )

(15.6)

-2.6%

(17.8)

-3.0%

(31.8)

-2.7%

(36.0)

-3.1%

Stock-based compensation

( C )

(12.1)

-2.0%

(11.0)

-1.9%

(24.8)

-2.1%

(22.6)

-1.9%

Acquisition / divestiture items

( D )

(0.9)

-0.1%

(2.8)

-0.5%

(2.5)

-0.2%

(5.6)

-0.5%

Executive transition costs

( E )

(0.1)

0.0%

-

0.0%

(1.0)

-0.1%

-

0.0%

Non-GAAP operating expenses:

$  241.9

39.7%

$  231.1

39.4%

$   479.4

40.2%

$  465.1

39.8%

OPERATING INCOME:

GAAP operating income:

$   40.5

6.7%

$   36.0

6.1%

$     70.4

5.9%

$   75.5

6.5%

Restructuring charges

( A )

4.9

0.8%

5.5

0.9%

7.0

0.6%

6.8

0.6%

Amortization of purchased intangible assets

( B )

39.6

6.5%

40.8

7.0%

79.9

6.7%

81.5

7.0%

Stock-based compensation

( C )

13.0

2.1%

12.0

2.0%

26.7

2.2%

24.5

2.0%

Acquisition / divestiture items

( D )

0.9

0.1%

2.8

0.0%

2.5

0.2%

5.6

0.5%

Executive transition costs

( E )

0.1

0.0%

-

0.6%

1.0

0.1%

-

0.0%

Non-GAAP operating income: 

$   99.0

16.2%

$   97.1

16.6%

$   187.5

15.7%

$  193.9

16.6%

NON-OPERATING INCOME (EXPENSE), NET:

GAAP non-operating income (expense), net:

$    (2.2)

$    (0.2)

$     (2.7)

$     4.5

Acquisition / divestiture items

( D )

0.4

0.2

(2.7)

(5.6)

Debt issuance cost write-off

( F )

-

0.1

-

-

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

$    (1.8)

$     0.1

$     (5.4)

$    (1.1)

GAAP and 

GAAP and 

GAAP and 

GAAP and 

Non-GAAP

Non-GAAP

Non-GAAP

Non-GAAP

Tax Rate %

( I )

Tax Rate %

( I )

Tax Rate %

( I )

Tax Rate %

INCOME TAX PROVISION:

GAAP income tax provision:

$     2.7

7%

$   10.0

28%

$     12.4

18%

$   20.2

25%

Non-GAAP items tax effected 

( G )

4.1

17.2

21.0

29.0

Difference in GAAP and Non-GAAP tax rate

( H )

16.4

(3.9)

10.3

(2.9)

Non-GAAP income tax provision: 

$   23.2

24%

$   23.3

24%

$     43.7

24%

$   46.3

24%

NET INCOME:  

GAAP net income attributable to Trimble Navigation Limited

$   35.7

$   25.9

$     55.5

$   60.0

Restructuring charges

( A )

4.9

5.5

7.0

6.8

Amortization of purchased intangible assets

( B )

39.6

40.8

79.9

81.5

Stock-based compensation

( C )

13.0

12.0

26.7

24.5

Acquisition / divestiture items

( D )

1.3

3.0

(0.2)

-

Executive transition costs

( E )

0.1

-

1.0

-

Debt issuance cost write-off

( F )

-

0.1

-

-

Non-GAAP tax adjustments

( G ) + ( H )

(20.5)

(13.3)

(31.3)

(26.1)

Non-GAAP net income attributable to Trimble Navigation Limited

$   74.1

$   74.0

$   138.6

$  146.7

DILUTED NET INCOME PER SHARE:

GAAP diluted net income per share attributable to Trimble Navigation Limited

$   0.14

$   0.10

$     0.22

$   0.23

Restructuring charges

( A )

0.02

0.02

0.03

0.03

Amortization of purchased intangible assets

( B )

0.15

0.16

0.31

0.31

Stock-based compensation

( C )

0.05

0.04

0.11

0.09

Acquisition / divestiture items

( D )

0.01

0.01

-

-

Executive transition costs

( E )

-

-

-

-

Debt issuance cost write-off

( F )

-

-

-

-

Non-GAAP tax adjustments

( G ) + ( H )

(0.08)

(0.05)

(0.12)

(0.10)

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

$   0.29

$   0.28

$     0.55

$   0.56

( A )

Restructuring costs.Included in our GAAP presentation of cost of sales and operating expenses, restructuring costs recorded are primarily for employee compensation resulting from reductions in employee headcount in connection with our company restructurings.  We exclude restructuring costs from our non-GAAP measures because we believe they do not reflect expected future operating expenses, they are not indicative of our core operating performance, and they are not meaningful in comparisons to our past operating performance.  We have incurred restructuring expense in each of the periods presented however the amount incurred can vary significantly based on whether a restructuring has occurred in the period and the timing of headcount reductions. 

( B )

Amortization of purchased intangible assets.Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. US GAAP accounting requires that intangible assets are recorded at fair value and amortized over their useful lives. Consequently, the timing and size of our acquisitions will cause our operating results to vary from period to period, making a comparison to past performance difficult for investors. This accounting treatment may cause differences when comparing our results to companies that grow internally because the fair value assigned to the intangible assets acquired through acquisition may significantly exceed the equivalent expenses that a company may incur for similar efforts when performed internally. Furthermore, the useful life that we expense our intangible assets over may be substantially different from the time period that an internal growth company incurs and recognizes such expenses. We believe that by excluding the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed, it provides an alternative way for investors to compare our operations pre-acquisition to those post-acquisitions and to those of our competitors that have pursued internal growth strategies. However, we note that companies that grow internally will incur costs to develop intangible assets that will be expensed in the period incurred, which may make a direct comparison more difficult.     

( C )

Stock-based compensation. Included in our GAAP presentation of cost of sales and operating expenses, stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not reflective of our core operating performance as it is a non-cash expense.   For the second quarter and the first two quarters of fiscal years 2016 and 2015, stock-based compensation was allocated as follows: 

Second Quarter of

First Two Quarters

(Dollars in millions)

2016

2015

2016

2015

Cost of sales

$                  0.9

$                  1.0

$                  1.9

$                   1.9

Research and development

2.4

2.1

4.7

4.3

Sales and Marketing

2.2

2.2

4.2

4.5

General and administrative

7.5

6.7

15.9

13.8

$                13.0

$                12.0

$                26.7

$                 24.5

( D )

Acquisition / divestiture items.  Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal, due diligence, and integration costs as well as adjustments to the fair value of earn-out liabilities.  Included in our GAAP presentation of non-operating income (expense), net, acquisition / divestiture items includes unusual acquisition, investment, or divestiture gains/losses. Although we do numerous acquisitions, the costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

( E )

Executive transition costs.  Included in our GAAP presentation of operating expenses are amounts paid to the Company's former CFO upon his departure under the terms of his executive severance agreement. We excluded these payments from our non-GAAP measures because they represent non-recurring expenses and are not indicative of our ongoing operating expenses. We further believe that excluding the executive transition costs from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

( F )

Debt issuance cost write-off.   Included in our GAAP non-operating income (expense), net is the write-off of debt issuance costs for terminated and/or modified credit facilities and costs associated with the issuance of new credit facilities and Senior Notes in fiscal 2014 that were not capitalized as debt issuance costs.  We excluded the debt issuance cost write-off from our non-GAAP measures. We believe that investors benefit from excluding this item from our non-operating income to facilitate a more meaningful evaluation of our non-operating income trends.

( G )

Non-GAAP items tax effected.   This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items ( A ) - ( F ) on non-GAAP net income.   We believe this information is useful to investors because it provides for consistent treatment of the excluded items in this non-GAAP presentation. 

( H )

Difference in GAAP and Non-GAAP tax rate.   This amount represents the difference between the GAAP and Non-GAAP tax rates applied to the Non-GAAP operating income plus the Non-GAAP non-operating income (expense), net.  

( I )

GAAP and non-GAAP tax rate %.  These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes.   We believe that investors benefit from a presentation of non-GAAP tax rate percentage as a way of facilitating a comparison to non-GAAP tax rates in prior periods.