Operating income for the second quarter of 2006 was $38.7 million, flat when compared to the second quarter of 2005. For year-over-year comparisons, it should be noted that second quarter 2006 operating income reflects the impact of stock-based compensation expense resulting from the adoption of FAS 123(R) of $3.3 million. Additionally, the net impact of transactions with the Caterpillar Trimble Control Technologies (CTCT) joint venture reduced operating results by $5.1 million; these transactions were included in non-operating results in 2005. In addition, expenses related to acquisitions, namely amortization of purchased intangibles and purchased in-process research and development expense increased by $2.6 million versus second quarter of 2005. Adjusting for the above factors, operating income in the second quarter of 2006 was up 27 percent compared to the second quarter of 2005.
Net income for the second quarter of 2006 was $28.5 million, up 20 percent when compared to net income of $23.8 million in the second quarter of 2005. Earnings per share for the second quarter of 2006 were $0.49, up approximately 17 percent compared to earnings per share of $0.42 in the second quarter of 2005. Earnings per share in the second quarter of 2006 were negatively impacted by $0.04 due to the adoption of FAS 123(R) and by $0.06 due to acquisition-related expenses.
Adjusting for the impact of FAS 123(R) and acquisition related expenses, non-GAAP net income for the second quarter of 2006 was $34.1 million, up 37 percent compared to non-GAAP net income of $24.9 million in the second quarter of fiscal 2005. Non-GAAP earnings per share for the second quarter of 2006 were $0.59 up approximately 34 percent from $0.44 per share in the second quarter of 2005. GAAP and non-GAAP earnings per share for the second quarter of 2006 were calculated on a diluted basis using approximately 58.1 million shares.
"Trimble's growth reflects the strong performance of its core segments. We anticipate this momentum to carry us into the second half of the year," said Steven W. Berglund, Trimble's president and chief executive officer. "Our strategic initiatives in the construction and mobile work place are beginning to contribute to Trimble's revenue and provide the foundation for continued growth."
Trimble Results by Business Segment
The impact of the adoption of FAS123(R) should be considered in all year-over-year segment comparisons as second quarter 2005 results did not include stock-based compensation expense.
Engineering and Construction
Revenue for Engineering and Construction (E&C) was $168.0 million for the second quarter of 2006, up approximately 19 percent compared to revenue of $141.1 million in the second quarter of 2005.
On a reported basis, operating margins in E&C were 23 percent in the second quarter of 2006, compared to 26 percent in the second quarter of 2005. Excluding the impact of FAS 123(R) adoption and the CTCT joint venture transactions, discussed above, E&C operating margins were up one point year-over-year.
E&C growth continues to be enabled by a steady market, strong sales of new products and aggressive marketing programs.
Revenue for Field Solutions (TFS) was $36.3 million in the second quarter of 2006, up 13 percent compared to $32.2 million in revenue in the second quarter of 2005. Both the agriculture and geographical information system businesses experienced double-digit growth in the quarter.
TFS operating margins for the second quarter of 2006 were 31 percent, compared to 25 percent in the second quarter of 2005 due to strong operating leverage.
Second quarter 2006 revenue for Mobile Solutions (TMS), was $14.9 million, up 133 percent from revenue of $6.4 million in the second quarter of 2005. Revenue growth resulted from strong growth in subscriptions and the impact of acquisitions.
TMS operating margins were 3 percent for the second quarter of 2006, compared to a negative 29 percent in the second quarter of 2005. Profitability continues to improve in this segment due to higher subscription revenue.
Advanced Devices revenue was $26.1 million, up 7 percent from revenue of $24.5 million in the second quarter of 2005.
Advanced Devices operating margins were 9 percent, compared to 19 percent in the second quarter of 2005. This decline is primarily driven by expenses related to the introduction of the TrimTrac(R) GSM version and product mix.
Non-GAAP vs. GAAP Financials
The Company provides non-GAAP financial measures called "non-GAAP net income" and "non-GAAP earnings per share" to supplement its consolidated financial statements presented in accordance with GAAP. These non-GAAP financial measures are intended to supplement the user's overall understanding of the Company's current financial performance and its prospects for the future. In many cases, non-GAAP financial measures are used by analysts and investors to evaluate the Company.
The Company excludes the amortization of purchased intangibles, in-process research and development, restructuring charges, the amortization of acquisition-related inventory step-up charges, and the impact of stock-based compensation in computing non-GAAP measures because the chief executive officer excludes these items when budgeting and evaluating the business. These non-GAAP financial measures are not intended to supersede or replace the Company's GAAP results. Please see the supplemental financial statements, attached to this press release, for a reconciliation of GAAP to non-GAAP results.
Forward Looking Guidance
In the third quarter of 2006 the Company expects revenue to grow 17 to 19 percent compared to the third quarter of 2005, with revenue between $220 million and $225 million. At a 35 percent tax rate, with approximately 59 million shares outstanding, the Company expects third quarter 2006 GAAP earnings per share between $0.36 and $0.39.
The above GAAP guidance includes stock-based compensation due to the adoption of FAS 123(R). On a post-tax basis, the Company expects stock-based compensation for the third quarter of 2006 to be approximately $.04 per share.
Using a 35 percent tax rate -- excluding the amortization of intangibles of $4.2 million and the impact of stock-based compensation expense of $3.3 million -- the Company expects non-GAAP earnings per share between $0.44 and $0.47 for the third quarter of 2006.
Investor Conference Call / Webcast Details
The Company will hold a conference call on July 25, 2006 at 1:30 p.m. PDT to review its second quarter 2006 results. It will be broadcast live on the Web at www.trimble.com/investors.shtml. A replay of the call will be available for thirty days beginning at 8:00 p.m. PDT on July 25, 2006. The replay number is (800) 642-1687 (U.S.), or (706) 645-9291 (international), and the pass code is 1480042.
Trimble is a leading innovator of Global Positioning System (GPS) technology. In addition to providing advanced GPS components, Trimble augments GPS with other positioning technologies as well as wireless communications and software to create complete customer solutions. Trimble's worldwide presence and unique capabilities position the Company for growth in emerging applications including surveying, agriculture, machine guidance, asset and fleet management, wireless platforms, and telecommunications infrastructure. Founded in 1978 and headquartered in Sunnyvale, California, Trimble has more than 2,400 employees in more than 18 countries worldwide.
Certain statements made in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include the revenue, effective tax rate, stock-based compensation, amortization of purchased intangibles and earnings per share estimates for the third fiscal quarter of 2006 and the Company's outlook for the remainder of the year. These forward-looking statements are subject to change, and actual results may materially differ from those set forth in this press release due to certain risks and uncertainties. For example, strong demand for the Company's products may not continue because of a decline in the overall health of the economy and international markets, which may result in reduced capital spending. Fuel and other operating costs could remain high or increase, which could weaken sales into the agricultural market. In addition, the Company's results may be adversely affected if the growth rates and profitability expectations for each of its four segments are not achieved, or its joint ventures and recent acquisitions do not achieve anticipated results, or if the Company is unable to market, manufacture and ship new products. Any failure to achieve predicted results could negatively impact the Company's revenues, gross margin and other financial results. Whether the Company achieves its guidance for the third fiscal quarter of 2006 will also depend on a number of other factors, including the risks detailed from time to time in reports filed with the SEC, including its quarterly reports on Form 10-Q and its annual report on Form 10- K. Undue reliance should not be placed on any forward-looking statement, contained herein. These statements reflect the Company's position as of the date of this release. The Company expressly disclaims any undertaking to release publicly any updates or revisions to any statements to reflect any change in the Company's expectations or any change of events, conditions, or circumstances on which any such statement is based.