Trimble Inc.
TRIMBLE NAVIGATION LTD /CA/ (Form: 10-Q, Received: 08/10/2009 16:43:02)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 10-Q
 

 

(Mark One)
x            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 3, 2009

OR

o             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 incorporation or organization)
(I.R.S. Employer Identification Number)


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      x      No      o

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 (Sec.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      o      No      o

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 x
Accelerated Filer o
Non-accelerated Filer o (Do not check if a smaller reporting company)
Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes      o      No      x

As of August 6, 2009, there were 119,807,371 shares of Common Stock (no par value) outstanding.

 
 

 
 
TR IMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter Ended July 3, 2009
TABLE OF CONTENTS

PART I.
 
Financial Information
Page
       
ITEM 1.
 
Financial Statements (Unaudited):
 
       
   
3
       
   
4
       
   
5
       
   
6
       
ITEM 2.
 
21
       
ITEM 3.
 
31
       
ITEM 4.
 
32
       
       
PART II.
 
Other Information
 
       
ITEM 1.
 
32
       
ITEM 1A.
 
32
       
ITEM 4.
 
32
       
ITEM 6.
 
34
       
35

 
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TR IMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

   
July 3,
2009
   
January 2,
2009
 
(Dollars in thousands)
           
             
ASSETS
           
Current assets :
           
Cash and cash equivalents
  $ 190,154     $ 147,531  
Accounts receivable, net
    199,928       204,269  
Other receivables
    9,747       17,540  
Inventories, net
    168,272       160,893  
Deferred income taxes
    36,358       41,810  
Other current assets
    18,392       16,404  
Total current assets
    622,851       588,447  
Property and equipment, net
    48,905       50,175  
Goodwill
    746,159       715,571  
Other purchased intangible assets, net
    223,682       228,901  
Other non-current assets
    49,446       51,922  
Total assets
  $ 1,691,043     $ 1,635,016  
                 
LIABILITIES
               
Current liabilities:
               
Current portion of long-term debt
  $ 48     $ 124  
Accounts payable
    55,596       49,611  
Accrued compensation and benefits
    45,196       41,291  
Deferred revenue
    68,603       55,241  
Accrued warranty expense
    14,161       13,332  
Other current liabilities
    39,160       63,719  
Total current liabilities
    222,764       223,318  
Non-current portion of long-term debt
    151,460       151,464  
Non-current deferred revenue
    9,145       12,418  
Deferred income taxes
    36,453       42,207  
Other non-current liabilities
    63,877       61,553  
Total liabilities
    483,699       490,960  
                 
Commitments and contingencies
               
                 
EQUITY
               
Shareholders' equity:
               
Preferred stock no par value; 3,000 shares authorized; none outstanding
    -       -  
Common stock, no par value; 180,000 shares authorized; 119,612 and 119,051 shares issued and outstanding at July 3, 2009 and January 2, 2009, respectively
    699,790       684,831  
Retained earnings
    466,243       427,921  
Accumulated other comprehensive income
    36,934       27,649  
Total Trimble Navigation Ltd. shareholders' equity
    1,202,967       1,140,401  
Noncontrolling interests
    4,377       3,655  
Total equity
    1,207,344       1,144,056  
                 
Total liabilities and equity
  $ 1,691,043     $ 1,635,016  


See accompanying Notes to the Condensed Consolidated Financial Statements.

 
TR IMBLE NAVIGATION LIMITED
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands, except per share data)
                       
                         
Revenue  (1)
 
$
290,063
   
$
377,767
   
$
579,017
   
$
733,063
 
Cost of sales (1)
   
147,263
     
190,668
     
292,259
     
371,588
 
Gross margin
   
142,800
     
187,099
     
286,758
     
361,475
 
                                 
Operating expenses
                               
Research and development
   
33,457
     
39,405
     
67,594
     
76,750
 
Sales and marketing
   
45,163
     
51,904
     
94,098
     
103,062
 
General and administrative
   
26,622
     
25,289
     
52,664
     
47,979
 
Restructuring charges
   
1,302
     
2,414
     
4,925
     
2,414
 
Amortization of purchased intangible assets
   
7,530
     
5,163
     
14,499
     
10,306
 
Total operating expenses
   
114,074
     
124,175
     
233,780
     
240,511
 
Operating income
   
28,726
     
62,924
     
52,978
     
120,964
 
Non-operating income, net
                               
Interest income
   
223
     
508
     
422
     
965
 
Interest expense
   
(465)
     
(413)
     
(958)
     
(1,175)
 
Foreign currency transaction gain (loss), net
   
(216)
     
1,253
     
(32)
     
2,221
 
Income from joint ventures
   
352
     
2,618
     
520
     
4,633
 
Other income (expense), net
   
1,161
     
153
     
447
     
(754)
 
Total non-operating income, net
   
1,055
     
4,119
     
399
     
5,890
 
Income before taxes
   
29,781
     
67,043
     
53,377
     
126,854
 
Income tax provision
   
8,631
     
18,444
     
14,530
     
38,188
 
Net income
   
21,150
     
48,599
     
38,847
     
88,666
 
Less: Net income attributable to noncontrolling interests
   
293
     
-
     
525
     
-
 
Net income attributable to Trimble Navigation Ltd.
 
$
20,857
   
$
48,599
   
$
38,322
   
$
88,666
 
                                 
Basic earnings per share
 
$
0.17
   
$
0.40
   
$
0.32
   
$
0.73
 
Shares used in calculating basic earnings per share
   
119,551
     
121,523
     
119,406
     
121,495
 
                                 
Diluted earnings per share
 
$
0.17
   
$
0.39
   
$
0.32
   
$
0.71
 
Shares used in calculating diluted earnings per share
   
121,897
     
125,712
     
121,411
     
125,435
 
 
 
(1) Sales to related parties, Caterpillar Trimble Control Technologies Joint Venture (CTCT) and Nikon-Trimble Joint Venture (Nikon-Trimble), were $3.5 million and $8.7 million for the three months ended July 3, 2009 and June 27, 2008, respectively, with associated cost of sales to those related parties of $2.3 million and $7.2 million, respectively.  Sales to CTCT and Nikon-Trimble were $7.9 million and $15.2 million for the six months ended July 3, 2009 and June 27, 2008, respectively, with associated cost of sales of $5.2 million and $11.8 million, respectively.  In addition, cost of sales associated with related party net inventory purchases were $6.0 million and $7.4 million for the three months ended July 3, 2009 and June 27, 2008, respectively, and $10.5 million and $13.5 million for the six months ended July 3, 2009 and June 27, 2008, respectively.  See Note 4 regarding joint ventures for further information about related party transactions.


See accompanying Notes to the Condensed Consolidated Financial Statements.


TR IMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

     
Six Months Ended
 
     
July 3,
2009
     
June 27,
2008
 
(Dollars in thousands)
               
                 
Cash flow from operating activities:
               
Net income
 
$
38,847
   
$
88,666
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation expense
   
9,071
     
9,274
 
Amortization expense
   
25,348
     
21,811
 
Provision for doubtful accounts
   
3,053
     
119
 
Amortization of debt issuance costs
   
113
     
113
 
Deferred income taxes
   
(3,406)
     
(2,791)
 
Stock-based compensation
   
8,780
     
7,777
 
Income from joint ventures
   
(520)
     
(4,633)
 
Gain on bargain purchase
   
(386)
     
-
 
Excess tax benefit for stock-based compensation
   
(304)
     
(5,249)
 
Provision for excess and obsolete inventories
   
2,933
     
3,283
 
Other non-cash items
   
(2,360)
     
1
 
Add decrease (increase) in assets:
               
Accounts receivable
   
4,117
     
(26,832)
 
Other receivables
   
5,242
     
481
 
Inventories
   
(7,556)
     
(8,997)
 
Other current and non-current assets
   
2,289
     
(464)
 
Add increase (decrease) in liabilities:
               
Accounts payable
   
4,790
     
4,637
 
Accrued compensation and benefits
   
2,808
     
(303)
 
Accrued liabilities
   
8,591
     
(597)
 
Deferred revenue
   
7,224
     
3,974
 
Income taxes payable
   
-
     
10,093
 
Net cash provided by operating activities
   
108,674
     
100,363
 
                 
Cash flow from investing activities:
               
Acquisitions of businesses, net of cash acquired
   
(39,029)
     
(45,082)
 
Acquisitions of property and equipment
   
(7,415)
     
(7,932)
 
Acquisitions of intangible assets
   
(26,839)
     
(165)
 
Other
   
(513)
     
302
 
Net cash used in investing activities
   
(73,796)
     
(52,877)
 
                 
Cash flow from financing activities:
               
Issuances of common stock
   
5,775
     
15,425
 
Excess tax benefit for stock-based compensation
   
304
     
5,249
 
Repurchase and retirement of common stock
   
-
     
(36,293)
 
Payments on long-term debt and revolving credit lines
   
(149)
     
(60,314)
 
Net cash provided by (used in) financing activities
   
5,930
     
(75,933)
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
1,815
     
5,068
 
                 
Net increase (decrease) in cash and cash equivalents
   
42,623
     
(23,379)
 
Cash and cash equivalents, beginning of period
   
147,531
     
103,202
 
Cash and cash equivalents, end of period
 
$
190,154
   
$
79,823
 


See accompanying Notes to the Condensed Consolidated Financial Statements.


NO TES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
 
NOTE 1. OVERVIEW AND BASIS OF PRESENTATION

Trimble Navigation Limited (the Company), incorporated in California in 1981, provides positioning solutions to commercial and government users in a large number of markets.  These markets include surveying, agriculture, construction, asset management, mapping, and mobile resource management.

The Company has a 52-53 week fiscal year, ending on the Friday nearest to December 31, which for fiscal 2008 was January 2, 2009. The second quarters of fiscal 2009 and fiscal 2008 ended on July 3, 2009 and June 27, 2008, respectively.  Fiscal 2009 is a 52-week year and fiscal 2008 was 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 majority-owned subsidiaries.  Inter-company accounts and transactions have been eliminated.  Noncontrolling interests represent the minority shareholders’ proportionate share of the net assets and results of operations of the Company’s majority-owned subsidiaries.
 
The accompanying financial data as of July 3, 2009 and for the three and six months ended July 3, 2009 and June 27, 2008 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations.  The Condensed Consolidated Balance Sheet as of January 2, 2009 is derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2008. Certain amounts from prior periods have been reclassified to conform to the current period presentation.  The following discussion should be read in conjunction with the Company’s 2008 Annual Report on Form 10-K.

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. 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 to present a fair statement of financial position as of July 3, 2009, results of operations for the three and six months ended July 3, 2009 and June 27, 2008 and cash flows for the six months ended July 3, 2009 and June 27, 2008, as applicable, have been made.  The results of operations for the three and six months ended July 3, 2009 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 August 10, 2009, which is the date that these financial statements have been filed with the Securities and Exchange Commission (“SEC”).  No material subsequent events have occurred since July 3, 2009 that required recognition or disclosure in these financial statements.


NOTE 2. UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
There have been no changes to the Company’s significant accounting polices during the six months ended July 3, 2009 from those disclosed in the Company’s 2008 Form 10-K. 

Recent Accounting Pronouncements
 
Updates to recent accounting standards as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2009 are as follows:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which clarifies the definition of fair value, establishes a framework for measuring fair value within GAAP, and expands the disclosures regarding fair value measurements.  In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 deferring the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis.  The Company adopted SFAS No. 157 in its first quarter of fiscal 2008, except for those items specifically deferred under FSP No. SFAS 157-2, which were adopted in the first quarter of fiscal 2009. The adoption of SFAS No. 157 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.  SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, the Company adopted this standard in its first quarter of fiscal 2009.  The Company expects SFAS No. 141(R) will have an impact on the Company’s financial position, results of operations, or cash flows, but the nature and magnitude of the specific effects will depend largely upon the nature and size of the Company’s business combinations. SFAS No. 141(R) did not have a material impact in the first half of fiscal 2009.  


In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160 changed the accounting and reporting for minority interests, which were re-characterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changed the accounting for transactions with minority interest holders.  SFAS 160 required retroactive adoption of the presentation and disclosure requirements for previously existing minority interests. All other requirements of SFAS 160 are applied prospectively.  SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company adopted this standard in the first quarter of fiscal 2009.  The adoption of SFAS 160 did not have a material impact on the Company’s financial position, results of operations, or cash flows.

In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133”, which requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company adopted this standard in the first quarter of fiscal 2009.   The adoption of SFAS 161 did not have an impact on the Company’s financial position, results of operations, or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which became effective for and was adopted by the Company during the second quarter of fiscal 2009.  SFAS 165 establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009.  Adoption of SFAS 165 did not have an impact on the Company’s financial position, results of operations or cash flows, other than the disclosures required by SFAS No. 165.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”.  SFAS No. 167 amends FIN 46(R), “Consolidation of Variable Interest Entities,” and changes the consolidation guidance applicable to a variable interest entity (“VIE”). It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, FIN 46(R) required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred.   SFAS 167 is effective for interim and annual reporting periods that begin after November 15, 2009. The Company will adopt this standard in fiscal 2010.  The Company is evaluating the impact of the adoption of SFAS No. 167 on its financial position, results of operations and cash flows. 

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”.   SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by non-governmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification will supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC.  The Company will update its disclosures to conform to the Codification in its Form 10-Q for the third quarter of 2009.


NOTE 3. SHAREHOLDERS’ EQUITY

Stock Repurchase Activities

In January 2008, the Company’s Board of Directors authorized a stock repurchase program (“2008 Stock Repurchase Program”), authorizing the Company to repurchase up to $250 million of Trimble’s common stock under this program. During the six months ended June 27, 2008, the Company repurchased approximately 1,255,000 shares of common stock in open market purchases at an average price of $28.90 per share, for a total of $36.3 million. To date, the Company has repurchased approximately 4,243,000 shares of common stock in open market purchases at an average price of $29.67 per share, for a total of $125.9 million. The purchase price was reflected as a decrease to common stock based on the average stated value per share with the remainder to retained earnings. No shares of common stock were repurchased during the six months ended July 3, 2009.  Common stock repurchases under the program were recorded based upon the trade date for accounting purposes.  All common shares repurchased under this program have been retired. As of July 3, 2009, the 2008 Stock Repurchase Program had remaining authorized funds of $124.1 million.  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

The Company accounts for its employee stock options and rights to purchase shares under its stock participation plans at fair value, in accordance with SFAS 123(R), “Share-Based Payment.” SFAS 123(R) 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, net of tax, related to employee stock-based compensation included in the Condensed Consolidated Statements of Income in accordance with SFAS 123(R) for the three and six months ended July 3, 2009 and June 27, 2008.
 
   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands)
                       
                         
Cost of sales
 
$
477
   
$
487
   
$
915
   
$
980
 
                                 
Research and development
   
854
     
916
     
1,638
     
1,833
 
Sales and marketing
   
1,062
     
931
     
2,066
     
1,961
 
General and administrative
   
2,161
     
1,461
     
4,161
     
3,003
 
Total operating expenses
   
4,077
     
3,308
     
7,865
     
6,797
 
                                 
Total stock-based compensation expense
   
4,554
     
3,795
     
8,780
     
7,777
 
Tax benefit (1)
   
(726)
     
(458)
     
(1,117)
     
(552)
 
Total stock-based compensation expense, net of tax
 
$
3,828
   
$
3,337
   
$
7,663
   
$
7,225
 
 
 
(1) Tax benefit related to U.S. non-qualified options and restricted stock units, applying a Federal statutory and State (Federal effected) tax rate for the respective periods.

Options

Stock option expense recognized during the period is based on the value of the portion of the stock option that is expected to vest during the period. The fair value of each stock option is estimated on the date of grant using a binomial valuation model. The Black-Scholes model was used to value those options granted prior to the fourth quarter of fiscal 2005. Similar to the Black-Scholes model, the binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. For options granted during the three and six months ended July 3, 2009 and June 27, 2008, the following weighted average assumptions were used:

   
Three Months Ended
   
Six Months Ended
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
Expected dividend yield
 
--
   
--
   
--
   
--
Expected stock price volatility
 
46.7%
   
39.8%
   
46.7%
   
39.7%
Risk free interest rate
 
1.8%
   
2.7%
   
1.9%
   
2.7%
Expected life of option
 
4.3 years
   
4.1 years
   
4.2 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 Option – 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.


NOTE 4. JOINT VENTURES

Caterpillar Trimble Control Technologies Joint Venture

On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT), a joint venture formed by the Company and Caterpillar, began operations. CTCT develops advanced electronic guidance and control products for earth moving machines in the construction and mining industries. The joint venture is 50% owned by the Company and 50% owned by Caterpillar, with equal voting rights. The joint venture is accounted for under the equity method of accounting. Under the equity method, the Company’s share of profits and losses are included in Income from joint ventures in the Non-operating income, net section of the Condensed Consolidated Statements of Income.  During the three and six months ended July 3, 2009, the Company recorded $0.9 million and $1.6 million, respectively, as its proportionate share of CTCT net income.  During the comparable period of 2008, the Company recorded $2.9 million and $4.7 million, respectively, as its proportionate share of CTCT net income.  During the three and six months ended July 3, 2009 and June 27, 2008, there were no dividends received from CTCT.  The carrying amount of the investment in CTCT was $8.6 million at July 3, 2009 and $7.0 million at January 2, 2009 and is included in Other non-current assets on the Condensed Consolidated Balance Sheets.

The Company acts as a contract manufacturer for CTCT.  Products are manufactured based on orders received from CTCT and are sold at direct cost, plus a mark-up for the Company’s overhead costs to CTCT.  CTCT then resells products at cost, plus a mark-up in consideration for CTCT’s research and development efforts to both Caterpillar and to the Company for sales through their respective distribution channels. Generally, the Company sells products through its after-market dealer channel, and Caterpillar sells products for factory and dealer installation.  CTCT does not have net inventory on its balance sheet in that the resale of products to Caterpillar and the Company occur simultaneously when the products are purchased from the Company.  During the three and six months ended July 3, 2009, the Company recorded $0.6 million and $1.5 million of revenue, respectively, and $0.6 million and $1.4 million of cost of sales, respectively, for the manufacturing of products sold by the Company to CTCT and then sold through the Caterpillar distribution channel.  During the comparable three and six months ended June 27, 2008, the Company recorded $3.5 million and $6.2 million of revenue, respectively, and $3.1 million and $5.4 million of cost of sales, respectively, for the manufacturing of products sold by the Company to CTCT and then sold through the Caterpillar distribution channel.  In addition, during the three and six months ended July 3, 2009, the Company recorded $6.0 million and $10.5 million in net cost of sales for the manufacturing of products sold by the Company to CTCT and then repurchased by the Company upon sale through the Company’s distribution channel.  The comparable net cost of sales recorded by the Company for the three and six months ended June 27, 2008 were $7.4 million and $13.5 million, respectively.

In addition, the Company received reimbursement of employee-related costs from CTCT for company employees dedicated to CTCT or performance of work for CTCT totaling $2.6 million and $5.3 million for the three and six months ended  July 3, 2009, respectively, and totaling $3.5 million and $7.5 million for the three and six months ended June 27, 2008, respectively. The reimbursements were offset against operating expense.

At July 3, 2009 and January 2, 2009, the Company had amounts due to and from CTCT.  Receivables and payables to CTCT are settled individually with terms comparable to other non-related parties.  The amounts due to and from CTCT are presented on a gross basis in the Condensed Consolidated Balance Sheets.  At July 3, 2009 and January 2, 2009, the receivables from CTCT were $5.0 million and $4.1 million, respectively, and are included within Accounts receivable, net, on the Condensed Consolidated Balance Sheets.  As of the same dates, the payables due to CTCT were $5.9 million and $3.1 million, respectively, and are included within Accounts payable on the Condensed Consolidated Balance Sheets.

Nikon-Trimble Joint Venture

On March 28, 2003, Nikon-Trimble Co., Ltd (Nikon-Trimble), a joint venture, was formed by the Company and Nikon Corporation.  The joint venture began operations in July 2003 and is 50% owned by the Company and 50% owned by Nikon, with equal voting rights. It focuses on the design and manufacture of surveying instruments including mechanical total stations and related products.

The joint venture is accounted for under the equity method of accounting.  Under the equity method, the Company’s share of profits and losses are included in Income from joint ventures in the Non-operating income, net section of the Condensed Consolidated Statements of Income.  During the three and six months ended July 3, 2009, the Company recorded a loss of $0.6 million and $1.1 million, respectively, and during the three and six months ended June 27, 2008, the Company recorded a loss of $0.3 million and $0.1 million, respectively, as its proportionate share of Nikon-Trimble net income.  During the three and six months ended July 3, 2009, there were no dividends received from Nikon-Trimble. During the three and six months ended June 27, 2008, dividends received from Nikon-Trimble, amounted to $0.2 million, and were recorded against Other non-current assets on the Condensed Consolidated Balance Sheets.  The carrying amount of the investment in Nikon-Trimble was $12.8 million at July 3, 2009 and $13.9 million at January 2, 2009, and is included in Other non-current assets on the Condensed Consolidated Balance Sheets.


Nikon-Trimble is the distributor in Japan for Nikon and the Company’s products.  The Company is the exclusive distributor outside of Japan for Nikon branded survey products. For products sold by the Company to Nikon-Trimble, revenue is recognized by the Company on a sell-through basis from Nikon-Trimble to the end customer.

The terms and conditions of the sales of products from the Company to Nikon-Trimble are comparable with those of the standard distribution agreements which the Company maintains with its dealer channel and margins earned are similar to those from third party dealers. Similarly, the purchases of product by the Company from Nikon-Trimble are made on terms comparable with the arrangements which Nikon maintained with its international distribution channel prior to the formation of the joint venture with the Company.  During the three and six months ended July 3, 2009, the Company recorded $2.9 million and $6.4 million of revenue and $1.7 million and $3.8 million of cost of sales for the manufacturing of products sold by the Company to Nikon-Trimble. During the three and six months ended June 27, 2008, the Company recorded $5.1 million and $9.0 million of revenue and $4.1 million and $6.4 million of cost of sales for the manufacturing of products sold by the Company to Nikon-Trimble.  The Company also purchases product from Nikon-Trimble for future sales to third party customers. Purchases of inventory from Nikon-Trimble were $2.4 million and $4.0 million during the three and six months ended July 3, 2009, respectively, and $4.1 million and $7.0 million during the three and six months ended June 27, 2008, respectively.

At July 3, 2009 and January 3, 2009, the Company had amounts due to and from Nikon-Trimble.  Receivables and payables to Nikon-Trimble are settled individually with terms comparable to other non-related parties.  The amounts due to and from Nikon-Trimble are presented on a gross basis in the Condensed Consolidated Balance Sheets. At July 3, 2009 and January 2, 2009, the amounts due from Nikon-Trimble were $2.5 million and $2.0 million, respectively, and are included within Accounts receivable, net on the Condensed Consolidated Balance Sheets.  As of the same dates, the amounts due to Nikon-Trimble were $1.7 million and $2.3 million, respectively, and are included within Accounts payable on the Condensed Consolidated Balance Sheets.


NOTE 5. GOODWILL AND INTANGIBLE ASSETS

Intangible Assets
 
Intangible Assets consisted of the following:

   
July 3, 2009
 
(Dollars in thousands)
 
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net Carrying
Amount
 
Developed product technology
  $ 207,960     $ (97,729 )   $ 110,231  
Trade names and trademarks
    20,805       (14,194 )     6,611  
Customer relationships
    125,142       (46,648 )     78,494  
Distribution rights and other intellectual properties *
    39,878       (11,532 )     28,346  
    $ 393,785     $ (170,103 )   $ 223,682  



   
January 2, 2009
 
(Dollars in thousands)
 
Gross
Carrying
Amount
   
Accumulated
Amortization
   
Net Carrying
Amount
 
Developed product technology
  $ 188,391     $ (78,867 )   $ 109,524  
Trade names and trademarks
    20,254       (13,100 )     7,154  
Customer relationships
    124,596       (40,263 )     84,333  
Distribution rights and other intellectual properties *
    37,913       (10,023 )     27,890  
    $ 371,154     $ (142,253 )   $ 228,901  

(*) Included within Distribution rights and other intellectual properties is a $25.0 million distribution right that the Company bought from Caterpillar, a related party, during fiscal 2008. The fair value of the distribution right was estimated using a discounted cash flow analysis. The distribution right is being amortized over its estimated economic life of eight years. The $25.0 million distribution right was accrued in the fourth quarter of fiscal 2008 and paid in the first quarter of fiscal 2009.


The estimated future amortization expense of intangible assets as of July 3, 2009, was as follows:

(Dollars in thousands)
     
2009 (Remaining)
  $ 26,640  
2010
    51,639  
2011
    46,393  
2012
    38,572  
2013
    34,259  
Thereafter
    26,179  
Total
  $ 223,682  


Goodwill

The changes in the carrying amount of goodwill by operating segment for the six months ended July 3, 2009, were as follows:

   
Engineering and Construction
   
Field Solutions
   
Mobile Solutions
   
Advanced Devices
   
Total
 
(Dollars in thousands)
                             
Balance as of January 2, 2009
 
$
363,908
   
$
10,651
   
$
328,721
   
$
12,291
   
$
715,571
 
Additions due to acquisitions
   
10,017
     
7,883
     
1,152
     
-
     
19,052
 
Purchase price adjustments
   
5,158
     
(188)
     
1,245
     
-
     
6,215
 
Foreign currency translation adjustments
   
3,232
     
(1)
     
1,421
     
669
     
5,321
 
Balance as of July 3, 2009
 
$
382,315
   
$
18,345
   
$
332,539
   
$
12,960
   
$
746,159
 


The purchase price adjustments relate primarily to previous business acquisitions which closed prior to fiscal 2009. Of the total purchase price adjustments of $6.2 million recorded during the six months ended July 3, 2009, earn-out payments of $7.6 million were offset by a decrease of $1.1 million in tax adjustments and $0.3 million in purchase price allocation adjustments.


NOTE 6. CERTAIN BALANCE SHEET COMPONENTS

Inventories, net consisted of the following:

As of
 
July 3,
2009
   
January 2,
2009
 
(Dollars in thousands)
           
             
Raw materials
  $ 70,663     $ 71,319  
Work-in-process
    4,288       5,551  
Finished goods
    93,321       84,023  
Total inventories, net
  $ 168,272     $ 160,893  


Deferred costs of revenue are included within finished goods and were $19.4 million at July 3, 2009 and $15.4 million at January 2, 2009.

Other non-current liabilities consisted of the following:
 
As of
 
July 3,
2009
   
January 2,
2009
 
(Dollars in thousands)
           
             
Deferred compensation
  $ 7,282     $ 6,631  
Unrecognized tax benefits
    35,939       34,275  
Other non-current liabilities
    20,656       20,647  
Total other non-current liabilities
  $ 63,877     $ 61,553  

 
As of July 3, 2009 and January 2, 2009, the Company had $35.9 million and $34.3 million, respectively, of unrecognized tax benefits included in Other non-current liabilities that, if recognized, would favorably affect the effective income tax rate in future periods and interest and/or penalties related to income tax matters.


NOTE 7. SEGMENT INFORMATION

The Company is a designer and distributor of positioning solutions 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 products currently used by survey and construction professionals in the field for positioning, data collection, field computing, data management, and machine guidance and control. The applications served include surveying, road, runway, construction, site preparation, and building construction.

 
Field Solutions — Consists of products that provide solutions in a variety of agriculture and geographic information systems (GIS) applications. In agriculture, these include precise land leveling and machine guidance systems. In GIS, these include handheld devices and software that enable the collection of data on assets for a variety of governmental and private entities.

 
Mobile Solutions — Consists of products that enable end users to monitor and manage their mobile assets by communicating location and activity-relevant information from the field to the office. The Company offers a range of products that address a number of sectors of this market including truck fleets, security, and public safety vehicles.

 
Advanced Devices — The various operations that comprise this segment are aggregated on the basis that no single operation accounts for more than 10% of the Company’s total revenue, operating income, and assets. This segment is comprised of the Component Technologies, Military and Advanced Systems, Applanix, and Trimble Outdoors businesses.

The Company evaluates each of its segment's performance and allocates resources based on segment operating income from operations before income taxes and some corporate allocations. The Company and each of its segments employ consistent accounting policies.

The following table presents revenue, operating income, 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 intangibles, amortization of inventory step-up charges, in-process research and development expense, non-recurring acquisition costs, restructuring charges, non-operating income, net, and income tax provision. The identifiable assets that the Company's Chief Operating Decision Maker, its Chief Executive Officer, views by segment are accounts receivable and inventories.

 
   
Reporting Segments
       
   
Engineering
and
Construction
   
Field
Solutions
   
Mobile
Solutions
   
Advanced
Devices
   
Total
 
(Dollars in thousands)
                             
                               
Three Months Ended July 3, 2009
                             
Segment revenue
  $ 147,240     $ 79,787     $ 39,065     $ 23,971     $ 290,063  
Operating income
    19,160       30,148       3,648       4,833       57,789  
                                         
Three Months Ended June 27, 2008
                                       
Segment revenue
  $ 213,019     $ 90,070     $ 42,285     $ 32,393     $ 377,767  
Operating income
    45,161       34,808       1,942       6,578       88,489  
                                         
Six Months Ended July 3, 2009
                                       
Segment revenue
  $ 274,891     $ 178,944     $ 77,353     $ 47,829     $ 579,017  
Operating income
    21,669       72,351       6,796       9,145       109,961  
                                         
Six Months Ended June 27, 2008
                                       
Segment revenue
  $ 407,199     $ 178,107     $ 86,296     $ 61,461     $ 733,063  
Operating income
    82,115       69,903       4,395       11,270       167,683  
                                         
As of July 3, 2009
                                       
Accounts receivable
  $ 121,191     $ 39,289     $ 26,284     $ 13,164     $ 199,928  
Inventories
    111,595       22,469       16,953       17,255       168,272  
                                         
As of January 2, 2009
                                       
Accounts receivable
  $ 125,734     $ 37,791     $ 23,736     $ 17,008     $ 204,269  
Inventories
    104,934       21,778       16,391       17,790       160,893  


Unallocated corporate expense includes general corporate expense, amortization of inventory step-up charges, in-process research and development expense, and non-recurring acquisition costs.  A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands)
                       
                         
Consolidated segment operating income
  $ 57,789     $ 88,489     $ 109,961     $ 167,683  
Unallocated corporate expense
    (12,513 )     (11,303 )     (23,647 )     (21,653 )
Amortization of purchased intangible assets
    (13,050 )     (10,918 )     (25,348 )     (21,722 )
Restructuring charges
    (3,500 )     (3,344 )     (7,988 )     (3,344 )
Consolidated operating income
    28,726       62,924       52,978       120,964  
Non-operating income, net
    1,055       4,119       399       5,890  
Consolidated income before taxes
  $ 29,781     $ 67,043     $ 53,377     $ 126,854  

 
NOTE 8. LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES

Long-term debt consisted of the following:

As of
 
July 3,
2009
   
January 2,
2009
 
(Dollars in thousands)
           
             
Credit Facilities:
           
Revolving credit facility
  $ 151,000     $ 151,000  
Promissory notes and other
    508       588  
Total debt
    151,508       151,588  
                 
Less current portion of long-term debt
    48       124  
Non-current portion
  $ 151,460     $ 151,464  
 
 
Credit Facilities

On July 28, 2005, the Company entered into a $200 million unsecured revolving credit agreement (the 2005 Credit Facility) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent.  On February 16, 2007, the Company amended its existing $200 million unsecured revolving credit agreement with a syndicate of 11 banks with The Bank of Nova Scotia as the administrative agent (the 2007 Credit Facility). Under the 2007 Credit Facility, the Company exercised the option in the existing credit agreement to increase the availability under the revolving credit line by $100 million, for an aggregate availability of up to $300 million, and extended the maturity date of the revolving credit line by 18 months, from July 2010 to February 2012.  Up to $25 million of the availability under the revolving credit line may be used to issue letters of credit, and up to $20 million may be used for paying off other debts or loans.  The maximum leverage ratio under the 2007 Credit Facility is 3.00:1.00.   The funds available under the 2007 Credit Facility may be used by the Company for acquisitions, stock repurchases, and general corporate purposes. As of August 20, 2008, the Company amended its 2007 Credit Facility to allow it to redeem, retire or purchase common stock of the Company without limitation so long as no default or unmatured default then existed, and leverage ratio for the two most recently completed periods was less than 2.00:1.00. In addition, the definition of the fixed charge was amended to exclude the impact of redemptions, retirements, or purchases common stock of the Company from the fixed charges coverage ratio.

In addition, during the first quarter of fiscal 2007 the Company incurred a five-year term loan under the 2007 Credit Facility in an aggregate principal amount of $100 million, which was repaid in full during fiscal 2008.  As of July 3, 2009, the Company had an outstanding balance on the revolving credit line of $151.0 million which was drawn down in the third and the fourth quarters of fiscal 2008.

The Company may borrow funds under the 2007 Credit Facility in U.S. Dollars or in certain other currencies, and borrowings will bear interest, at the Company's option, at either: (i) a base rate, based on the administrative agent's prime rate, plus a margin of between 0% and 0.125%, depending on the Company's leverage ratio as of its most recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on the London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Stockholm Interbank Offered Rate (STIBOR), or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.625% and 1.125%, depending on the Company's leverage ratio as of the most recently ended fiscal quarter. The Company's obligations under the 2007 Credit Facility are guaranteed by certain of the Company's domestic subsidiaries.

The 2007 Credit Facility contains customary affirmative, negative, and financial 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, make investments, enter into mergers and consolidations and make capital expenditures, within certain limitations, and financial covenants that require the maintenance of leverage and fixed charge coverage ratios. The 2007 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 2007 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default. As of July 3, 2009, the Company was in compliance with all financial debt covenants.

Notes Payable

As of July 3, 2009 and January 2, 2009, the Company had notes payable totaling approximately $508,000 and $588,000, respectively, primarily consisting of government loans to foreign subsidiaries.

 
Leases and other commitments

The estimated future minimum operating lease commitments as of July 3, 2009, were as follows:

(Dollars in thousands)
     
2009 (Remaining)
  $ 9,538  
2010
    15,861  
2011
    10,161  
2012
    7,569  
2013
    2,458  
Thereafter
    875  
Total
  $ 46,462  


Additionally, as of July 3, 2009, the Company had acquisition-related earn-outs of $3.1 million and holdbacks of $20.3 million recorded in Other current liabilities and Other non-current liabilities. The maximum remaining payments, including the $3.1 million and $20.3 million recorded, will not exceed $49.0 million.  The remaining payments are based upon targets achieved or events occurring over time that would result in amounts paid that may be lower than the maximum remaining payments.  The remaining earn-outs and holdbacks are payable through 2012.

At July 3, 2009, the Company had unconditional purchase obligations of approximately $49.7 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. These unconditional purchase obligations are related primarily to inventory and other items.


NOTE 9.  FAIR VALUE

As discussed in Note 2, SFAS No. 157, which defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about assets and liabilities measured at fair value, became effective for the Company beginning in its first quarter of fiscal 2008. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market, and the instruments’ complexity.

Assets and liabilities, recorded at fair value on a recurring basis in the Condensed Consolidated Balance Sheets, are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by SFAS No. 157 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

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 July 3, 2009
 
(Dollars in thousands)
 
Level I
   
Level II
   
Level III
   
Total
 
Assets
                       
U.S. Treasury bills (1)
  $ 23,996     $ -     $ -     $ 23,996  
Deferred compensation plan assets (2)
    -       7,472       -       7,472  
Derivative assets (3)
    -       474       -       474  
Total
  $ 23,996     $ 7,946     $ -     $ 31,942  
                                 
Liabilities
                               
Deferred compensation plan liabilities (2)
  $ -     $ 7,282     $ -     $ 7,282  
Derivative liabilities (3)
    -       593       -       593  
Contingent consideration liability (4)
    -       -       2,200       2,200  
Total
  $ -     $ 7,875     $ 2,200     $ 10,075  


(1)
The Company may invest some of its cash and cash equivalents in highly liquid investments such as U.S. Treasury bills. The fair values are determined using observable quoted prices in active markets. U.S. Treasury bills 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 investment assets and liabilities included in Level II are valued using 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. 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 included in Level II primarily represent forward currency exchange contracts. The Company enters into these contracts to minimize the short-term impact of foreign currency fluctuations on certain trade and inter-company receivables and payables. The derivatives are not designated as hedging instruments under SFAS 133. The fair values are determined using inputs based on observable quoted prices. Derivative assets and liabilities are included in Other current assets and Other current liabilities, respectively, on the Company’s Condensed Consolidated Balance Sheets.

(4)
A contingent consideration arrangement requires the Company to pay the former owner, of one of the companies it acquired during fiscal 2009, up to an undiscounted maximum amount of $4.5 million, based on future revenues over a 3 year period.  The potential undiscounted amount of all future payments that the Company could be required to make under the contingent consideration arrangement is between $0 and $4.5 million.  The Company estimated the fair value of this liability using probability-weighted revenue projections and discount rates ranging from 0.96% to 1.54%.   Of the total contingent consideration liability, $0.3 million and $1.9 million were included in Other current liabilities and Other non-current liabilities, respectively, on the Company’s Condensed Consolidated Balance Sheets.

 
The table below sets forth a summary of changes in the fair value of the Level III contingent consideration liability for the six month ended July 3, 2009.

As of
 
Level III liabilities
July 3, 2009
 
(Dollars in thousands)
     
       
Balance as of January 2, 2009
  $ -  
Acquisitions
    2,200  
Balance as of July 3, 2009
  $ 2,200  



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
 
July 3, 2009
   
January 2, 2009
 
(Dollars in thousands)
                       
                         
Assets:
                       
Cash and cash equivalents
  $ 190,154     $ 190,154     $ 147,531     $ 147,531  
Forward foreign currency exchange contracts
    474       474       627       627  
                                 
Liabilities:
                               
Credit facility
  $ 151,000     $ 143,423     $ 151,000     $ 127,754  
Forward foreign currency exchange contracts
    593       593       1,775       1,775  
Promissory note and other
    508       503       588       554  
 
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 discounting the cash flows at that rate. The fair values do not give an indication of the amount that Trimble 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 three years, and in some instances up 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 six months ended July 3, 2009 were as follows:

(Dollars in thousands)
     
Balance as of January 2, 2009
  $ 13,332  
Accruals for warranties issued
    9,744  
Changes in estimates
    2,163  
Warranty settlements (in cash or in kind)
    (11,078 )
Balance as of July 3, 2009
  $ 14,161  


NOTE 11. EARNINGS PER SHARE

The following data was used in computing earnings per share and the effect on the weighted-average number of shares of potentially dilutive common stock.

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands, except per share amounts)
                       
                         
Numerator:
                       
                         
Net income attributable to Trimble Navigation Ltd.
  $ 20,857     $ 48,599     $ 38,322     $ 88,666  
                                 
Denominator:
                               
Weighted average number of common shares used in basic earnings per share
    119,551       121,523       119,406       121,495  
Effect of dilutive securities (using treasury stock method):
                               
Common stock options and restricted stock units
    2,346       4,189       2,005       3,929  
Common stock warrants
    -       -       -       11  
Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share
    121,897       125,712       121,411       125,435  
                                 
Basic earnings per share
  $ 0.17     $ 0.40     $ 0.32     $ 0.73  
Diluted earnings per share
  $ 0.17     $ 0.39     $ 0.32     $ 0.71  
 
For the three months ended July 3, 2009 and June 27, 2008, the Company excluded 4.9 million and 1.5 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share. For the six months ended July 3, 2009 and June 27, 2008, the Company excluded 5.6 million and 1.4 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share. These shares were excluded from the three and six month periods because the exercise prices of these stock options were greater than or equal to the average market value of the common shares during the respective periods.  Inclusion of these shares would be antidilutive.  These options could be included in the calculation in the future if the average market value of the common shares increases and is greater than the exercise price of these options. 


NOTE 12: RESTRUCTURING CHARGES:

Restructuring expense for the three and six months ended July 3, 2009 and June 27, 2008 was as follows:

   
Three Months Ended
   
Six Months Ended
 
(Dollars in thousands)
 
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
                         
Severance and benefits
  $ 3,500     $ 3,344     $ 7,988     $ 3,344  

During the three and six months ended July 3, 2009, restructuring expense of $3.5 million and  $8.0 million , respectively, was related to decisions to streamline processes and reduce the cost structure of the Company, with approximately 248 positions eliminated.  As a result of the decisions made through the second quarter of 2009, the Company expects restructuring activities to result in additional restructuring expense totaling approximately $0.8 million through the fourth quarter of 2009. During the three and six months ended July 3, 2009, of the total restructuring expense,  $1.3 million and  $4.9 million, respectively, was shown as a separate line within Operating expense, and $2.2 million and  $3.1 million, respectively, was included within Cost of sales on the Company’s Condensed Consolidated Statements of Income.

During the three and six months ended June 27, 2008, restructuring expense of $3.3 million was related to management decisions designed to improve operational efficiency and financial results.  The restructuring expense, included in cost of sales and operating expense, was related to a decision to streamline processes and reduce the cost structure of the Company, with approximately 90 positions eliminated. During the three and six months ended June 27, 2008, of the total restructuring expense,  $2.4 million was shown as a separate line within Operating expense, and $0.9 million was included within Cost of sales on the Company’s Condensed Consolidated Statements of Income.


Restructuring liability:
The following table summarizes the restructuring activity for the six months ended July 3, 2009:

(Dollars in thousands)
     
Balance as of January 2, 2009
  $ 1,917  
Charges
    7,988  
Payments
    (4,476 )
Adjustments
    90  
Balance as of July 3, 2009
  $ 5,519  

The $5.5 million restructuring accrual consisted of severance and benefits and was included in Other current liabilities. It is expected to be paid through the first quarter of fiscal 2010.


NOTE 13: INCOME TAXES

The Company’s effective income tax rate for the three months and six months ended July 3, 2009 was 29.0% and 27.2 %, respectively, as compared to 27.5% and 30.1% for the three months and six months ended June 27, 2008, respectively.

The Company and its U.S. subsidiaries are subject to U.S. federal and state income tax.  The Company has substantially concluded all U.S. federal and state income tax matters for years through 1992.  Non-U.S. income tax matters have been concluded for years through 2000. The Company is currently in various stages of multiple year examinations by Federal, State, and foreign taxing authorities. The Company does not anticipate a significant impact to the unrecognized tax benefits balance under FIN 48 with respect to current tax examinations.  Although the timing of the resolution and/or the closure on audits is highly uncertain, the Company does not believe that the unrecognized tax benefits would materially change in the next twelve months.

The amount of liabilities for unrecognized tax benefits under FIN 48 (net of the federal benefit on state issues) that, if recognized, would favorably affect the effective income tax rate in any future period are $39.1 million and $37.3 million at July 3, 2009 and January 2, 2009, respectively.  The unrecognized tax benefits are recorded in Other non-current liabilities and within the deferred tax accounts in the accompanying Condensed Consolidated Balance Sheets.
 
The Company’s continuing 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 at July 3, 2009 and January 2, 2009, of $4.8 million and $4.4 million, respectively, which were recorded in Other non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.

On September 30, 2008, the State of California enacted Assembly Bill 1452 into law which among other provisions, suspends net operating loss deductions for 2008 and 2009 and extends the carryforward period of any net operating losses not utilized due to such suspension, adopts the federal 20-year net operating loss carryforward period, phases-in the federal two-year net operating loss carryback periods beginning in 2011, and limits the utilization of tax credits to the extent of 50 percent of a taxpayer’s tax liability before tax credits.

The Emergency Economic Stabilization Act of 2008, Energy Improvement and Extension Act of 2008, and Tax Extenders and Alternative Minimum Tax Relief Act of 2008 (HR1424 ) were signed into law on October 3, 2008.  This legislation includes a provision that retroactively extends the research tax credit from January 1, 2008 to December 31, 2009.  The impact in 2008 was a tax benefit of $1.9 million and an expected tax benefit of $1.5 million in 2009.

As of February 20, 2009, California enacted elective legislation under CR & TC 25128.5 to use the single sales factor apportionment formula.  The impact of this legislation resulted in a tax benefit of $0.8 million for the six month period ended July 3, 2009.


NOTE 14: COMPREHENSIVE INCOME:

The components of comprehensive income, net of related tax, were as follows:

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands)
                       
                         
Net income attributable to Trimble Navigation Ltd.
  $ 20,857     $ 48,599     $ 38,322     $ 88,666  
Foreign currency translation adjustments
    23,631       (2,560 )     9,175       18,148  
Net unrealized gain on investments/actuarial gain (loss)
    60       3       110       (24 )
Comprehensive income attributable to Trimble Navigation Ltd.
    44,548       46,042       47,607       106,790  
Comprehensive income attributable to the noncontrolling interests
    413       -       722       -  
Comprehensive income
  $ 44,961     $ 46,042     $ 48,329     $ 106,790  


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 2008 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.


IT EM 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 judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, doubtful accounts, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring costs, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the amount and timing of revenue and expense and the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
There have been no changes to our significant accounting polices during the six months ended July 3, 2009 from those disclosed in our 2008 Form 10-K. 

Recent Accounting Pronouncements
 
Updates to recent accounting standards as disclosed in our Annual Report on Form 10-K for the fiscal year ended January 2, 2009 are as follows:

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which clarifies the definition of fair value, establishes a framework for measuring fair value within GAAP, and expands the disclosures regarding fair value measurements. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2 deferring the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis. We adopted SFAS No. 157 in its first quarter of fiscal 2008, except for those items specifically deferred under FSP No. SFAS 157-2, which were adopted in the first quarter of fiscal 2009. The adoption of SFAS No. 157 did not have a material impact on our financial position, results of operations, or cash flows.

In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations”. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree, and recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase.  SFAS No. 141(R) also sets forth the disclosures required to be made in the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Accordingly, we adopted this standard in the first quarter of fiscal 2009.  We expect SFAS No. 141(R) will have an impact on our financial position, results of operations, or cash flows, but the nature and magnitude of the specific effects will depend largely upon the nature and size of our business combinations.  SFAS No. 141(R) did not have a material impact on our financial position, results of operations, or cash flows in the first half of fiscal 2009.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS 160 changed the accounting and reporting for minority interests, which were re-characterized as noncontrolling interests and classified as a component of equity. This new consolidation method significantly changed the accounting for transactions with minority interest holders.  SFAS 160 required retroactive adoption of the presentation and disclosure requirements for previously existing minority interests. All other requirements of SFAS 160 are applied prospectively.  SFAS 160 is effective for fiscal years beginning after December 15, 2008. We adopted this standard in the first quarter of fiscal 2009.  The adoption of SFAS 160 did not have a material impact on our financial position, results of operations, or cash flows.


In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133”, which requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. We adopted this standard in the first quarter of fiscal 2009.   The adoption of SFAS 161 did not have an impact on our financial position, results of operations, or cash flows.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”, which become effective for and was adopted by us during the second quarter of fiscal 2009.  SFAS 165 establishes the accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.  SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009.  The adoption of SFAS 165 did not have an impact on our financial position, results of operations or cash flows, other than the disclosures required by SFAS No. 165.

In June 2009, the FASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R)”.  SFAS No. 167 amends FIN 46(R), “Consolidation of Variable Interest Entities,” and changes the consolidation guidance applicable to a variable interest entity (“VIE”). It also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. Previously, FIN 46(R) required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred.   SFAS 167 is effective for interim and annual reporting periods that begin after November 15, 2009. We will adopt this standard in fiscal 2010.  We are evaluating the impact of the adoption of SFAS No. 167 on our financial position, results of operations and cash flows. 

In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles”.   SFAS 168 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Codification will supersede all accounting standards in U.S. GAAP, aside from those issued by the SEC.  We will update our disclosures to conform to the Codification in our Form 10-Q for the third quarter of 2009.


EXECUTIVE LEVEL OVERVIEW

Trimble’s focus is on combining positioning technology with wireless communication and application capabilities to create system-level solutions that enhance productivity and accuracy for our customers. The majority of our markets are end-user markets, including engineering and construction firms, governmental organizations, public safety workers, farmers and companies who must manage fleets of mobile workers and assets. In our Advanced Devices segment, we also provide components to original equipment manufacturers to incorporate into their products.  In the end user markets, we provide a system that includes a hardware platform that may contain software and customer support. Some examples of our solutions include products that automate and simplify the process of surveying land, products that automate the utilization of equipment such as tractors and bulldozers, products that enable a company to manage its mobile workforce and assets, and products that allow municipalities to manage their fixed assets. In addition, we also provide software applications on a stand-alone basis. For example, we provide software for project management on construction sites.

Solutions targeted at the end-user make up a significant majority of our revenue. To create compelling products, we must attain an understanding of the end users’ needs and work flow, and how location-based technology can enable that end user to work faster, more efficiently, and more accurately. We use this knowledge to create highly innovative products that change the way work is done by the end-user. With the exception of our Mobile Solutions and Advanced Devices segments, our products are generally sold through a dealer channel, and it is crucial that we maintain a proficient global, third-party distribution channel.

We continued to execute our strategy with a series of actions that can be summarized in three categories.


Reinforcing our position in existing markets

* We believe these markets provide us with additional, substantial potential for substituting our technology for traditional methods. We are continuing to develop new products and to strengthen our distribution channels in order to expand our market.  In our Engineering and Construction segment, we introduced the MTS400 Machine Telematics System - a new rugged GPS locator unit for heavy equipment usage, in conjunction with updates to our Construction Manager software which now incorporates maps provided by Google Maps API Premier(TM).  In our Field Solutions Segment, we introduced the LB25 External lightbar accessory for use with the EZ Guide 250 and 500 lightbar guidance systems that facilitate better visibility, along with the AG25 GNSS antenna that features the Trimble proprietary Transcend Positioning Technology in a single rugged housing optimized for signal sensitivity on lower elevation satellites.   In our Mobile Solutions segment, we introduced a new version of our Vehicle Diagnostic Service giving managers the ability to view the gallons of fuel consumed while driving or idling.   All of these products strengthened our competitive position and created new value for the user.
 
Extending our position in new and existing markets through new product categories

* We are utilizing the strength of the Trimble brand in our markets to expand our revenue by bringing new products to new and existing users.  In our Engineering and Construction segment, expanded the Trimble VRS Now service to Estonia as well as launched the VRS I-Scope service in the United States. Also within Engineering and Construction, we entered the BIM software market through the acquisition of Quickpen, which will allow mechanical and HVAC contractors to automate project estimating, detailing, layout and construction. In our Field Solutions segment, the acquisition of NTech Industries extends our Precision Agriculture Solutions business with the addition of the GreenSeeker(R) nitrogen application and WeedSeeker(R) controlled herbicide application systems.  In our Mobile Solutions segment, we announced the acquisition of Accutest Engineering Solutions Ltd expanding our vehicle diagnostic capabilities.

Bringing existing technology to new markets

* We continue to reinforce our position in existing markets and position ourselves in newer markets that will serve as important sources of future growth. Our efforts are focused in Africa, China, India, the Middle-East and Russia. 


RECENT BUSINESS DEVELOPMENTS

The following companies and joint ventures were acquired or formed during the twelve months ended July 3, 2009 and are combined in our results of operations since the date of acquisition or formation:

Accutest

On June 5, 2009, we acquired Accutest Engineering Solutions Ltd, based in Derbyshire, UK. Accutest is a leading provider of vehicle diagnostics and telematics technologies for the automotive industry. Accutest’s performance is reported under our Mobile Solutions business segment.

NTech

On June 4, 2009, we acquired privately-held NTech Industries, based in Ukiah, Calif. NTech is a leading provider of crop-sensing technology that allows farmers to reduce costs and environmental impact by controlling the application of nitrogen, herbicide and other crop inputs.  NTech’s performance is reported under our Field Solutions business segment.

QuickPen

On March 12, 2009, we acquired privately-held QuickPen International, based in Englewood, Colorado. QuickPen is a leading provider of Building Information Modeling (BIM) software for the heating, ventilation and air conditioning (HVAC), mechanical construction and plumbing industries. QuickPen’s performance is reported under our Engineering and Construction business segment.

Rawson Control Systems

On December 3, 2008, we acquired the assets of privately-held Rawson Control Systems, based in Oelwein, Iowa. Rawson manufactures hydraulic and electronic controls for the agriculture equipment industry, including variable rate planter drives and controllers, variable rate fertilizer controllers, mechanical remote electric control valves and speed reducers.  Rawson Control Systems’ performance is reported under our Field Solutions business segment.

FastMap and GeoSite

On November 28, 2008, we acquired the FastMap and GeoSite software assets from Korec, a privately-held Trimble distributor serving the United Kingdom and Ireland. FastMap and GeoSite performance is reported under our Engineering and Construction and Field Solutions business segments, respectively.


Callidus Precision Systems

On November 28, 2008, we acquired the assets of privately-held Callidus Precision Systems GmbH, based in Halle, Germany. Callidus is a provider of 3D laser scanning solutions for the industrial market. Callidus’s performance is reported under our Engineering and Construction business segment.

TopoSys

On November 13, 2008, we acquired TopoSys GmbH, based in Biberach an der Riss, Germany. TopoSys is a leading provider of aerial data collection systems comprised of LiDAR and metric cameras. TopoSys’ performance is reported under our Engineering and Construction business segment.

TruCount

On October 30, 2008, we acquired the assets of privately-held TruCount, Inc., based in Ames, Iowa. TruCount is a leading manufacturer of air and electric clutches that automate individual planter row shut-off. TruCount’s performance is reported under our Field Solutions business segment.

RolleiMetric

On October 20, 2008, we acquired the assets of RolleiMetric from Rollei GmbH, based in Braunschweig, Germany. RolleiMetric is a leading provider of metric camera systems for aerial imaging and terrestrial close range photogrammetry. RolleiMetric’s performance is reported under our Engineering and Construction business segment.

VirtualSite Solutions

On October 3, 2008, VirtualSite Solutions (VSS), a joint venture we formed with Caterpillar, began operations.  We contributed $7.8 million in exchange for a 65% ownership and Caterpillar contributed $4.2 million for a 35% ownership in VSS.  VSS develops software for fleet management and connected worksite solutions for both Caterpillar and us, and in turn, sells software subscription services to Caterpillar and us, which we both sell through our respective distribution channels.  For financial reporting purposes, VSS assets and liabilities are consolidated with ours, as are its results of operations, which are reported under our Engineering and Construction business segment.  Caterpillar’s 35% interest is included in our Condensed Consolidated Financial Statements as noncontrolling interests.

SECO

On July 29, 2008, we acquired privately-held SECO Manufacturing Company, based in Redding, California. SECO is a leading manufacturer of accessories for the geomatics, surveying, mapping, and construction industries.  SECO’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. Typically, the second fiscal quarter has been the strongest quarter for the Company driven by the construction buying season.

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.

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands)
                       
Total consolidated revenue
  $ 290,063     $ 377,767     $ 579,017     $ 733,063  
Gross margin
  $ 142,800     $ 187,099     $ 286,758     $ 361,475  
Gross margin %
    49.2 %     49.5 %     49.5 %     49.3 %
Total consolidated operating income
  $ 28,726     $ 62,924     $ 52,978     $ 120,964  
Operating income %
    9.9 %     16.7 %     9.1 %     16.5 %


Revenue

In the three months ended July 3, 2009, total revenue decreased by $87.7 million or 23%, as compared to the same corresponding period in fiscal 2008. Of the decrease, Engineering and Construction revenue decreased $65.8 million, Field Solutions decreased $10.3 million, Mobile Solutions decreased $3.2 million, and Advanced Devices decreased $8.4 million. The revenue decrease was primarily due to recessionary conditions in the U.S. and European markets in Engineering and Construction and lower sales in Field Solutions due to the impact in the corresponding period of the prior year of strong sales driven by an extended agricultural buying season.

In the six months ended July 3, 2009, total revenue decreased by $154.0 million or 21%, as compared to the same corresponding period in fiscal 2008. Engineering and Construction revenue decreased $132.3 million, Field Solutions increased $0.8 million, Mobile Solutions decreased $8.9 million, while Advanced Devices decreased $13.6 million, compared to the same corresponding period in fiscal 2008.  Revenue reduction within these segments was primarily due to recessionary conditions in the U.S. and European markets in Engineering and Construction.

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 decreased by $44.3 million and $74.7 million for the three and six months ended July 3, 2009, respectively, as compared to the corresponding periods in the prior year, primarily due to the revenue shortfall. Gross margin as a percentage of total revenue for the three months ended July 3, 2009 was 49.2%, as compared to 49.5% for the three months ended June 27, 2008.  Gross margin as a percentage of total revenue for the six months ended July 3, 2009 was 49.5%, as compared to 49.3% for the six months ended June 27, 2008.  The gross margin percentage for the three and six month periods ended July 3, 2009 was relatively consistent and was maintained by a greater percentage of higher margin product sales, in particular, software and subscription services, in spite of the revenue shortfall, offset by higher amortization of intangible assets.

Operating Income

Operating income decreased by $34.2 million and $68.0 million for the three and six months ended July 3, 2009, respectively, as compared to the corresponding periods in the prior year, primarily due to the revenue shortfall, partially offset by a reduction in operating expense.  Operating income as a percentage of total revenue was 9.9% for the three months ended July 3, 2009, as compared to 16.7% for the three months ended June 27, 2008.   Operating income as a percentage of total revenue was 9.1% for the six months ended July 3, 2009, as compared to 16.5% for the six months ended June 27, 2008. The decrease in operating income percentage for both the three and six month periods was primarily due to decreased operating expense leverage, primarily in Engineering and Construction due to the revenue shortfall.

Results by Segment

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 intangibles, amortization of inventory step-up charges, non-recurring acquisition costs, restructuring charges, non-operating income, net, and income tax provision.


The following table is a breakdown of revenue and operating income by segment:

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
2009
   
June 27,
2008
   
July 3,
2009
   
June 27,
2008
 
(Dollars in thousands)
                       
                         
Engineering and Construction
                       
Revenue
  $ 147,240     $ 213,019     $ 274,891     $ 407,199  
Segment revenue as a percent of total revenue
    51 %     56 %     48 %     56 %
Operating income
  $ 19,160     $ 45,161     $ 21,669     $ 82,115  
Operating income as a percent of segment revenue
    13 %     21 %     8 %     20 %
Field Solutions
                               
Revenue
  $ 79,787     $ 90,070     $ 178,944     $ 178,107  
Segment revenue as a percent of total revenue
    28 %     24 %     31 %     24 %
Operating income
  $ 30,148     $ 34,808     $ 72,351     $ 69,903  
Operating income as a percent of segment revenue
    38 %     39 %     40 %     39 %
Mobile Solutions
                               
Revenue
  $ 39,065     $ 42,285     $ 77,353     $ 86,296  
Revenue as a percent of total revenue
    13 %     11 %     13 %     12 %
Operating income
  $ 3,648     $ 1,942     $ 6,796     $ 4,395  
Operating income as a percent of segment revenue
    9 %     5 %     9 %     5 %
Advanced Devices
                               
Revenue
  $ 23,971     $ 32,393     $ 47,829     $ 61,461  
Segment revenue as a percent of total revenue
    8 %     9 %     8 %     8 %
Operating income
  $ 4,833     $ 6,578     $ 9,145     $ 11,270  
Operating income as a percent of segment revenue
    20 %     20 %     19 %     18 %

Unallocated corporate expense includes general corporate expense, amortization of inventory step-up charges, in-process research and development expense, and non-recurring acquisition costs.  A reconciliation of our consolidated segment operating income to consolidated income before income taxes follows:

   
Three Months Ended
   
Six Months Ended
 
   
July 3,
   
June 27,
   
July 3,
   
June 27,
 
   
2009
   
2008
   
2009
   
2008
 
(Dollars in thousands)
                       
                         
Consolidated segment operating income
  $ 57,789     $ 88,489     $ 109,961     $ 167,683  
Unallocated corporate expense
    (12,513 )     (11,303 )     (23,647 )     (21,653 )
Amortization of purchased intangible assets
    (13,050 )     (10,918 )     (25,348 )     (21,722 )
Restructuring charges
    (3,500 )     (3,344 )     (7,988 )     (3,344 )
Consolidated operating income
    28,726       62,924       52,978       120,964  
Non-operating income, net
    1,055       4,119       399       5,890  
Consolidated income before taxes
  $ 29,781     $ 67,043     $ 53,377     $ 126,854  

Engineering and Construction

Engineering and Construction revenue decreased by $65.8 million or 31% and $132.3 million or 32% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.  Segment operating income decreased $26.0 million or 58% and $60.4 million or 74% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.

The revenue decline for both the three months and six month periods was primarily driven by recessionary conditions in the U.S. and European markets, as well as softness in the rest of the world, with the exception of China. Segment operating income for both the three and six month periods decreased primarily due to the revenue shortfall, partially offset by a reduction in operating expense due to restructuring and overall expense control.

Field Solutions

Field Solutions revenue decreased by $10.3 million or 11% and increased by $0.8 million or 0.5% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.  Segment operating income decreased by $4.7 million or 13% and increased by $2.4 million or 4% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.


The revenue decrease for the three month period was primarily due to a softening in Agriculture markets due to reduced commodity prices and input costs which resulted in decreased the demand for our productivity products. The slight revenue increase for the six month period was driven by the impact of increased sales worldwide and acquisitions in the first quarter, offset by decreased demand in the second quarter.  Operating income for the three month period decreased primarily due to lower revenue. Operating income for the six month period increased primarily due to gross margin improvement, partially offset by higher operating expense due to the impact of acquisitions.

Mobile Solutions

Mobile Solutions revenue decreased by $3.2 million or 8% and $8.9 million or 10% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding period in fiscal 2008.  Segment operating income increased by $1.7 million or 88% and $2.4 million or 55% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.

The revenue decline for both the three and six month periods was primarily due to the impact in the prior year of the recognition of large non-recurring revenue items. The increase in operating income for both the three and six month periods was primarily due to gross margin improvement and lower spending due to operating expense control.

Advanced Devices

Advanced Devices revenue decreased by $8.4 million or 26% and $13.6 million or 22% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.  Segment operating income decreased by $1.7 million or 27% and $2.1 million or 19% for the three and six months ended July 3, 2009, respectively, as compared to the same corresponding periods in fiscal 2008.

The decrease in revenue for both the three and six month periods was driven by slower sales in Component Technologies and Applanix. Operating income was slightly down for both the three and six month periods due to the decrease in revenue, partially offset by gross margin improvement and lower spending due to operating expense control.

Res