Trimble Navigation Limited
TRIMBLE NAVIGATION LTD /CA/ (Form: 10-Q, Received: 11/07/2012 06:01:38)
Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________ 
FORM 10-Q
___________________________________ 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 2012
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO             
Commission file number: 001-14845
___________________________________ 
TRIMBLE NAVIGATION LIMITED
(Exact name of registrant as specified in its charter)
___________________________________ 
California
 
94-2802192
(State or other jurisdiction of
 
(I.R.S. Employer Identification Number)
incorporation or organization)
 
 
935 Stewart Drive, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)
Telephone Number (408) 481-8000
(Registrant’s telephone number, including area code)
___________________________________ 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   ý     No   ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ý     No   ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 
Large Accelerated Filer
ý
Accelerated Filer
¨
 
 
 
 
 
Non-accelerated Filer
¨   (Do not check if a smaller reporting company)
Smaller Reporting Company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   ý
As of November 2, 2012, there were 126,186,330 shares of Common Stock (no par value) outstanding.


Table of Contents

TRIMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter Ended September 28, 2012
TABLE OF CONTENTS
 
PART I.
Page
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 6.
 
 

2

Table of Contents

PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
 
Third Quarter of
 
Fiscal Year End
As of
2012
 
2011
(In thousands)
 
 
 
ASSETS
 
 
 
Current assets :
 
 
 
Cash and cash equivalents
$
141,840

 
$
154,621

Accounts receivable, net
320,904

 
275,201

Other receivables
13,374

 
7,103

Inventories, net
234,301

 
232,063

Deferred income taxes
43,037

 
44,632

Other current assets
24,569

 
19,437

Total current assets
778,025

 
733,057

Property and equipment, net
81,653

 
62,724

Goodwill
1,551,886

 
1,297,692

Other purchased intangible assets, net
510,987

 
476,791

Other non-current assets
98,942

 
82,211

Total assets
$
3,021,493

 
$
2,652,475

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
89,909

 
$
65,918

Accounts payable
107,719

 
97,956

Accrued compensation and benefits
82,328

 
73,894

Deferred revenue
127,602

 
105,066

Accrued warranty expense
16,083

 
18,444

Other current liabilities
61,425

 
50,045

Total current liabilities
485,066

 
411,323

Non-current portion of long-term debt
553,198

 
498,518

Non-current deferred revenue
6,346

 
13,113

Deferred income taxes
99,412

 
95,594

Other non-current liabilities
52,418

 
45,025

Total liabilities
1,196,440

 
1,063,573

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; 126,075 and 123,663 shares issued and outstanding as of the third quarter of fiscal 2012 and fiscal year end 2011, respectively
965,035

 
878,514

Retained earnings
836,903

 
685,639

Accumulated other comprehensive income
6,692

 
5,140

Total Trimble Navigation Ltd. shareholders’ equity
1,808,630

 
1,569,293

Noncontrolling interests
16,423

 
19,609

Total equity
1,825,053

 
1,588,902

Total liabilities and equity
$
3,021,493

 
$
2,652,475

See accompanying Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Third Quarter of
 
First Three Quarters of
(In thousands, except per share data)
2012
 
2011
 
2012
 
2011
Revenue:
 
 
 
 
 
 
 
Product
$
386,902

 
$
333,262

 
$
1,187,638

 
$
1,004,378

Service
64,237

 
44,517

 
185,262

 
112,288

Subscription
53,624

 
39,654

 
151,690

 
92,229

Total revenue
504,763

 
417,433

 
$
1,524,590

 
$
1,208,895

Cost of sales:
 
 
 
 
 
 
 
Product
185,102

 
163,774

 
577,281

 
494,899

Service
23,615

 
19,823

 
67,592

 
50,525

Subscription
17,450

 
11,956

 
47,859

 
27,730

Amortization of purchased intangible assets
15,728

 
10,321

 
42,145

 
23,918

Total cost of sales
241,895

 
205,874

 
734,877

 
597,072

Gross margin
262,868

 
211,559

 
789,713

 
611,823

Operating expense
 
 
 
 
 
 
 
Research and development
61,181

 
49,928

 
185,721

 
139,452

Sales and marketing
76,481

 
70,662

 
230,094

 
195,359

General and administrative
45,723

 
44,088

 
142,595

 
114,717

Restructuring charges
301

 
647

 
1,894

 
1,775

Amortization of purchased intangible assets
15,712

 
13,786

 
47,170

 
32,830

Total operating expense
199,398

 
179,111

 
607,474

 
484,133

Operating income
63,470

 
32,448

 
182,239

 
127,690

Non-operating income (expense), net
 
 
 
 
 
 
 
Interest expense, net
(3,925
)
 
(2,942
)
 
(11,561
)
 
(4,184
)
Foreign currency transaction gain (loss), net
174

 
(4,022
)
 
(1,843
)
 
2,780

Income from equity method investments, net
6,453

 
4,789

 
19,708

 
10,970

Other income (expense), net
650

 
(388
)
 
1,897

 
(892
)
Total non-operating income (expense), net
3,352

 
(2,563
)
 
8,201

 
8,674

Income before taxes
66,822

 
29,885

 
190,440

 
136,364

Income tax provision
13,022

 
2,689

 
33,403

 
16,118

Net income
53,800

 
27,196

 
157,037

 
120,246

Less: Net gain (loss) attributable to noncontrolling interests
436

 
(775
)
 
(837
)
 
(1,106
)
Net income attributable to Trimble Navigation Ltd.
$
53,364

 
$
27,971

 
$
157,874

 
$
121,352

Basic earnings per share
$
0.42

 
$
0.23

 
$
1.26

 
$
0.99

Shares used in calculating basic earnings per share
125,871

 
122,969

 
125,202

 
122,485

Diluted earnings per share
$
0.42

 
$
0.22

 
$
1.23

 
$
0.96

Shares used in calculating diluted earnings per share
128,379

 
125,894

 
128,144

 
125,980

See accompanying Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Net income
$
53,800

 
$
27,196

 
$
157,037

 
$
120,246

Foreign currency translation adjustments
29,182

 
(45,640
)
 
1,610

 
(21,525
)
Net unrealized actuarial loss
(114
)
 
(613
)
 
(58
)
 
(698
)
Comprehensive income (loss)
82,868

 
(19,057
)
 
158,589

 
98,023

Less: Comprehensive income (loss) attributable to the noncontrolling interests
436

 
(775
)
 
(837
)
 
(1,106
)
Comprehensive income (loss) attributable to Trimble Navigation Ltd.
$
82,432

 
$
(18,282
)
 
$
159,426

 
$
99,129

See accompanying Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
First Three Quarters of
(Dollars in thousands)
2012
 
2011
Cash flow from operating activities:
 
 
 
Net income
$
157,037

 
$
120,246

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
16,910

 
14,683

Amortization expense
89,315

 
56,747

Provision for doubtful accounts
1,428

 
954

Deferred income taxes
646

 
(10,175
)
Stock-based compensation
23,628

 
21,033

Income from equity method investments, net
(19,708
)
 
(11,001
)
Excess tax benefit for stock-based compensation
(16,673
)
 
(11,698
)
Provision for excess and obsolete inventories
6,372

 
6,915

Other non-cash items
(3,019
)
 
2,738

Add decrease (increase) in assets:
 
 
 
Accounts receivable
(39,496
)
 
(43,117
)
Other receivables
(7,996
)
 
13,471

Inventories
(4,650
)
 
(11,344
)
Other current and non-current assets
(2,844
)
 
7,005

Add increase (decrease) in liabilities:
 
 
 
Accounts payable
7,828

 
2,039

Accrued compensation and benefits
6,375

 
(1,921
)
Deferred revenue
12,390

 
7,638

Accrued warranty expense
(2,491
)
 
402

Other current and non-current liabilities
18,842

 
(2,794
)
Net cash provided by operating activities
243,894

 
161,821

Cash flow from investing activities:
 
 
 
Acquisitions of businesses, net of cash acquired
(355,484
)
 
(758,243
)
Acquisitions of property and equipment
(34,126
)
 
(16,002
)
Acquisitions of intangible assets
(795
)
 
(1,666
)
Purchases of equity method investments

 
(3,267
)
Dividends received
2,140

 
7,500

Other
303

 
(168
)
Net cash used in investing activities
(387,962
)
 
(771,846
)
Cash flow from financing activities:
 
 
 
Issuances of common stock, net
37,142

 
40,182

Excess tax benefit for stock-based compensation
16,673

 
11,698

Proceeds from long-term debt and revolving credit lines
478,556

 
702,225

Payments on long-term debt and revolving credit lines
(401,062
)
 
(225,942
)
Net cash provided by financing activities
131,309

 
528,163

Effect of exchange rate changes on cash and cash equivalents
(22
)
 
(671
)
Net decrease in cash and cash equivalents
(12,781
)
 
(82,533
)
Cash and cash equivalents, beginning of period
154,621

 
220,788

Cash and cash equivalents, end of period
$
141,840

 
$
138,255

See accompanying Notes to the Condensed Consolidated Financial Statements.

6

Table of Contents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – UNAUDITED
NOTE 1. OVERVIEW AND BASIS OF PRESENTATION
Trimble Navigation Limited (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 2011 was December 30, 2011 . The third quarter of fiscal 2012 and 2011 ended on September 28, 2012 and September 30, 2011 , respectively. Fiscal 2012 and 2011 are both 52-week years. Unless otherwise stated, all dates refer to the Company’s fiscal year and fiscal periods.
The Condensed Consolidated Financial Statements include the results of the Company and its consolidated subsidiaries. Inter-company accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling shareholders’ proportionate share of the net assets and results of operations of the Company’s consolidated subsidiaries.
The accompanying financial data as of the third quarter of fiscal 2012 and for the third quarter and the first three quarters of fiscal 2012 and 2011 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements, prepared in accordance with U.S. generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. The Condensed Consolidated Balance Sheet as of fiscal year end 2011 is derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2011 . The following discussion should be read in conjunction with the Company’s 2011 Annual Report on Form 10-K.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in its Condensed Consolidated Financial Statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.
In the opinion of management, all adjustments necessary to present a fair statement of financial position as of the third quarter of fiscal 2012 , results of operations for the third quarter and the first three quarters of fiscal 2012 and 2011 and cash flows for the first three quarters of fiscal 2012 and 2011 , as applicable, have been made. The results of operations for the third quarter and the first three quarters of fiscal 2012 are not necessarily indicative of the operating results for the full fiscal year or any future periods. Individual segment revenue may be affected by seasonal buying patterns and general economic conditions. The Company has evaluated all subsequent events through the date that these financial statements have been filed with the Securities and Exchange Commission.
Beginning in the first quarter of fiscal 2012, the Company has presented revenue and cost of sales separately for products, service and subscriptions. Product revenue includes primarily hardware, software licenses, parts and accessories; service revenue includes primarily hardware and software maintenance and support, training and professional services; subscription revenue includes software as a service (SaaS). The Company has reclassified amounts in the prior year to conform to the current year presentation. None of the changes impacts previously reported consolidated revenue, cost of sales, operating income, or earnings per share.
NOTE 2. UPDATES TO SIGNIFICANT ACCOUNTING POLICIES
There have been no material changes to the Company’s significant accounting polices during the first three quarters of fiscal 2012 from those disclosed in the Company’s 2011 Form 10-K.
Recent Accounting Pronouncements
In 2012, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that simplifies the impairment test for indefinite-lived intangible assets other than goodwill. The new guidance gives the option to first assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative valuation test. The new standard is effective for the Company beginning fiscal 2013. The adoption of the guidance will not have a material impact on the Company's financial position, results of operations or cash flows.
NOTE 3. SHAREHOLDERS’ EQUITY
Stock Repurchase Activities

7


In October 2011, the Company’s Board of Directors approved a new stock repurchase program (“2011 Stock Repurchase Program”), authorizing the Company to repurchase up to $100.0 million of Trimble’s common stock. No shares of common stock were repurchased during the first three quarters of fiscal 2012 or 2011 . The timing and actual number of future shares repurchased will depend on a variety of factors including price, regulatory requirements, capital availability and other market conditions. The program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without public notice .
Stock-Based Compensation Expense
The Company accounts for its employee stock options, restricted stock units and employee stock purchase plan (ESPP) under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s Condensed Consolidated Statements of Income.
The following table summarizes stock-based compensation expense related to employee stock-based compensation (for all plans) included in the Condensed Consolidated Statements of Income for the third quarter and the first three quarters of fiscal 2012 and 2011 .
 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Cost of sales
$
502

 
$
491

 
$
1,480

 
$
1,461

Research and development
1,163

 
1,151

 
3,869

 
3,373

Sales and marketing
1,616

 
1,672

 
5,244

 
4,966

General and administrative
4,403

 
3,791

 
13,035

 
11,233

Total operating expenses
7,182

 
6,614

 
22,148

 
19,572

Total stock-based compensation expense
$
7,684

 
$
7,105

 
$
23,628

 
$
21,033

Fair value of Trimble Options
Stock option expense recognized in the Condensed Consolidated Statements of Income is based on the fair value of the portion of share-based payment awards that is expected to vest during the period and is net of estimated forfeitures. The Company’s compensation expense for stock options is recognized using the straight-line single option method. The fair values for stock options are estimated on the date of grant using the binomial valuation model. The binomial model takes into account variables such as volatility, dividend yield rate and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For options granted during the third quarter and the first three quarters of fiscal 2012 and 2011 , the following weighted average assumptions were used:
 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
Expected dividend yield
 
 
 
Expected stock price volatility
41.1%
 
43.6%
 
41.2%
 
43.6%
Risk free interest rate
0.6%
 
1.6%
 
0.7%
 
1.6%
Expected life of options
4.1 years
 
4.2 years
 
4.2 years
 
4.2 years
Expected Dividend Yield – The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.
Expected Stock Price Volatility – The Company’s computation of expected volatility is based on a combination of implied volatilities from traded options on the Company’s stock and historical volatility, commensurate with the expected life of the stock options.
Expected Risk Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock options.
Expected Life Of Options – The Company’s expected life represents the period that the Company’s stock options are expected to be outstanding and is determined based on historical experience of similar stock options with consideration to the contractual terms of the stock options, vesting schedules and expectations of future employee behavior.

8


Fair value of Restricted Stock Units
Restricted stock units are converted into shares of Trimble common stock upon vesting on a one-for-one basis. Vesting of restricted stock units is subject to the employee’s continuing service to the Company. The compensation expense related to these awards was determined using the fair value of Trimble’s common stock on the date of grant, and the expense is recognized on a straight-line basis over the vesting period. Restricted stock units typically vest at the end of three years.
Fair value of Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, rights to purchase shares are generally granted during the second and fourth quarter of each year. The fair value of rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using the Black-Scholes option-pricing model.


NOTE 4. BUSINESS COMBINATION

Tekla Corporation

On July 8, 2011 the Company acquired 99.46% of the outstanding shares of Tekla Corporation (“Tekla”) for $454.9 million in cash. Tekla is headquartered in Finland and is a provider of building information modeling software and other model driven solutions for customers in the infrastructure and energy industries. The Company purchased the remaining shares of Tekla in February 2012 after completing compulsory redemption proceedings under the Finish Companies Act. The acquisition was funded through the use of approximately $54.9 million of the Company's existing cash, with the remainder funded through the Company's credit facilities. In connection with the acquisition, the Company incurred approximately $6.4 million in acquisition-related costs related primarily to investment banking, legal, accounting and other professional services. The acquisition costs were expensed as incurred and were included in General and administrative expenses in the Condensed Consolidated Financial Statements with $5.6 million and $6.4 million recognized in the third and first three quarters of fiscal 2011 , respectively.

Tekla is a leading provider of information model based software for the building and construction and infrastructure and energy industries. The objective of the acquisition was to integrate Tekla's Building Information Modeling (BIM) software solutions with Trimble's building construction estimating, project management and BIM-to-field solutions and enable a compelling set of productivity solutions for contractors around the world. Tekla's infrastructure and energy solutions complement Trimble's growing portfolio of utilities and municipalities solutions.  Additionally, Trimble's significant global customer base immediately extended Tekla's customer reach while Tekla's global presence in the building and construction market bolstered Trimble's own customer reach.

Tekla's results of operations from July 8, 2011 through the end of the third quarter of fiscal 2011 have been included in the Company's Condensed Consolidated Statements of Income for the third and first three quarters of fiscal 2011 . Tekla's building and construction activities are included within the Company's Engineering and Construction business segment and Tekla's infrastructure and energy activities are included within the Company's Field Solutions business segment.

The fair value of identifiable assets acquired and liabilities assumed were determined under the acquisition method of accounting for business combinations. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on estimates and assumptions provided by management.

The following table summarizes the consideration transferred to acquire Tekla and the assets acquired and liabilities assumed and the estimated useful lives of the identifiable intangible assets acquired as of the date of the acquisition:


9


 
 
 
Estimated
 
 
 
 
 
Fair Value
 
 
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Total purchase consideration*
$
457,387

 
 
 
Net tangible assets acquired
13,279

 
 
 
Intangible assets acquired:
 
 
Estimated useful Life
 
 
Developed product technology
107,260

 
7 years
 
 
In-process research and development
7,591

 
Evaluated upon completion
 
 
Order backlog
1,246

 
6 months
 
 
Customer relationships
83,929

 
8 years
 
 
Trade name
7,648

 
8 years
 
 
Subtotal
207,674

 
 
 
Deferred tax liability
(53,996
)
 
 
Less fair value of all assets/liabilities acquired
166,957

 
 
Goodwill
$
290,430

 
 

* Of the $457.4 million, $2.5 million was held in a cash account at the end of fiscal 2011 and represents the 0.54% of shares that were not yet acquired by the Company. In February, 2012 the Company purchased the remaining shares at the same per share price as was provided for the original 99.46% of shares obtained. Therefore, the non-controlling interest was valued based on that per-share price.

Goodwill represents the excess of the fair value of consideration paid over the fair value of the underlying net tangible and intangible assets acquired. Goodwill consists of Tekla's highly skilled and valuable assembled workforce, a proven ability to generate new products and services to drive future revenue, and a premium paid by the Company for synergies unique to its business. The Company recorded $290.4 million of goodwill from this acquisition with $245.6 million assigned to the Engineering and Construction segment and $44.8 million assigned to the Field Solutions segment. None of the goodwill recognized is expected to be deductible for income tax purposes.

Details of the net tangible assets acquired are as follows:

 
 
As of July 8, 2011
(Dollars in thousands)
 
 
Cash and cash equivalents
 
$
12,871

Account receivable
 
12,862

Other receivables
 
1,712

Other current assets
 
2,181

Property and equipment, net
 
4,066

Other non-current assets
 
5,113

Accounts payable
 
(1,329
)
Accrued liabilities
 
(12,842
)
Deferred revenue liability
 
(10,048
)
Other non-current liabilities
 
(1,307
)
Total net tangible assets acquired
 
$
13,279


The historical financial statements of Tekla were prepared in accordance with International Financial Reporting Standards (“IFRS”). Therefore, the Company adjusted the net tangible assets and liabilities in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition, the Company recorded adjustments to align Tekla's accounting policies with that of the Company and adjustments to measure the assets and liabilities assumed at fair value.


10


 
During the third and first three quarters ended fiscal 2011, Tekla contributed $15.2 million of revenue and recorded $1.1 million of operating loss within the business segments. The following table presents pro forma results of operations of the Company and Tekla, as if the companies had been combined as of the beginning of the earliest period presented. The unaudited pro forma results of operations are not necessarily indicative of results that would have occurred had the acquisition taken place on January 1, 2011, or of future results.  Included in the pro forma results are fair value adjustments based on the fair values of assets acquired and liabilities assumed as of the acquisition date of July 8, 2011. Pro-forma results include amortization of intangible assets related to the acquisition, interest expense for debt used to purchase Tekla, and income tax effects, and for the third and first three quarters ended fiscal 2011, the pro forma results exclude foreign currency transaction gain/(loss) recognized on a hedge and acquisition related cost associated with the purchase of Tekla. The pro forma information for the third and first three quarters ended fiscal 2011 is as follows:

 
Third Quarter of
 
First Three Quarters of
 
2011
 
2011
(Dollars in thousands)
 
 
 
Total revenues
$
417,433

 
$
1,262,387

Net income
32,986

 
119,092

Net income attributable to Trimble Navigation Ltd.
33,761

 
120,197

Basic earnings per share
0.27

 
0.98

Diluted earnings per share
0.27

 
0.95


NOTE 5. GOODWILL AND INTANGIBLE ASSETS
Intangible Assets
Intangible Assets consisted of the following:
 
   
Third Quarter of Fiscal 2012
 
Fiscal Year End 2011
 
Gross
 
 
 
 
 
Gross
 
 
 
 
As of
Carrying
 
Accumulated
 
Net Carrying
 
Carrying
 
Accumulated
 
Net Carrying
(Dollars in thousands)
Amount
 
Amortization
 
Amount
 
Amount
 
Amortization
 
Amount
Developed product technology
$
526,476

 
$
(245,584
)
 
$
280,892

 
$
437,097

 
$
(193,218
)
 
$
243,879

Trade names and trademarks
37,416

 
(21,959
)
 
15,457

 
34,563

 
(18,933
)
 
15,630

Customer relationships
308,859

 
(123,849
)
 
185,010

 
280,283

 
(94,573
)
 
185,710

Distribution rights and other intellectual properties
67,138

 
(37,510
)
 
29,628

 
63,498

 
(31,926
)
 
31,572

 
$
939,889

 
$
(428,902
)
 
$
510,987

 
$
815,441

 
$
(338,650
)
 
$
476,791

The estimated future amortization expense of purchased intangible assets as of the third quarter of fiscal 2012 was as follows:
 
(Dollars in thousands)
 
2012 (Remaining)
$
31,675

2013
121,919

2014
99,772

2015
87,650

2016
71,148

Thereafter
98,823

Total
$
510,987

Goodwill
The changes in the carrying amount of goodwill by operating segment for the first three quarters of fiscal 2012 were as follows:

11


 
 
Engineering
and
Construction
 
Field
Solutions
 
Mobile
Solutions
 
Advanced
Devices
 
Total
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Balance as of fiscal year end 2011
$
697,237

 
$
68,268

 
$
508,260

 
$
23,927

 
$
1,297,692

Additions due to acquisitions
227,499

 

 
20,548

 
1,078

 
249,125

Purchase price adjustments
2,817

 

 
282

 
87

 
3,186

Foreign currency translation adjustments
(91
)
 
(369
)
 
1,745

 
598

 
1,883

Balance as of the first three quarters of 2012
$
927,462

 
$
67,899

 
$
530,835

 
$
25,690

 
$
1,551,886

The additions due to acquisitions of $249.1 million include businesses from current year's acquisitions, however the effects of each of these acquisitions were not material individually or in the aggregate to the Company’s results. The Company determined the total consideration paid for each of its acquisitions as well as the fair value of the assets acquired and liabilities assumed as of the date of acquisition. For certain acquisitions completed in the first three quarters of fiscal 2012 , the fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted as the Company obtains additional information, primarily related to adjustments for the true up of acquired net working capital in accordance with certain purchase agreements, and estimated values of certain net tangible assets and liabilities including tax balances, pending the completion of final studies and analyses. If there are adjustments made for these items the fair value of intangible asset and goodwill could be impacted. Thus the provisional measurements of fair value are subject to change. Such changes could be significant. The Company expects to finalize the valuation of the net tangible and intangible assets as soon as practicable, but not later than one-year from the acquisition date.
NOTE 6. INVENTORIES
Inventories, net, consisted of the following:
 
 
Third Quarter of
 
Fiscal Year End
As of
2012
 
2011
(Dollars in thousands)
 
 
 
Raw materials
$
77,906

 
$
87,355

Work-in-process
7,939

 
8,475

Finished goods
148,456

 
136,233

Total inventories, net
$
234,301

 
$
232,063

Deferred costs of revenue are included within finished goods and were $27.4 million as of the third quarter of fiscal 2012 and $22.8 million as of fiscal year end 2011 .
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 hardware and software solutions for a variety of applications including:  survey; heavy civil and building construction; infrastructure; geospatial; railway; mining and utilities.
Field Solutions — Consists of hardware and software solutions for applications including agriculture, mapping and geographic information systems (GIS), utilities, and energy distribution.
Mobile Solutions — Consists of hardware and software solutions that enable end-users to monitor and manage their mobile assets and fleets by communicating location and activity-relevant information from the field to the office.
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, Trimble Outdoors, and ThingMagic businesses.

12


The Company evaluates each of its segment’s performance and allocates resources based on segment operating income before income taxes and some corporate allocations. The Company and each of its segments employ consistent accounting policies.
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 intangible assets, amortization of acquisition-related inventory step-up, acquisition costs and restructuring costs. The identifiable assets that the Company’s Chief Operating Decision Maker, its Chief Executive Officer, views by segment are accounts receivable, inventories and goodwill.

 
Reporting Segments
 
Engineering
and
Construction
 
Field
Solutions
 
Mobile
Solutions
 
Advanced
Devices
 
Total
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Third Quarter of Fiscal 2012
 
 
 
 
 
 
 
 
 
Segment revenue
$
287,244

 
$
102,993

 
$
83,830

 
$
30,696

 
$
504,763

Operating income
68,451

 
36,021

 
8,218

 
5,684

 
118,374

Third Quarter of Fiscal 2011
 
 
 
 
 
 
 
 
 
Segment revenue
$
241,106

 
$
91,106

 
$
58,101

 
$
27,120

 
$
417,433

Operating income
42,634

 
31,030

 
2,503

 
3,970

 
80,137

First Three Quarters of Fiscal 2012
 
 
 
 
 
 
 
 
 
Segment revenue
$
820,304

 
$
373,863

 
$
243,615

 
$
86,808

 
$
1,524,590

Operating income
168,001

 
145,005

 
21,200

 
12,936

 
347,142

First Three Quarters of Fiscal 2011
 
 
 
 
 
 
 
 
 
Segment revenue
$
667,808

 
$
318,188

 
$
142,747

 
$
80,152

 
$
1,208,895

Operating income (loss)
112,400

 
126,078

 
(1,515
)
 
10,441

 
247,404

As of the Third Quarter of Fiscal 2012
 
 
 
 
 
 
 
 
 
Accounts receivable
$
175,254

 
$
79,425

 
$
45,067

 
$
21,158

 
$
320,904

Inventories
141,600

 
37,858

 
37,507

 
17,336

 
234,301

Goodwill
927,462

 
67,899

 
530,835

 
25,690

 
1,551,886

As of Fiscal Year End 2011
 
 
 
 
 
 
 
 
 
Accounts receivable
$
160,218

 
$
63,542

 
$
36,465

 
$
14,976

 
$
275,201

Inventories
128,433

 
51,756

 
31,262

 
20,612

 
232,063

Goodwill
697,237

 
68,268

 
508,260

 
23,927

 
1,297,692

A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:
 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Consolidated segment operating income
$
118,374

 
$
80,137

 
$
347,142

 
$
247,404

Unallocated corporate expense
(21,660
)
 
(16,302
)
 
(61,203
)
 
(50,192
)
Amortization of purchased intangible assets
(31,440
)
 
(24,106
)
 
(89,315
)
 
(56,747
)
Acquisition costs
(1,804
)
 
(7,281
)
 
(14,385
)
 
(12,775
)
Consolidated operating income
63,470

 
32,448

 
182,239

 
127,690

Non-operating income (expense), net
3,352

 
(2,563
)
 
8,201

 
8,674

Consolidated income before taxes
$
66,822

 
$
29,885

 
$
190,440

 
$
136,364


13


Unallocated corporate expense includes general corporate expense, amortization of acquisition-related inventory step-up and restructuring costs.
NOTE 8. DEBT, COMMITMENTS AND CONTINGENCIES
Debt consisted of the following:
 
 
Third Quarter of
 
Fiscal Year End
As of
2012
 
2011
(Dollars in thousands)
 
 
 
Credit Facilities:
 
 
 
Term loan
$
370,000

 
$
385,000

Revolving credit facility
270,000

 
177,300

Promissory notes and other debt
3,107

 
2,136

Total debt
643,107

 
564,436

Less current portion of long-term debt
89,909

 
65,918

Non-current portion
$
553,198

 
$
498,518

Credit Facilities
On May 6, 2011 , the Company entered into a credit agreement with a group of lenders (the “2011 Credit Facility”). This credit facility provides for unsecured credit facilities in the aggregate principal amount of $1.1 billion , comprised of a five-year revolving loan facility of $700.0 million and a five-year $400.0 million term loan facility. Subject to the terms of the 2011 Credit Facility, the revolving loan facility may be increased by up to $300.0 million in the aggregate and the term loan facility may no longer be increased. Additionally, on July 14, 2011, the Company entered into a $50 million uncommitted revolving loan facility (the “2011 Uncommitted Facility”), which is callable by the bank at any time and has no covenants. On January 27, 2012, this facility was increased to $75 million . The interest rate on the 2011 Uncommitted Facility is 1.00% plus either LIBOR or the bank’s cost of funds or as otherwise agreed upon by the bank and the Company.
As of the third quarter of fiscal 2012 , total debt was comprised primarily of a term loan of $370.0 million and a revolving credit line of $213.0 million under the 2011 Credit Facility and a revolving credit line of $57.0 million under the 2011 Uncommitted Facility. Of the total outstanding balance, $340.0 million of the term loan and the $213.0 million revolving credit line are classified as long-term in the Condensed Consolidated Balance Sheet.
The funds available under the 2011 Credit Facility may be used for general corporate purposes, the financing of certain acquisitions and the payment of transaction fees and expenses related to such acquisitions. Under the 2011 Credit Facility, the Company may borrow, repay and reborrow funds under the revolving loan facility until its maturity on May 6, 2016 , at which time the revolving facility will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not borrowed under the revolving facility will be subject to a commitment fee, to be paid in arrears on the last day of each fiscal quarter, ranging from 0.20% to 0.40%  per annum depending on the Company’s leverage ratio as of the most recently ended fiscal quarter. The term loan will be repaid in quarterly installments, with the last quarterly payment to be made at April 1, 2016. On an annualized basis, the amortization of the term loan is as follows: 5% , 5% , 10% , 10% and 70% for years one through five respectively. The term loan may be prepaid in whole or in part, subject to certain minimum thresholds, without penalty or premium. Amounts repaid or prepaid with respect to the term loan facility may not be reborrowed.
The Company may borrow funds under the 2011 Credit Facility in U.S. Dollars, Euros or in certain other agreed currencies, and borrowings will bear interest, at the Company’s option, at either: (i) a floating per annum base rate based on the administrative agent’s prime rate or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.25% and 1.25% , depending on the Company’s leverage ratio as of the most recently ended fiscal quarter, or (ii) a reserve-adjusted fixed per annum rate based on LIBOR, EURIBOR, STIBOR or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 1.25% and 2.25% , depending on the Company’s leverage ratio as of the most recently ended fiscal quarter. Interest will be paid on the last day of each fiscal quarter with respect to borrowings bearing interest based on a floating rate, or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at a fixed rate. The Company’s obligations under the 2011 Credit Facility are guaranteed by several of the Company’s domestic subsidiaries.
The 2011 Credit Facility contains various customary representations and warranties by the Company, which include customary use of materiality, material adverse effect and knowledge qualifiers. The 2011 Credit Facility also contains customary affirmative and negative covenants including, among other requirements, negative covenants that restrict the Company’s ability to dispose of

14


assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions and make investments. Further, the 2011 Credit Facility contains financial covenants that require the maintenance of minimum interest coverage and maximum leverage ratios. Specifically, the Company must maintain as of the end of each fiscal quarter a ratio of (a) EBITDA (as defined in the 2011 Credit Facility) to (b) interest expenses for the most recently ended period of four fiscal quarters of not less than 3.5 to 1 . The Company must also maintain, at the end of each fiscal quarter, a ratio of (x) total indebtedness to (y) EBITDA (as defined in the 2011 Credit Facility) for the most recently ended period of four fiscal quarters of not greater than 3 to 1 ; provided, that on the completion of a material acquisition, the Company may increase the ratio by 0.25 for the fiscal quarter during which such acquisition occurred and each of the three subsequent fiscal quarters.
The Company was in compliance with these restrictive covenants as of the third quarter of fiscal 2012 .

The 2011 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 2011 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.
Promissory Notes and Other Debt
As of the third quarter of fiscal 2012 and fiscal year end 2011 , the Company had promissory notes and other debt totaling approximately $3.1 million and $2.1 million , respectively, of which $0.2 million for both periods was classified as long-term in the Condensed Consolidated Balance Sheet. As of the third quarter of fiscal 2012 , outstanding notes payable of $2.5 million represented most of this balance and consisted primarily of notes payable to noncontrolling interest holders. The notes bear interest at 2.5% - 3.3% and will be paid in July, 2013.
Leases and Other Commitments
The estimated future minimum operating lease commitments as of the third quarter of fiscal 2012 are as follows (dollars in thousands):
 
 
 
2012 (Remaining)
$
7,319

2013
20,606

2014
16,334

2015
13,829

2016
8,893

Thereafter
9,859

Total
$
76,840

Additionally, the Company has potential obligations related to previous acquisitions. As of the third quarter of fiscal 2012 , the Company had $5.3 million of holdbacks, which are included in Other current liabilities and Other non-current liabilities on the Condensed Consolidated Balance Sheets. Further, certain acquisitions include additional earn-out cash payments based on future revenue or gross margin derived from existing products and other product milestones. As of the third quarter of fiscal 2012 , the Company had $2.3 million included in Other current liabilities and Other non-current liabilities related to these earn-outs, representing the fair value of the contingent consideration. Additional potential earn-out cash payments in excess of that recorded on the Company’s Condensed Consolidated Balance Sheet was $4.8 million as of the third quarter of fiscal 2012 . The remaining earn-outs and holdbacks are payable through 2016.
As of the third quarter of fiscal 2012 , the Company had unconditional purchase obligations of approximately $82.7 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 MEASUREMENTS
The guidance on fair value measurements and disclosures defines fair value, establishes a framework for measuring fair value, and requires disclosures about assets and liabilities measured at fair value. Fair value is defined as the price at which an asset could

15


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 the guidance on fair value measurements are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:
Level I – Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.
 
 
Fair Values as of the Third Quarter of Fiscal  2012
 
Fair Values as of Fiscal Year End 2011
(Dollars in thousands)
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds(1)
$
2

 
$

 
$

 
$
2

 
$
3

 
$

 
$

 
$
3

Deferred compensation plan assets (2)
12,412

 

 

 
12,412

 
10,534

 

 

 
10,534

Derivative assets (3)

 
74

 

 
74

 

 
351

 

 
351

Total
$
12,414

 
$
74

 
$

 
$
12,488

 
$
10,537

 
$
351

 
$

 
$
10,888

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation plan liabilities (2)
$
12,412

 
$

 
$

 
$
12,412

 
$
10,534

 
$

 
$

 
$
10,534

Derivative liabilities (3)

 
461

 

 
461

 

 
1,968

 

 
1,968

Contingent consideration liabilities (4)

 

 
2,245

 
2,245

 

 

 
4,967

 
4,967

Total
$
12,412

 
$
461

 
$
2,245

 
$
15,118

 
$
10,534

 
$
1,968

 
$
4,967

 
$
17,469

 
(1)
These investments are highly liquid investments in money market funds. The fair values are determined using observable quoted prices in active markets. Money market funds are included in Cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheets.
(2)
The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. The plan assets and liabilities are invested in actively traded mutual funds and individual stocks valued using observable quoted prices in active markets. Deferred compensation plan assets and liabilities are included in Other non-current assets and Other non-current liabilities on the Company’s Condensed Consolidated Balance Sheets.
(3)
Derivative assets and liabilities included in Level II primarily represent forward currency exchange contracts. The Company typically enters into these contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and inter-company receivables and payables. The derivatives are not designated as hedging instruments. 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)
The Company has seven contingent consideration arrangements that require it to pay the former owners of certain companies it acquired. The undiscounted maximum payment under all seven arrangements as of the third quarter of fiscal 2012 is

16


$7.1 million based on future revenues, gross margins or operating income over a 19 month period. The Company estimated the fair value of these liabilities using the expected cash flow approach with inputs being probability-weighted revenue, gross margin or operating income projections, as the case may be, and discount rates ranging from 0.10% to 2.5% for the third quarter of fiscal 2012 and 0.06% to 3.5% for fiscal year end 2011. As of the third quarter of fiscal 2012 and fiscal year end 2011 , of the total contingent consideration liability, $1.7 million and $4.5 million was included in Other current liabilities, respectively, and $0.6 million and $0.5 million was included in Other non-current liabilities, respectively, on the Company’s Condensed Consolidated Balance Sheets. The decrease in the balance from fiscal year end 2011 was due primarily to $2.8 million of earnout payments made during the third quarter of fiscal 2012.
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
Third Quarter of Fiscal 2012
 
Fiscal Year End of 2011
(Dollars in thousands)
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
141,840

 
$
141,840

 
$
154,621

 
$
154,621

Forward foreign currency exchange contracts
74

 
74

 
351

 
351

Liabilities:
 
 
 
 
 
 
 
Credit facility
$
640,000

 
$
644,285

 
$
562,300

 
$
562,300

Forward foreign currency exchange contracts
461

 
461

 
1,968

 
1,968

Promissory note and other
3,107

 
3,107

 
2,136

 
2,136


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 the Company would currently have to pay to extinguish any of this debt.
NOTE 10. PRODUCT WARRANTIES
The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support labor costs and costs incurred by third parties performing work on the Company’s behalf. The Company’s expected future costs are primarily estimated based upon historical trends in the volume of product returns within the warranty period and the costs to repair or replace the equipment. The products sold are generally covered by a warranty for periods ranging from 90 days to 5.5 years.
While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.
Changes in the Company’s product warranty liability during the first three quarters of fiscal 2012 are as follows:
 
(Dollars in thousands)
 
Balance as of fiscal year end 2011
$
18,444

Accruals for warranties issued
14,783

Changes in estimates
427

Warranty settlements (in cash or in kind)
(17,571
)
Balance as of the third quarter of fiscal 2012
$
16,083

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.
 

17


 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to Trimble Navigation Ltd.
$
53,364

 
$
27,971

 
$
157,874

 
$
121,352

Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares used in basic earnings per share
125,871

 
122,969

 
125,202

 
122,485

Effect of dilutive securities (using treasury stock method):
 
 
 
 
 
 
 
Common stock options and restricted stock units
2,508

 
2,925


2,942


3,495

Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share
128,379

 
125,894

 
128,144

 
125,980

Basic earnings per share
$
0.42

 
$
0.23

 
$
1.26

 
$
0.99

Diluted earnings per share
$
0.42

 
$
0.22

 
$
1.23

 
$
0.96

For the third quarter of fiscal 2012 and 2011 the Company excluded 2.6 million and 2.9 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share. For the first three quarters of fiscal 2012 and 2011 the Company excluded 2.3 million shares and 1.6 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share. These shares were excluded 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. INCOME TAXES
In the third quarter of fiscal 2012 , the Company’s effective income tax rate was 19% as compared to 9% in the corresponding period in 2011 , primarily due to geographic mix of pretax income and the expiration of federal R&D credits. In the first three quarters of fiscal 2012 , the Company’s effective income tax rate was 18% as compared to 12% in the corresponding period in 2011 , primarily due to the same reasons mentioned above.
The 2012 and 2011 third quarter effective tax rates are lower than the statutory federal income tax rate of 35% primarily due to the geographical mix of pre-tax income.
The Company and its subsidiaries are subject to U.S. federal and state, and foreign income tax. The Company has substantially concluded all U.S. federal income tax audits for years through 2009 with the exception of acquired companies. State income tax matters have been concluded for years through 2005 and 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. Although the timing of resolution and/or 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 unrecognized tax benefits of 32.8 million and $28.7 million as of the third quarter of fiscal 2012 and fiscal year end 2011 , respectively, if recognized, would favorably affect the effective income tax rate in future periods. Unrecognized tax benefits are recorded in Other non-current liabilities and in the deferred tax accounts in the accompanying Condensed Consolidated Balance Sheets.
The Company's practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company's unrecognized tax benefit liabilities include interest and penalties as of the third quarter of fiscal 2012 and fiscal year end 2011 , of $3.0 million and $2.7 million , respectively, which were recorded in Other non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.

NOTE 13. SUBSEQUENT EVENTS


18


On October 2, 2012, the Company acquired privately-held TMW Systems Holdings LLC and its subsidiaries, including TMW Systems, Inc. ("TMW"), a leading provider of enterprise software to transportation and logistics companies. TMW's transportation software platform serves as a central hub from which the core operations of transportation organizations are managed, data is stored and analyzed, and mission critical business processes are automated. The Company acquired all of the issued and outstanding shares of common stock of TMW Systems Holdings LLC for a total purchase price of approximately $334 million . The all cash purchase price was financed through the Company's existing credit facility.


19


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 2011 and other reports and documents that the Company files from time to time with the Securities and Exchange Commission. The Company has attempted to identify forward-looking statements in this report by placing an asterisk (*) before paragraphs. Discussions containing such forward-looking statements may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, and the Company disclaims any obligation to update these statements or to explain the reasons why actual results may differ.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U. S. The preparation of these financial statements requires us to make estimates and 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, stock-based compensation, income taxes, warranty obligations, restructuring costs, 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 material changes to the Company’s significant accounting polices during the first three quarters of fiscal 2012 from those disclosed in the Company’s 2011 Form 10-K.
Recent Accounting Pronouncements
In 2012, the FASB issued a new accounting standard that simplifies the impairment test for indefinite-lived intangible assets other than goodwill. The new guidance gives the option to first assess qualitative factors to determine if it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative valuation test. The new standard is effective for us beginning fiscal 2013. The adoption of the guidance will not have a material impact on our financial position, results of operations or cash flows.

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.

20

Table of Contents


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 extended our building information modeling-to-field capabilities for building contractors by integrating file import capabilities from the SketchUp’s software into the Trimble Field Link layout software. Trimble Field Link software now allows contractors to take their 3D SketchUp Pro models from the office into the field for quick site verification and viability testing of the proposed prototype. We also introduced a number of infrastructure hardware and software that utilize Trimble RTX, or Real-Time eXtended, technology for high-accuracy Global Navigation Satellite System, or GNSS, corrections. RTX technology utilizes real-time GNSS corrections from a global reference station network to compute centimeter level positions based on satellite orbit and clock information. We also launched the Spectra Precision® DR400 DigiRod which is a new tool that eliminates the need for grade rods when checking grades with a rotating laser. Another new product, the Spectra Precision QM75 Quick Measure distance meter designed to give contractors a distance measuring tool that is easy to use and can withstand the rigors of the construction jobsite. We further added new products to our Railway Solutions portfolio: the Trimble GEDO CE 2.0 Trolley System and GEDO 2.0 Office 2.0 Software. The latest trolley system is lightweight, flexible and quickly adapting to work on various railway gauges. In addition to using GPS/GNSS and optical sensors, the GEDO CE 2.0 Trolley also features the ability to use laser scanners for track clearance surveying applications.
In our Field Solutions segment, we introduced the WM-Topo survey system, a portable topographic data collection solution for water management which allows f armers, and drainage and leveling contractors to collect topographic data across a field which can subsequently be transferred to Farm Works Surface software or the FmX® display integrated display via a USB stick, or wirelessly via Trimble's Connected Farm solution. Furthermore, we launched the Connected Farm™ app for smartphone platforms that gives farmers an easy-to-use tool to capture field data for later viewing and analysis online, while also providing agronomists with access to additional data they can use to better assess the needs of their customers. Another solution launched this quarter, Trimble Yield Monitoring for the CFX-750 display, provides an accurate system to collect yield and moisture data for grain crops so farmers can instantly see how well their crops performed. We also introduced the GreenSeeker handheld crop sensor which is an easy-to-use measurement device designed to assess the health of a crop. Readings taken with the GreenSeeker handheld can be used to make objective decisions regarding the amount of fertilizer to be applied to a crop, resulting in a more efficient use of fertilizer.
In our Advanced Devices segment, we made available a number of new capabilities for the ThingMagic® Mercury® 6e (M6e) embedded UHF RFID module and Mercury 6 finished reader. The added functionality helps users develop and deploy reliable, high performance RFID-enabled solutions for a broad range of traditional and innovative applications. During the quarter, we also launched the ThingMagic Astra-EX module which is an addition to the integrated UHF RFID reader/antenna product family. The Astra-EX module builds on the capabilities of the widely deployed first generation Astra reader and includes several new high-performance and application-specific features which can be easily integrated with corporate IT infrastructure and enterprise lay-outs.
All of these products and initiatives strengthened our competitive position and created new value for our customers.

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, our acquisition of WinEstimator, Inc, a provider of construction cost estimating and cost-modeling software, is expected to extend capabilities for general contractor and owner customers that want to better develop, manage and leverage their construction cost information to support their core business.
In our Mobile Solutions segment, we introduced the cBin solution for managing recycling containers. The solution provides environmental services professionals and fleet managers with the ability to monitor container levels on a daily basis and the tools to build just in time customized collection routes to pick up full containers which leads to the optimization of fuel and labor use. We have also extended our operations through the acquisition of Logicway, a privately held company from Netherlands and a provider of software for automating payroll and expenses with a specific focus on the transportation and logistics industry.

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. New initiatives are focused in emerging markets in Africa, China, India, Asia, the Middle-East and Russia. We continued to expand our network of SITECH Technology Dealers during the quarter by adding a new dealership in Mongolia. This dealer will represent the Trimble and Caterpillar machine control systems for the contractor's entire fleet of heavy equipment regardless of machine brand.

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Table of Contents

Our Engineering and Construction segment announced that it will supply more than 500 Trimble NetR9 GNSS reference station receivers to the Geospatial Information Authority of Japan (GSI) which is a part of the Ministry of Land, Infrastructure, Transport and Tourism, to modernize its nationwide GeoNet GNSS-based network.
RECENT BUSINESS DEVELOPMENTS
The following companies were acquired during the twelve months ended September 28, 2012 and are combined in our results of operations since the date of acquisition:
Logicway
On September 6, 2012, we acquired privately-held Logicway of Oldenzaal, Netherlands, a provider of software for automating payroll and expenses with a specific focus on the transportation and logistics industry. Logicway’s performance is reported under our Mobile Solutions business segment.
WinEstimator
On August 6, 2012, we acquired privately-held WinEstimator, Inc., a provider of construction cost estimating and cost-modeling software. WinEstimator’s performance is reported under our Engineering and Construction business segment.
GEOTrac Systems Inc.
On June 8, 2012, we acquired privately-held GEOTrac Systems Inc. of Calgary, Canada, a leading provider of wireless fleet management and worker safety solutions for the oil and gas industry. GEOTrac Systems Inc.’s performance is reported under our Mobile Solutions business segment.
SketchUp
On June 1, 2012, we acquired SketchUp ® , a popular 3D modeling platform, and related assets from Google Inc. SketchUp’s performance is reported under our Engineering and Construction business segment.
Gatewing
On April 5, 2012, we acquired privately-held Gatewing of Gent, Belgium, a provider of lightweight unmanned aerial vehicles for photogrammetry and rapid terrain mapping applications. Gatewing’s performance is reported under our Engineering and Construction business segment.
Plancal
On January 12, 2012, we acquired privately-held Plancal of Horgen, Switzerland, a leading 3D CAD/CAE and ERP software provider for the mechanical, electrical and plumbing and heating, ventilation and air conditioning industries in western Europe. Plancal’s performance is reported under our Engineering and Construction business segment.
StruCad
On January 11, 2012, we acquired the StruCad and StruEngineer business from AceCad Software based in Derby, UK to expand our construction solutions. The addition of the software products is expected to extend Tekla’s building information modeling solutions for structural steel contractors to automate project estimating and management, modeling and detailing. StruCad’s performance is reported under our Engineering and Construction business segment.
Seasonality of Business
* Our individual segment revenue may be affected by seasonal buying patterns. Historically, the second fiscal quarter has been the strongest quarter for the Company driven by the construction buying season. However, as a result of recent acquisitions, we may experience less seasonality in the future.
RESULTS OF OPERATIONS
Overview
The following table is a summary of revenue, gross margin and operating income for the periods indicated and should be read in conjunction with the narrative descriptions below.
 

22


 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Product
$
386,902

 
$
333,262

 
$
1,187,638

 
$
1,004,378

Service
64,237

 
44,517

 
185,262

 
112,288

Subscription
53,624

 
39,654

 
151,690

 
92,229

Total revenue
504,763

 
417,433

 
1,524,590

 
1,208,895

Gross margin
$
262,868

 
$
211,559

 
$
789,713

 
$
611,823

Gross margin %
52.1
%
 
50.7
%
 
51.8
%
 
50.6
%
Operating income
$
63,470

 
$
32,448

 
$
182,239

 
$
127,690

Operating income %
12.6
%
 
7.8
%

12.0
%

10.6
%
Revenue
Beginning in the first quarter of fiscal 2012, we have presented revenue separately for products, services and subscriptions. Prior year amounts have been reclassified to conform to the current year presentation.
In the third quarter of fiscal 2012 , total revenue increased by $87.3 million or 21% , as compared to the third quarter of fiscal 2011 . Of this increase, product revenue increased $53.6 million, or 16% , service revenue increased $19.7 million, or 44% , and subscription revenue increased $14.0 million, or 35% . The product and service revenue increase during the third quarter of fiscal 2012 as compared with the corresponding period of fiscal 2011 was driven by organic growth and to a lesser extent, acquisitions not applicable in the prior periods, partially offset by the negative impact of foreign exchange rates. Subscription revenue increased primarily due to organic growth in the PeopleNet business as well as the prior period including a partial quarter of PeopleNet results. We consider organic growth to include all revenue except for revenue associated with acquisitions made within the last four quarters.
In the first three quarters of fiscal 2012 , total revenue increased by $315.7 million or 26% , as compared to the first three quarters of fiscal 2011 . Of this increase, product revenue increased $183.3 million, or 18% , service revenue increased $73.0 million, or 65% , and subscription revenue increased $59.5 million, or 64% . The product and service revenue increase during the first three quarters of fiscal 2012 as compared with the corresponding period of fiscal 2011 was driven by organic growth and acquisitions not applicable in the prior periods, including Tekla which was not acquired until the beginning of the third quarter of fiscal 2011, partially offset by the negative impact of foreign exchange rates. Subscription revenue increased primarily due to the organic growth and the PeopleNet acquisition which was not acquired until the third quarter of fiscal 2011.
On a segment basis, Engineering and Construction revenue for the third quarter of fiscal 2012 increased $46.1 million, or 19% Field Solutions increased $11.9 million, or 13% , Mobile Solutions increased $25.7 million or 44% , and Advanced Devices increased $3.6 million or 13% , as compared to the third quarter of fiscal 2011 . Revenue growth within Engineering and Construction was driven by strong organic growth due to sales of heavy and highway and vertical construction products and to a lesser extent, acquisitions not applicable in the prior period. The growth within Engineering and Construction was partially offset by the negative impact of foreign currency exchange rates. Field Solutions revenue increased primarily due to continued strength in the Agriculture market. Mobile Solutions revenue increased primarily due to PeopleNet's continued organic growth as well as the prior period including a partial quarter of PeopleNet results. Advanced Devices revenue increased primarily due to stronger sales of timing and embedded devices.
Engineering and Construction revenue for the first three quarters of fiscal 2012 increased $152.5 million, or 23% , Field Solutions increased $55.7 million, or 17% , Mobile Solutions increased $100.9 million or 71% , and Advanced Devices increased $6.7 million or 8% , as compared to the corresponding period of fiscal 2011 . Revenue growth within Engineering and Construction was driven by strong organic growth due to sales of heavy highway and vertical construction products and acquisitions not applicable in the prior periods, including Tekla which was not acquired until the beginning of the third quarter of fiscal 2011. The growth within Engineering and Construction was partially offset by the negative impact of foreign currency exchange rates. Field Solutions revenue increased primarily due to continued strength in the Agriculture market and to a lesser extent, Tekla, which was not acquired until the beginning of the third quarter of fiscal 2011. Mobile Solutions revenue increased primarily due to PeopleNet's continued organic growth as well as the PeopleNet acquisition itself which was not acquired until the third quarter of fiscal 2011. Advanced Devices revenue increased primarily due to stronger sales of timing and embedded devices.
Gross Margin

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Gross margin varies due to a number of factors including product mix, pricing, distribution channel, production volumes and foreign currency translations.
Gross margin increased by $51.3 million for the third quarter of fiscal 2012 , as compared to the third quarter of fiscal 2011 , and increased by $177.9 million for the first three quarters of fiscal 2012 , as compared to the first three quarters of fiscal 2011 . The increases in both periods were primarily due to increased sales in Engineering and Construction, Field Solutions and Mobile Solutions. Gross margin as a percentage of total revenue for the third quarter of fiscal 2012 was 52.1% , as compared to 50.7% for the third quarter of fiscal 2011 , and was 51.8% for the first three quarters of fiscal 2012 , as compared to 50.6% for the first three quarters of fiscal 2011 . The increase in both periods was primarily due to an increase in sales of higher margin products, primarily software and subscription revenue, which were partially offset by higher amortization of purchased intangible assets.
Operating Income
Operating income increased by $31.0 million for the third quarter of fiscal 2012 , as compared to the third quarter of fiscal 2011 , and increased by $54.5 million for the first three quarters of fiscal 2012 , as compared to the first three quarters of fiscal 2011 . Operating income as a percentage of total revenue was 12.6% for the third quarter of fiscal 2012 , as compared to 7.8% for the third quarter of fiscal 2011 , and was 12.0% for the first three quarters of fiscal 2012 , as compared to 10.6% for the first three quarters of fiscal 2011 . The increase in operating income and operating income percentage in both periods was primarily driven by higher revenue and gross margin expansion, partially offset by higher amortization of purchased intangible assets.
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 intangible assets, amortization of inventory step-up charges, acquisition costs and restructuring costs.
The following table is a summary of revenue and operating income by segment:
 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Engineering and Construction
 
 
 
 
 
 
 
Revenue
$
287,244

 
$
241,106

 
$
820,304

 
$
667,808

Segment revenue as a percent of total revenue
57
%
 
58
%
 
54
%
 
55
 %
Operating income
$
68,451

 
$
42,634

 
$
168,001

 
$
112,400

Operating income as a percent of segment revenue
24
%
 
18
%
 
20
%
 
17
 %
Field Solutions
 
 
 
 
 
 
 
Revenue
$
102,993

 
$
91,106

 
$
373,863

 
$
318,188

Segment revenue as a percent of total revenue
20
%
 
22
%
 
24
%
 
26
 %
Operating income
$
36,021

 
$
31,030

 
$
145,005

 
$
126,078

Operating income as a percent of segment revenue
35
%
 
34
%
 
39
%
 
40
 %
Mobile Solutions
 
 
 
 
 
 
 
Revenue
$
83,830

 
$
58,101

 
$
243,615

 
$
142,747

Segment revenue as a percent of total revenue
17
%
 
14
%
 
16
%
 
12
 %
Operating income (loss)
$
8,218

 
2,503

 
$
21,200

 
(1,515
)
Operating income (loss) as a percent of segment revenue
10
%
 
4
%
 
9
%
 
(1
)%
Advanced Devices
 
 
 
 
 
 
 
Revenue
$
30,696

 
$
27,120

 
$
86,808

 
$
80,152

Segment revenue as a percent of total revenue
6
%
 
6
%
 
6
%
 
7
 %
Operating income
$
5,684

 
$
3,970

 
$
12,936

 
$
10,441

Operating income as a percent of segment revenue
19
%
 
15
%
 
15
%
 
13
 %
A reconciliation of our consolidated segment operating income to consolidated income before taxes follows:

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Table of Contents

 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Consolidated segment operating income
$
118,374

 
$
80,137

 
$
347,142

 
$
247,404

Unallocated corporate expense
(21,660
)
 
(16,302
)
 
(61,203
)
 
(50,192
)
Amortization of purchased intangible assets
(31,440
)
 
(24,106
)
 
(89,315
)
 
(56,747
)
Acquisition costs
(1,804
)
 
(7,281
)
 
(14,385
)
 
(12,775
)
Consolidated operating income
63,470

 
32,448

 
182,239

 
127,690

Non-operating income (expense), net
3,352

 
(2,563
)
 
8,201

 
8,674

Consolidated income before taxes
$
66,822

 
$
29,885

 
$
190,440

 
$
136,364

Unallocated corporate expense includes general corporate expense, amortization of inventory step-up charges and restructuring costs.
Engineering and Construction
Engineering and Construction revenue increased by $46.1 million or 19% and $152.5 million or 23% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 . Segment operating income increased $25.8 million or 61% and $55.6 million or 49% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 .
The revenue increase for the third quarter was primarily driven by organic growth due to sales of heavy and highway products and vertical construction products and to a lesser extent, acquisitions. Heavy and highway products demonstrated strong growth as adoption rates of technology accelerated. Additionally, greater contribution from vertical construction reflected some increased growth in North American commercial and residential construction as well as greater penetration internationally. Survey product sales were down, primarily due to European conditions. The growth within Engineering and Construction was partially offset by the negative impact of foreign currency exchange rates. Segment operating income increased primarily due to higher revenue, improved gross margin and increased operating leverage.
The revenue increase for the first three quarters was driven by organic growth due to sales of heavy and highway and vertical construction products and acquisitions not applicable in the prior periods, including Tekla which was not acquired until the beginning of the third quarter of fiscal 2011. The growth within Engineering and Construction was partially offset by the negative impact of foreign currency exchange rates. Segment operating income increased primarily due to higher revenue, improved gross margin and increased operating leverage.
Field Solutions
Field Solutions revenue increased by $11.9 million, or 13% and $55.7 million, or 17% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 . Segment operating income increased by $5.0 million or 16% and $18.9 million or 15% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 .
The revenue growth for the third quarter of fiscal 2012 was primarily due to continued strength in Agriculture. There was growth in all major regions in our Agriculture markets and increased sales growth for new information and flow control products. Segment operating income increased primarily due to higher revenue and associated higher gross margin.
The revenue growth for the first three quarters of fiscal 2012 was primarily due to continued strength in the Agriculture markets and products as noted above and to a lesser extent, Tekla, which was not acquired until the beginning of the third quarter of fiscal 2011. Segment operating income increased primarily due to higher revenue and associated higher gross margin.
Mobile Solutions
Mobile Solutions revenue increased by $25.7 million or 44% and $100.9 million or 71% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 . Segment operating income increased by $5.7 million or 228% and $22.7 million or 1,499% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 .

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Table of Contents

The revenue increase for the third quarter and the first three quarters of fiscal 2012 was primarily due to PeopleNet's continued organic growth as well as the prior periods included a partial period of PeopleNet results. Operating income increased due to contribution from PeopleNet as well as field service management gross margin expansion and operating leverage as the customer focus was redirected toward vertical markets that allow for competitive differentiation.
Advanced Devices
Advanced Devices revenue increased by $3.6 million or 13% and $6.7 million or 8% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 . Segment operating income increased by $1.7 million or 43% and $2.5 million or 24% for the third quarter and the first three quarters of fiscal 2012 , respectively, as compared to the same corresponding periods in fiscal 2011 .
The increase in revenue and operating income for both the third quarter and the first three quarters of fiscal 2012 was due to increased sales of timing and embedded devices.
Research and Development, Sales and Marketing and General and Administrative Expense
Research and development (R&D), sales and marketing (S&M) and general and administrative (G&A) expense are summarized in the following table:
 
 
Third Quarter of
 
First Three Quarters of
 
2012
 
2011
 
2012
 
2011
(Dollars in thousands)
 
 
 
 
 
 
 
Research and development
61,181

 
49,928

 
185,721

 
139,452

Percentage of revenue