Trimble Inc.
TRIMBLE NAVIGATION LTD /CA/ (Form: 10-Q, Received: 11/05/2013 14:46:42)
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 27, 2013
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 October 30, 2013, there were 257,841,947 shares of Common Stock (no par value) outstanding.


Table of Contents

TRIMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter Ended September 27, 2013
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
2013
 
2012
(In thousands)
 
 
 
ASSETS
 
 
 
Current assets :
 
 
 
Cash and cash equivalents
$
115,257

 
$
157,771

Restricted cash
6,696

 

Accounts receivable, net
361,556

 
323,477

Other receivables
13,443

 
17,327

Inventories, net
241,509

 
240,529

Deferred income taxes
44,578

 
43,473

Other current assets
45,454

 
33,396

Total current assets
828,493

 
815,973

Property and equipment, net
136,155

 
96,890

Goodwill
1,938,870

 
1,815,699

Other purchased intangible assets, net
621,675

 
644,419

Other non-current assets
109,979

 
96,123

Total assets
$
3,635,172

 
$
3,469,104

LIABILITIES
 
 
 
Current liabilities:
 
 
 
Current portion of long-term debt
$
105,202

 
$
38,092

Accounts payable
105,808

 
124,532

Accrued compensation and benefits
87,829

 
86,064

Deferred revenue
174,407

 
138,920

Accrued warranty expense
17,455

 
17,066

Other current liabilities
78,336

 
63,996

Total current liabilities
569,037

 
468,670

Non-current portion of long-term debt
703,862

 
873,066

Non-current deferred revenue
16,541

 
7,262

Deferred income taxes
135,494

 
148,260

Other non-current liabilities
70,085

 
58,322

Total liabilities
1,495,019

 
1,555,580

Commitments and contingencies

 

EQUITY
 
 
 
Shareholders’ equity:
 
 
 
Preferred stock, no par value; 3,000 shares authorized; none outstanding

 

Common stock, no par value; 360,000 shares authorized; 257,451 and 254,486 shares issued and outstanding as of the third quarter of fiscal 2013 and fiscal year end 2012, respectively
1,077,756

 
1,006,818

Retained earnings
1,025,119

 
868,026

Accumulated other comprehensive income
23,944

 
22,611

Total Trimble Navigation Ltd. shareholders’ equity
2,126,819

 
1,897,455

Noncontrolling interests
13,334

 
16,069

Total equity
2,140,153

 
1,913,524

Total liabilities and equity
$
3,635,172

 
$
3,469,104

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)
2013
 
2012
 
2013
 
2012
Revenue:
 
 
 
 
 
 
 
Product
$
401,565

 
$
386,902

 
$
1,240,232

 
$
1,187,638

Service
85,521

 
64,237

 
251,628

 
185,262

Subscription
69,416

 
53,624

 
197,046

 
151,690

Total revenue
556,502

 
504,763

 
1,688,906

 
1,524,590

Cost of sales:
 
 
 
 
 
 
 
Product
187,865

 
185,102

 
587,059

 
577,281

Service
31,959

 
23,615

 
95,351

 
67,592

Subscription
21,223

 
17,450

 
62,190

 
47,859

Amortization of purchased intangible assets
20,402

 
15,728

 
59,938

 
42,145

Total cost of sales
261,449

 
241,895

 
804,538

 
734,877

Gross margin
295,053

 
262,868

 
884,368

 
789,713

Operating expense
 
 
 
 
 
 
 
Research and development
71,622

 
61,181

 
221,785

 
185,721

Sales and marketing
85,507

 
76,481

 
254,437

 
230,094

General and administrative
53,648

 
45,723

 
158,378

 
142,595

Restructuring charges
31

 
301

 
4,602

 
1,894

Amortization of purchased intangible assets
21,216

 
15,712

 
60,775

 
47,170

Total operating expense
232,024

 
199,398

 
699,977

 
607,474

Operating income
63,029

 
63,470

 
184,391

 
182,239

Non-operating income, net
 
 
 
 
 
 
 
Interest expense, net
(4,122
)
 
(3,925
)
 
(13,448
)
 
(11,561
)
Foreign currency transaction gain (loss)
(157
)
 
174

 
(1,126
)
 
(1,843
)
Income from equity method investments
4,494

 
6,453

 
15,908

 
19,708

Other income, net
268

 
650

 
847

 
1,897

Total non-operating income, net
483

 
3,352

 
2,181

 
8,201

Income before taxes
63,512

 
66,822

 
186,572

 
190,440

Income tax provision
8,892

 
13,022

 
28,067

 
33,403

Net income
54,620

 
53,800

 
158,505

 
157,037

Less: Net gain (loss) attributable to noncontrolling interests
151

 
436

 
(353
)
 
(837
)
Net income attributable to Trimble Navigation Ltd.
$
54,469

 
$
53,364

 
$
158,858

 
$
157,874

Basic earnings per share
$
0.21

 
$
0.21

 
$
0.62

 
$
0.63

Shares used in calculating basic earnings per share
257,037

 
251,742

 
256,135

 
250,404

Diluted earnings per share
$
0.21

 
$
0.21

 
$
0.61

 
$
0.62

Shares used in calculating diluted earnings per share
261,137

 
256,758

 
260,664

 
256,288

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
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Net income
$
54,620

 
$
53,800

 
$
158,505

 
$
157,037

Foreign currency translation adjustments
28,756

 
29,182

 
1,470

 
1,610

Net unrealized actuarial loss
(101
)
 
(114
)
 
(136
)
 
(58
)
Comprehensive income
83,275

 
82,868

 
159,839

 
158,589

Less: Comprehensive gain (loss) attributable to the noncontrolling interests
151

 
436

 
(353
)
 
(837
)
Comprehensive income attributable to Trimble Navigation Ltd.
$
83,124

 
$
82,432

 
$
160,192

 
$
159,426

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)
2013
 
2012
Cash flow from operating activities:
 
 
 
Net income
$
158,505

 
$
157,037

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation expense
19,630

 
16,910

Amortization expense
120,713

 
89,315

Provision for doubtful accounts
1,204

 
1,428

Deferred income taxes
(13,520
)
 
646

Stock-based compensation
26,158

 
23,628

Income from equity method investments
(15,908
)
 
(19,708
)
Excess tax benefit for stock-based compensation
(8,803
)
 
(16,673
)
Provision for excess and obsolete inventories
1,551

 
6,372

Other non-cash items
738

 
(3,019
)
Add decrease (increase) in assets:
 
 
 
Accounts receivable
(28,466
)
 
(39,496
)
Other receivables
4,047

 
(7,996
)
Inventories
2,645

 
(4,650
)
Other current and non-current assets
(22,765
)
 
(2,844
)
Add increase (decrease) in liabilities:
 
 
 
Accounts payable
(22,467
)
 
7,828

Accrued compensation and benefits
(2,738
)
 
6,375

Deferred revenue
46,891

 
12,390

Accrued warranty expense
347

 
(2,491
)
Other current and non-current liabilities
10,646

 
18,842

Net cash provided by operating activities
278,408

 
243,894

Cash flow from investing activities:
 
 
 
Acquisitions of businesses, net of cash acquired
(200,401
)
 
(355,484
)
Acquisitions of property and equipment
(57,646
)
 
(34,126
)
Dividends received from equity method investments
7,672

 
2,140

Increase in restricted cash
(6,696
)
 

Other
663

 
(492
)
Net cash used in investing activities
(256,408
)
 
(387,962
)
Cash flow from financing activities:
 
 
 
Issuances of common stock, net of tax withholding
37,667

 
37,142

Excess tax benefit for stock-based compensation
8,803

 
16,673

Proceeds from debt and revolving credit lines
332,021

 
478,556

Payments on debt and revolving credit lines
(440,886
)
 
(401,062
)
Net cash provided by (used in) financing activities
(62,395
)
 
131,309

Effect of exchange rate changes on cash and cash equivalents
(2,119
)
 
(22
)
Net decrease in cash and cash equivalents
(42,514
)
 
(12,781
)
Cash and cash equivalents, beginning of period
157,771

 
154,621

Cash and cash equivalents, end of period
$
115,257

 
$
141,840

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 2012 was December 28, 2012 . The third quarter of fiscal 2013 and 2012 ended on September 27, 2013 and September 28, 2012 , respectively. Fiscal 2013 is a 53-week year and 2012 is a 52-week year. Unless otherwise stated, all dates refer to the Company’s fiscal year and fiscal periods.
The Condensed Consolidated Financial Statements include the results of the Company and its consolidated subsidiaries. Inter-company accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling shareholders’ proportionate share of the net assets and results of operations of the Company’s consolidated subsidiaries.
The accompanying financial data as of the third quarter of fiscal 2013 and for the third quarter and the first three quarters of fiscal 2013 and 2012 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 2012 is derived from the audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2012 . The following discussion should be read in conjunction with the Company’s 2012 Annual Report on Form 10-K.
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in its Condensed Consolidated Financial Statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.
In the opinion of management, all adjustments necessary have been made to present a fair statement of results for the interim periods presented. The results of operations for the third quarter and the first three quarters of fiscal 2013 are not necessarily indicative of the operating results for the full fiscal year or any future periods. Individual segment revenue may be affected by seasonal buying patterns and general economic conditions.
The Company has evaluated all subsequent events through the date that these financial statements have been filed with the Securities and Exchange Commission.
The Company has presented revenue and cost of sales separately for products, service and subscriptions. Product revenue includes primarily hardware, software licenses, parts and accessories; service revenue includes primarily hardware and software maintenance and support, training and professional services; subscription revenue includes software as a service (SaaS).
On February 11, 2013, Trimble's Board of Directors approved a 2 -for-1 split of all outstanding shares of the Company's Common Stock, payable March 20, 2013 to shareholders of record on March 6, 2013. All shares and per share information presented has been adjusted to reflect the stock split on a retroactive basis for all periods presented.
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 2013 from those disclosed in the Company’s 2012 Form 10-K.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that will generally require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Condensed Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Trimble will be required to adopt this new standard on a prospective basis in the first quarter of fiscal 2014; however, early adoption is permitted as is a retrospective application.   The Company will reflect the impact of these amendments beginning in the first quarter of fiscal 2014. The Company does not anticipate a material impact on its condensed consolidated financial statements as a result of this change.
NOTE 3. SHAREHOLDERS’ EQUITY

7


Stock Repurchase Activities
In October 2011, the Company’s Board of Directors approved a stock repurchase program (“2011 Stock Repurchase Program”), authorizing the Company to repurchase up to $100.0 million of Trimble’s common stock. No shares of common stock were repurchased during the first three quarters of fiscal 2013 or 2012 . The timing and actual number of future shares repurchased will depend on a variety of factors including price, regulatory requirements, capital availability and other market conditions. The program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without public notice .
Stock-Based Compensation Expense
The Company accounts for its employee stock options, restricted stock units and employee stock purchase plan (ESPP) under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s Condensed Consolidated Statements of Income.
The following table summarizes stock-based compensation expense related to employee stock-based compensation (for all plans) included in the unaudited Condensed Consolidated Statements of Income for the third quarter and first three quarters of fiscal 2013 and 2012 .
 
Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Cost of sales
$
609

 
$
502

 
$
1,816

 
$
1,480

Research and development
1,265

 
1,163

 
3,644

 
3,869

Sales and marketing
1,816

 
1,616

 
5,341

 
5,244

General and administrative
5,215

 
4,403

 
15,357

 
13,035

Total operating expenses
8,296

 
7,182

 
24,342

 
22,148

Total stock-based compensation expense
$
8,905

 
$
7,684

 
$
26,158

 
$
23,628

Fair value of Trimble Options
Stock option expense recognized in the unaudited Condensed Consolidated Statements of Income is based on the fair value of the portion of share-based payment awards that is expected to vest during the period and is net of estimated forfeitures. The Company’s compensation expense for stock options is recognized using the straight-line single option method. The fair values for stock options are estimated on the date of grant using the binomial valuation model. The binomial model takes into account variables such as volatility, dividend yield rate and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For options granted during the third quarter and first three quarters of fiscal 2013 and 2012 , the following weighted average assumptions were used:
 
 
Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
Expected dividend yield
 
 
 
Expected stock price volatility
34.7%
 
41.1%
 
34.8%
 
41.2%
Risk free interest rate
0.5%
 
0.6%
 
0.5%
 
0.7%
Expected life of options
3.8 years
 
4.1 years
 
4.0 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 is determined using the fair value of Trimble’s common stock on the date of grant, and the expense is recognized on a straight-line basis over the vesting period. Restricted stock units typically vest at the end of three years.
Fair value of Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan, rights to purchase shares are generally granted during the second and fourth quarter of each year. The fair value of rights granted under the Employee Stock Purchase Plan was estimated at the date of grant using the Black-Scholes option-pricing model.
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
Intangible Assets
Intangible Assets consisted of the following:
 
   
Third Quarter of Fiscal 2013
 
Fiscal Year End 2012
 
Gross
 
 
 
 
 
Gross
 
 
 
 
As of
Carrying
 
Accumulated
 
Net Carrying
 
Carrying
 
Accumulated
 
Net Carrying
(Dollars in thousands)
Amount
 
Amortization
 
Amount
 
Amount
 
Amortization
 
Amount
Developed product technology
$
669,510

 
$
(338,027
)
 
$
331,483

 
$
610,643

 
$
(267,952
)
 
$
342,691

Trade names and trademarks
45,667

 
(27,254
)
 
18,413

 
42,512

 
(23,241
)
 
19,271

Customer relationships
415,200

 
(175,020
)
 
240,180

 
385,269

 
(135,571
)
 
249,698

Distribution rights and other intellectual properties
78,738

 
(47,139
)
 
31,599

 
72,510

 
(39,751
)
 
32,759

 
$
1,209,115

 
$
(587,440
)
 
$
621,675

 
$
1,110,934

 
$
(466,515
)
 
$
644,419

The estimated future amortization expense of purchased intangible assets as of the third quarter of fiscal 2013 was as follows:
 
(Dollars in thousands)
 
2013 (Remaining)
$
41,591

2014
144,215

2015
131,956

2016
112,494

2017
90,632

Thereafter
100,787

Total
$
621,675

Goodwill
The changes in the carrying amount of goodwill by operating segment for the first three quarters of fiscal 2013 were as follows:
 
 
Engineering
and
Construction
 
Field
Solutions
 
Mobile
Solutions
 
Advanced
Devices
 
Total
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Balance as of fiscal year end 2012
$
958,103

 
$
68,684

 
$
763,386

 
$
25,526

 
$
1,815,699

Additions due to acquisitions
76,894

 
9,315

 
32,770

 

 
118,979

Purchase price adjustments
(173
)
 

 
(383
)
 
35

 
(521
)
Foreign currency translation adjustments
6,082

 
716

 
(1,470
)
 
(615
)
 
4,713

Balance as of the third quarter of fiscal 2013
$
1,040,906

 
$
78,715

 
$
794,303

 
$
24,946

 
$
1,938,870


9


The Company determined the total consideration paid for each of its acquisitions as well as the fair value of the assets acquired and liabilities assumed as of the date of acquisition. For certain acquisitions completed in fiscal 2012 and the first three quarters of fiscal 2013 , the fair value of the assets acquired and liabilities assumed are preliminary and may be adjusted as the Company obtains additional information, primarily related to adjustments for the true up of acquired net working capital in accordance with certain purchase agreements, and estimated values of certain net tangible assets and liabilities including tax balances, pending the completion of final studies and analyses. If there are adjustments made for these items, the fair value of intangible assets and goodwill could be impacted. Thus the provisional measurements of fair value are subject to change. Such changes could be significant. The Company expects to finalize the valuation of the net tangible and intangible assets as soon as practicable, but not later than one-year from the acquisition date.
NOTE 5. INVENTORIES
Inventories, net, consisted of the following:
 
 
Third Quarter of
 
Fiscal Year End
As of
2013
 
2012
(Dollars in thousands)
 
 
 
Raw materials
$
79,153

 
$
89,016

Work-in-process
6,543

 
6,658

Finished goods
155,813

 
144,855

Total inventories, net
$
241,509

 
$
240,529

Deferred costs of sales for the short-term deferral of hardware and related products are included within finished goods and were $13.0 million as of the third quarter of fiscal 2013 and $16.2 million as of fiscal year end 2012 .
NOTE 6 . 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 work, mobile workers and mobile assets.
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.
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, depreciation expense and identifiable assets for the four segments. Operating income is revenue less cost of sales and operating expense, excluding general corporate expense, amortization of purchased intangible assets, amortization of acquisition-related inventory step-up, acquisition costs and restructuring costs. The identifiable assets that the Company’s Chief Operating Decision Maker, its Chief Executive Officer, views by segment are accounts receivable, inventories and goodwill.


10


 
Reporting Segments
 
Engineering
and
Construction
 
Field
Solutions
 
Mobile
Solutions
 
Advanced
Devices
 
Total
(Dollars in thousands)
 
 
 
 
 
 
 
 
 
Third Quarter of Fiscal 2013
 
 
 
 
 
 
 
 
 
Segment revenue
$
310,611

 
$
99,466

 
$
113,570

 
$
32,855

 
$
556,502

Operating income
73,488

 
31,373

 
15,276

 
8,420

 
128,557

       Depreciation expense
2,990

 
139

 
1,056

 
195

 
4,380

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

       Depreciation expense
2,586

 
127

 
792

 
206

 
3,711

First Three Quarters of Fiscal 2013
 
 
 
 
 
 
 
 
 
Segment revenue
$
890,928

 
$
362,811

 
$
339,258

 
$
95,909

 
$
1,688,906

Operating income
183,301

 
134,271

 
42,284

 
21,419

 
381,275

       Depreciation expense
8,838

 
426

 
3,393

 
582

 
13,239

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

       Depreciation expense
7,663

 
383

 
2,301

 
651

 
10,998

As of the Third Quarter of Fiscal 2013
 
 
 
 
 
 
 
 
 
Accounts receivable
$
198,499

 
$
69,240

 
$
71,949

 
$
21,868

 
$
361,556

Inventories
165,526

 
34,692

 
26,315

 
14,976

 
241,509

Goodwill
1,040,906

 
78,715

 
794,303

 
24,946

 
1,938,870

As of Fiscal Year End 2012
 
 
 
 
 
 
 
 
 
Accounts receivable
$
171,580

 
$
71,465

 
$
59,720

 
$
20,712

 
$
323,477

Inventories
148,241

 
44,738

 
30,598

 
16,952

 
240,529

Goodwill
958,103

 
68,684

 
763,386

 
25,526

 
1,815,699

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
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Consolidated segment operating income
$
128,557

 
$
118,374

 
$
381,275

 
$
347,142

Unallocated corporate expense
(21,019
)
 
(21,660
)
 
(66,886
)
 
(61,203
)
Amortization of purchased intangible assets
(41,618
)
 
(31,440
)
 
(120,713
)
 
(89,315
)
Acquisition costs
(2,891
)
 
(1,804
)
 
(9,285
)
 
(14,385
)
Consolidated operating income
63,029

 
63,470

 
184,391

 
182,239

Non-operating income, net
483

 
3,352

 
2,181

 
8,201

Consolidated income before taxes
$
63,512

 
$
66,822

 
$
186,572

 
$
190,440

Unallocated corporate expense includes general corporate expense, amortization of acquisition-related inventory step-up and restructuring costs.
NOTE 7. DEBT, COMMITMENTS AND CONTINGENCIES
Debt consisted of the following:
 

11


 
Third Quarter of
 
Fiscal Year End
As of
2013
 
2012
(Dollars in thousands)
 
 
 
Credit Facilities:
 
 
 
Term loan
$
673,750

 
$
700,000

Revolving credit facility
127,000

 
208,000

Promissory notes and other debt
8,314

 
3,158

Total debt
809,064

 
911,158

Less current portion of long-term debt
105,202

 
38,092

Non-current portion
$
703,862

 
$
873,066

Credit Facilities
On November 21, 2012 , the Company entered into an amended and restated credit agreement with a group of lenders (the “2012 Credit Facility”). This credit facility provides for unsecured credit facilities in the aggregate principal amount of $1.4 billion , comprised of a five -year revolving loan facility of $700.0 million and a five -year $700.0 million term loan facility. Subject to the terms of the 2012 Credit Facility, the revolving loan facility and the term loan facility may be increased by $300.0 million in the aggregate. The Company also has two $75 million uncommitted revolving loan facilities (the “Uncommitted Facilities”), which are callable by the bank at any time and have no covenants. The interest rate is 0.9% to 1.00% plus either LIBOR or the bank’s cost of funds or as otherwise agreed upon by the bank and the Company.
As of the third quarter of fiscal 2013 , total debt was comprised primarily of a term loan of $673.8 million and a revolving credit line of $65.0 million under the 2012 Credit Facility and a revolving credit line of $62.0 million under the Uncommitted Facilities. Of the total outstanding balance, $638.8 million of the term loan and the $65.0 million revolving credit line are classified as long-term in the Condensed Consolidated Balance Sheet.
The funds available under the 2012 Credit Facility may be used for general corporate purposes, the financing of certain acquisitions and the payment of transaction fees and expenses related to such acquisitions. Under the 2012 Credit Facility, the Company may borrow, repay and reborrow funds under the revolving loan facility until its maturity on November 21, 2017 , at which time the revolving facility will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not borrowed under the revolving facility will be subject to a commitment fee, to be paid in arrears on the last day of each fiscal quarter, ranging from 0.15% to 0.35%  per annum depending on the Company's leverage ratio as of the most recently ended fiscal quarter. The term loan will be repaid in quarterly installments, with the last quarterly payment to be made on September 29, 2017, with the remaining outstanding balance being due and payable at maturity on November 21, 2017 . On an annualized basis, the amortization of the term loan is as follows: 5% , 5% , 10% , 10% and 70% for years one through five respectively. The term loan may be prepaid in whole or in part, subject to certain minimum thresholds, without penalty or premium. Amounts repaid or prepaid with respect to the term loan facility may not be reborrowed.
The Company may borrow funds under the 2012 Credit Facility in U.S. Dollars, Euros or in certain other agreed currencies, and borrowings will bear interest, at the Company’s option, at either: (i) a floating per annum base rate based on the administrative agent’s prime rate or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.00% and 1.00% , depending on the Company's leverage ratio as of the most recently ended fiscal quarter, or (ii) a reserve-adjusted fixed per annum rate based on LIBOR, EURIBOR, or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 1.00% and 2.00% , depending on the Company's leverage ratio as of the most recently ended fiscal quarter. Interest will be paid on the last day of each fiscal quarter with respect to borrowings bearing interest based on a floating rate, or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at a fixed rate. The Company's obligations under the 2012 Credit Facility are guaranteed by several of the Company's domestic subsidiaries.
The 2012 Credit Facility contains various customary representations and warranties by the Company, which include customary use of materiality, material adverse effect and knowledge qualifiers. The 2012 Credit Facility also contains customary affirmative and negative covenants including, among other requirements, negative covenants that restrict the Company's ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions and make investments. Further, the 2012 Credit Facility contains financial covenants that require the maintenance of minimum interest coverage and maximum leverage ratios. Specifically, the Company must maintain as of the end of each fiscal quarter a ratio of (a) EBITDA (as defined in the 2012 Credit Facility) to (b) interest expenses for the most recently ended period of four fiscal quarters of not less than 3.00 to 1. The Company must also maintain, at the end of each fiscal quarter, a ratio of (x) total indebtedness to (y) EBITDA (as defined in the 2012 Credit Facility) for the most recently ended period of four fiscal quarters of not greater than 3 to 1; provided, that on

12


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 2013 .
The 2012 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company's obligations under the 2012 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.
The weighted average interest rate on the current portion of the long-term debt outstanding under the 2012 Credit Facility and Uncommitted Facilities was 1.32% and 1.96% at the end of the third quarter of fiscal 2013 and fiscal year end 2012 , respectively. The interest rate on the non-current debt outstanding under the 2012 Credit Facility was 1.70% and 1.96% at the end of the third quarter of fiscal 2013 and fiscal year end 2012 , respectively.
Promissory Notes and Other Debt
As of the third quarter of fiscal 2013 and fiscal year end 2012 , the Company had promissory notes and other debt totaling approximately $8.3 million and $3.2 million , respectively, of which $0.1 million for both periods was classified as long-term in the Condensed Consolidated Balance Sheet.
Leases and Other Commitments
The estimated future minimum operating lease commitments as of the third quarter of fiscal 2013 are as follows (dollars in thousands):
 
 
 
2013 (Remaining)
$
8,132

2014
24,049

2015
20,722

2016
14,165

2017
10,988

Thereafter
15,205

Total
$
93,261

As of the third quarter of fiscal 2013 , the Company had unconditional purchase obligations of approximately $109.6 million . These unconditional purchase obligations primarily represent open non-cancelable purchase orders for material purchases with the Company’s vendors. Purchase obligations exclude agreements that are cancelable without penalty.
NOTE 8. FAIR VALUE MEASUREMENTS
The Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Where available, fair value is based on observable market prices or parameters. Where observable prices or inputs are not available, valuation models are applied. Hierarchical levels, defined by the guidance on fair value measurements are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:
Level I – Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities.
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

13


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 2013
 
Fair Values as of Fiscal Year End 2012
(Dollars in thousands)
Level I
 
Level II
 
Level III
 
Total
 
Level I
 
Level II
 
Level III
 
Total
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds(1)
$
2

 
$

 
$

 
$
2

 
$
2

 
$

 
$

 
$
2

Deferred compensation plan assets (2)
15,746

 

 

 
15,746

 
12,875

 

 

 
12,875

Derivative assets (3)

 
750

 

 
750

 

 
343

 

 
343

Total
$
15,748

 
$
750

 
$

 
$
16,498

 
$
12,877

 
$
343

 
$

 
$
13,220

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Deferred compensation plan liabilities (2)
$
15,746

 
$

 
$

 
$
15,746

 
$
12,875

 
$

 
$

 
$
12,875

Derivative liabilities (3)

 
1,315

 

 
1,315

 

 
420

 

 
420

Contingent consideration liabilities (4)

 

 
899

 
899

 

 

 
2,235

 
2,235

Total
$
15,746

 
$
1,315

 
$
899

 
$
17,960

 
$
12,875

 
$
420

 
$
2,235

 
$
15,530

 

(1)
The money market funds are highly liquid investments. The fair values are determined using observable quoted prices in active markets. Money market funds are included in Cash and cash equivalents on the Company’s Condensed Consolidated Balance Sheets.
(2)
The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. The plan assets and liabilities are invested in actively traded mutual funds and individual stocks valued using observable quoted prices in active markets. Deferred compensation plan assets and liabilities are included in Other non-current assets and Other non-current liabilities on the Company's Condensed Consolidated Balance Sheets.
(3)
Derivative assets and liabilities primarily represent forward currency exchange contracts. The Company typically enters into these contracts to minimize the short-term impact of foreign currency exchange rates on certain trade and inter-company receivables and payables. Derivative assets and liabilities are included in Other current assets and Other current liabilities on the Company's Condensed Consolidated Balance Sheets.
(4)
Contingent consideration liabilities represents arrangements to pay the former owners of certain companies the Company acquired. The undiscounted maximum payment under the arrangements is $6.6 million at the end of the third quarter of fiscal 2013 , based on estimated future revenues or gross margins. Contingent consideration liabilities are included in Other current liabilities and Other non-current liabilities on the Company's Condensed Consolidated Balance Sheets.
Additional Fair Value Information
The following table provides additional fair value information relating to the Company’s financial instruments outstanding:
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
As of
Third Quarter of Fiscal 2013
 
Fiscal Year End 2012
(Dollars in thousands)
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
115,257

 
$
115,257

 
$
157,771

 
$
157,771

Restricted cash
6,696

 
6,696

 

 

Forward foreign currency exchange contracts
750

 
750

 
343

 
343

Liabilities:
 
 
 
 
 
 
 
Credit facilities
$
800,750

 
$
800,750

 
$
908,000

 
$
908,000

Forward foreign currency exchange contracts
1,315

 
1,315

 
420

 
420

Promissory notes and other debt
8,314

 
8,314

 
3,158

 
3,158



14


The restricted cash balance as of the third quarter of fiscal 2013 represents funds placed in restricted accounts and unavailable for operating activities. 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 9. 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 12 months to 48 months.
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 2013 are as follows:
 
(Dollars in thousands)
 
Balance as of fiscal year end 2012
$
17,066

Acquired warranties
83

Accruals for warranties issued
15,489

Changes in estimates
402

Warranty settlements (in cash or in kind)
(15,585
)
Balance as of the third quarter of fiscal 2013
$
17,455

NOTE 10. EARNINGS PER SHARE
Basic earnings per share is computed by dividing Net income attributable to Trimble Navigation Ltd. by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing Net income attributable to Trimble Navigation Ltd. by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if the potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’s employee stock purchase plan and unvested restricted stock units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
The following table shows the computation of basic and diluted earnings per share:

 

15


 
Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands, except per share amounts)
 
 
 
 
 
 
 
Numerator:
 
 
 
 
 
 
 
Net income attributable to Trimble Navigation Ltd.
$
54,469

 
$
53,364

 
$
158,858

 
$
157,874

Denominator:
 
 
 
 
 
 
 
Weighted average number of common shares used in basic earnings per share
257,037

 
251,742

 
256,135

 
250,404

Effect of dilutive securities
4,100

 
5,016


4,529


5,884

Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share
261,137

 
256,758

 
260,664

 
256,288

Basic earnings per share
$
0.21

 
$
0.21

 
$
0.62

 
$
0.63

Diluted earnings per share
$
0.21

 
$
0.21

 
$
0.61

 
$
0.62

For the third quarter of fiscal 2013 and 2012 , the Company excluded 3.5 million and 5.2 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share because their effect would have been antidilutive. For the first three quarters of fiscal 2013 and 2012 , the Company excluded 3.0 million and 4.6 million shares of outstanding stock options, respectively, from the calculation of diluted earnings per share because their effect would have been antidilutive.
NOTE 11. INCOME TAXES
In the third quarter of fiscal 2013 , the Company’s effective income tax rate was 14% as compared to 19% in the corresponding period in 2012 , primarily due to differences in the geographic mix of pretax income and the reinstatement of the federal R&D credit. In the first three quarters of fiscal 2013 , the Company’s effective income tax rate was 15% as compared to 18% in the corresponding period in 2012 due to the same reasons mentioned above.
The Company's effective tax rates for the third quarter of fiscal years 2013 and 2012 are lower than the U.S. federal statutory rate of 35% primarily due to the reinstatement of the federal R&D credit in 2013 and favorable tax rates associated with certain earnings from operations in lower-tax jurisdictions. The Company has not provided U.S. taxes for all of such earnings due to the indefinite reinvestment of some of those earnings outside the U.S.
The Company and its subsidiaries are subject to U.S. federal and state, and foreign income tax. The Company is currently in different stages of multiple year examinations by the Internal Revenue Service as well as various state and foreign taxing authorities. Although timing of the resolution of audits is highly uncertain, the Company does not believe it is reasonably possible that the unrecognized tax benefits as of September 27, 2013 will materially change in the next twelve months.
The unrecognized tax benefits of $44.2 million and $35.2 million as of the third quarter of fiscal 2013 and fiscal year end 2012 , 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 2013 and fiscal year end 2012 , of $3.5 million and $2.9 million , respectively, which were recorded in Other non-current liabilities in the accompanying Condensed Consolidated Balance Sheets.


16


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 2012 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 2013 from those disclosed in the Company’s 2012 Form 10-K.
Recent Accounting Pronouncements
In July 2013, the Financial Accounting Standards Board ("FASB") issued a new accounting standard that will generally require the presentation of certain unrecognized tax benefits as reductions to deferred tax assets rather than as liabilities in the Consolidated Condensed Balance Sheets when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. Trimble will be required to adopt this new standard on a prospective basis in the first quarter of fiscal 2014; however, early adoption is permitted as is a retrospective application.  We will reflect the impact of these amendments beginning in the first quarter of fiscal 2014. We do not anticipate a material impact on our condensed consolidated financial statements as a result of this change.
EXECUTIVE LEVEL OVERVIEW
Trimble's focus is on integrating its broad technological and application capabilities to create system-level solutions that transform how work is done within the industries we serve, enhancing productivity, accuracy, safety and regulatory compliance for our customers. The majority of our markets are end-user markets, including engineering and construction firms, surveyors, farmers, governmental organizations, energy and utility companies and organizations that must manage fleets of mobile workers and assets. We also provide components to original equipment manufacturers to incorporate into their products. In the end-user markets, we provide stand-alone systems which may consist of software, hardware or some combination of the two, as well as integrated enterprise or workflow solutions which address the entire work process. Some examples of our solutions include products that automate and simplify the process of surveying land, products that automate the control, management and utilization of equipment such as tractors and bulldozers, products for engineering or building design, construction and operations management, products that enable a company to manage its mobile workforce and assets, and products that allow municipalities or utilities to manage their fixed assets and operations. 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.
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 of how our broad based technological capabilities can be deployed and integrated to enable that end-user to work faster, more efficiently, more accurately and more safely. We use this knowledge to create highly innovative solutions that change the way work is done by the end-user. With the exception of our Mobile Solutions

17

Table of Contents

and Advanced Devices segments, our products are primarily sold through a dealer channel, and it is crucial that we maintain a proficient, global, third-party distribution channel.
We continue to execute our strategy with a series of actions across new and existing markets:
Reinforcing our position in new and existing markets
In our Engineering and Construction Segment, the Trimble Connected Site portfolio of solutions expanded during the quarter with the release of TirePulse Tire Monitoring System which, combined with VisionLink version 2.8, provides automatic tire pressure and temperature monitoring directly to the fleet manager via a wireless communications link, enhancing safety, productivity and reduced downtime costs. The Trimble LOADRITE X2350 Payload Management System for excavators provides benefits to the contractor by enabling trucks to be loaded with the correct amount of material at the point of loading by the excavator, reducing waste due to under-loaded trucks, or potential fines and safety hazards due to over-loaded trucks. The Trimble portfolio of solutions across the Design-Build-Operate (DBO) lifecycle for the construction, maintenance and operation of buildings was further enhanced during the third quarter with the release of several software products, including WinEst 15.0, Modelogix 3.2, Prolog 9.6.1, Proliance 5.5 and Vico Office 4.2. Together, these products provide for streamlined data integration and data flow across work processes that span planning, tracking, and the measurement of cost and work parameters before, during and after construction. The release of Trimble AutoBid Mechanical 2013 v2 product to improve bid accuracy to the piping and plumbing contracting industry incorporates the Tra-Ser product and pricing service from our second quarter acquisition of Trade Service.
The Trimble MX2 mobile spatial imaging system incorporates precision GNSS and inertial positioning with precision 3D laser scanning and digital imaging into a vehicle-mounted 3D mobile mapping system capable of producing accurate 3D models of cities, roads, utility assets, mine sites, environmentally sensitive locations and other features, directly from a moving vehicle. The release of software products eCognition 8.9 and Trident 6.0 provide users of these 3D mobile mapping models new capabilities in rapid transformation of data into geospatial intelligence and in automated information extraction, allowing customers to reduce project time and cost through automation. The launch of the new Trimble Tablet and Juno T41 products provide updates to the portfolio of rugged outdoor computing products, designed to offer endurance in extreme outdoor conditions combined with powerful computing, communications and state-of-the-art user interface capabilities.
In our Field Solutions Segment , we acquired the assets of RainWave, LLC and Hydro-Engineering Solutions, LLC, which will help extend the monitoring and reporting capabilities of the Trimble Connected Farm™ solution, while also enhancing our expertise in water management. The acquisition of RainWave’s assets further strengthens the Connected Farm solution by adding a rainfall monitoring and reporting tool, accessible through the Connected Farm dashboard, enabling farmers to make informed decisions based on the latest data. Through the acquisition of Hydro-Engineering’s services, we can provide stronger watershed analysis to help farmers create better water management plans for their fields. Our acquisition of the assets of privately-held IQ Irrigation of Christchurch, New Zealand provides a hardware and software solution for controlling linear and pivot irrigation systems, enabling farmers to apply the right amount of water in the right place based on crop requirements and optimize water usage. During the quarter, we also launched the Connected Farm dashboard which provides one centralized location for farmers to view key information impacting their operations, enabling them to make better daily decisions based on the latest data. The Connected Farm Fleet application enables managers in agricultural operations to track the current and historical location of vehicles, analyze vehicle and work status and receive other alerts or reports, all from a mobile device such as a smartphone or tablet. The application is made available on the Apple App Store© and Google Play™ Store for iOS and Android devices.
Our Field Service Management Division announced the release of our next-generation Work Management solution, a cloud-based software to enhance the productivity of mobile workforces through intelligent scheduling tools and state-of-the-art performance analytics. Our commercial relationship with DriveWyze will make available hands-free delivery of a weigh station bypass service to PeopleNet customers, enabling improved efficiency and safety. Another commercial partnering arrangement with SafeKey enables PeopleNet to offer asset protection and driver well-being capabilities, helping fleet owners to reduce the risk of cargo or vehicle theft, while also enhancing the safety of drivers. Integration with McLeod Software’s LoadMaster LTL or less-than-truckload solutions will streamline processes for customers using both the PeopleNet and LoadMaster LTL solutions.
Bringing existing technology to new markets
During the third quarter, we announced an agreement with Rajant Corporation, under which we will offer Rajant’s wireless networking solutions as part of the Trimble mining portfolio. The solution integrates with existing Trimble technologies and solutions for mine productivity and safety. The product is initially offered through Trimble’s subsidiary in Chile, with work in progress to offer the product through Trimble’s partner network in Central and South America, Australia, Indonesia and Papua New Guinea. Our continued execution of our global SITECH distribution strategy resulted in the establishment of new SITECH Technology Dealers in Peru and the Baltic states of Estonia, Latvia and Lithuania, as well as new SITECH locations in the United States in Idaho, Eastern Oregon, Eastern Washington and Western Montana.

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Representing both geographic expansion and expansion into new applications, we announced during the quarter that Eco2 Ltd of the U.K. will be implementing a forestry bioenergy solution from Trimble company Cengea, This Cengea solution will be used to manage Eco2’s supply chain operations for its state-of-the-art, straw-fired renewable energy plant in Lincolnshire in England. PeopleNet also announced during the quarter that it will be the first telematics provider to support the use of vehicles using Compressed Natural Gas (CNG) and Liquid Natural Gas (LNG) fuels, providing reports and analytics to provide operators the ability to compare fuel efficiency across a mixed-vehicle fleet, to accurately determine the return on investment (ROI) of moving from diesel to natural gas and to preserve the integrity of driver incentive programs based on performance.
RECENT BUSINESS DEVELOPMENTS
The following companies or business assets were acquired during the twelve months ended September 27, 2013 and are combined in our results of operations since the date of acquisition:
IQ Irrigation Assets
On August 30, 2013, we acquired the assets of privately-held IQ Irrigation of Christchurch, New Zealand. IQ Irrigation is a provider of a hardware and software solution for controlling linear and pivot irrigation systems. IQ Irrigation' performance is reported under our Field Solutions business segment.
RainWave and Hydro-Engineering
On August 23, 2013, we acquired the assets of privately-held RainWave, LLC and Hydro-Engineering Solutions, LLC of Auburn, Alabama. RainWave provides precipitation monitoring services for agribusinesses, construction and engineering, government and consumer industries. Hydro-Engineering Solutions is a civil engineering company that specializes in hydrology and hydraulics. RainWave and Hydro-Engineering' performance is reported under our Field Solutions business segment.
Actronic Holdings Limited
On June 5, 2013, we acquired privately-held Actronic Holdings Limited of Auckland, New Zealand. Actronic Technologies is a provider of weighing technology and payload information systems for construction, aggregates, mining and waste markets. Actronic Holdings' performance is reported under our Engineering and Construction business segment.
Trade Service Company, LLC
On May 31, 2013, we acquired privately-held Trade Service Company, LLC based in San Diego, California. Trade Service is a provider in content acquisition, aggregation, management, publishing and distribution of product and pricing information used by manufacturers, distributors and contractors in the Architecture, Engineering, and Construction (AEC) industry. Trade Service’s performance is reported under our Engineering and Construction business segment.
Penmap Software
On January 11, 2013, we acquired a suite of software solutions from Penmap.com Ltd. of Bradford, United Kingdom. Penmap.com's solutions include both office and field data collection software specifically designed for the cadastral and surveying markets. Penmap Software’s performance is reported under our Engineering and Construction business segment.
ALK Technologies
On December 31, 2012, we acquired privately-held ALK Technologies Inc. of of Princeton, New Jersey, a provider of routing, mapping, mileage and navigation technologies. ALK’s performance is reported under our Mobile Solutions business segment.
Vico Software, Inc.
On October 31, 2012, we acquired the assets of privately-held Vico Software, Inc. (Vico) of Boulder, Colorado, a provider of 5D virtual construction software and consulting services. The Vico business performance is reported under our Engineering and Construction business segment.
Refraction Technology, Inc.
On October 4, 2012, we acquired the assets of privately-held Refraction Technology, Inc. (REF TEK) of Plano, Texas, a provider of seismic sensors and high-frequency data logging systems. The REF TEK business performance is reported under our Engineering and Construction business segment.
TMW Systems, Inc.

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On October 2, 2012, we acquired privately-held TMW Systems Holding LLC, including its operating subsidiary, TMW Systems, Inc. (TMW) of Beachwood, Ohio, a provider of enterprise software to transportation and logistics companies. TMW’s performance is reported under our Mobile Solutions 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.
 
 
Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
Product
$
401,565

 
$
386,902

 
$
1,240,232

 
$
1,187,638

Service
85,521

 
64,237

 
251,628

 
185,262

Subscription
69,416

 
53,624

 
197,046

 
151,690

Total revenue
556,502

 
504,763

 
1,688,906

 
1,524,590

Gross margin
$
295,053

 
$
262,868

 
$
884,368

 
$
789,713

Gross margin %
53.0
%
 
52.1
%
 
52.4
%
 
51.8
%
Operating income
$
63,029

 
$
63,470

 
$
184,391

 
$
182,239

Operating income %
11.3
%
 
12.6
%

10.9
%

12.0
%
Revenue
In the third quarter of fiscal 2013 , total revenue increased by $51.7 million or 10% , as compared to the third quarter of fiscal 2012 . Of this increase, product revenue increased $14.7 million, or 4% , service revenue increased $21.3 million or 33% , and subscription revenue increased $15.8 million or 29% . In the first three quarters of fiscal 2013 , total revenue increased by $164.3 million or 11% , as compared to the first three quarters of fiscal 2012 . Of this increase, product revenue increased $52.6 million or 4% , service revenue increased $66.4 million or 36% , and subscription revenue increased $45.4 million or 30% .
The product, service, and subscription revenue increases were driven primarily by growth across Engineering and Construction and Mobile Solutions, which included organic growth as well as the impact of the TMW acquisition which was not applicable in the prior period. The product revenue growth was partially offset by a decrease in Field Solutions revenue primarily due to softness in GIS markets. We consider organic growth to include all revenue except for revenue associated with acquisitions made within the last four quarters.
On a segment basis, Engineering and Construction revenue for the third quarter of fiscal 2013 increased $23.4 million, or 8% , Mobile Solutions increased $29.7 million or 35% , Advanced Devices increased $2.2 million or 7% , and Field Solutions decreased $3.5 million or 3% , as compared to the third quarter of fiscal 2012 . Engineering and Construction revenue for the first three quarters of fiscal 2013 increased $70.6 million or 9% , Mobile Solutions increased $95.6 million or 39% , Advanced Devices increased $9.1 million or 10% , and Field Solutions decreased $11.1 million or 3% , as compared to the corresponding period of fiscal 2012 .
Revenue growth within Engineering and Construction was driven by growth due to global sales of building construction, heavy highway and survey products, in both the U.S. and Europe, including Russia. Mobile Solutions increased due to the acquisition of TMW which was not applicable in the prior period, as well as organic growth in the transportation and logistics market. Advanced Devices revenue increased primarily due to stronger sales of RFID product solutions. Field Solutions revenue decreased slightly due to a decline in GIS markets which continued to be impacted by the pullback of government funding sources, particularly in the U.S.

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Gross Margin
Gross margin varies due to a number of factors including product mix, pricing, distribution channel, production volumes and foreign currency translations.
Gross margin increased by $32.2 million for the third quarter of fiscal 2013 , as compared to the third quarter of fiscal 2012 , and increased by $94.7 million for the first three quarters of fiscal 2013 , as compared to the first three quarters of fiscal 2012. The increase was primarily due to increased sales in Engineering and Construction and Mobile Solutions. Gross margin as a percentage of total revenue for the third quarter of fiscal 2013 was 53.0% , as compared to 52.1% for the third quarter of fiscal 2012 , and was 52.4% for the first three quarters of fiscal 2013 , as compared to 51.8% for the first three quarters of fiscal 2012 . The increase was primarily due to an increase in sales of higher margin products, primarily software, maintenance, and subscription revenue, due to organic growth as well as the TMW acquisition, which were partially offset by higher amortization of purchased intangible assets.
Operating Income
Operating income decreased by $0.4 million for the third quarter of fiscal 2013 , as compared to the third quarter of fiscal 2012 , and increased by $2.2 million for the first three quarters of fiscal 2013 , as compared to the first three quarters of fiscal 2012 . Operating income as a percentage of total revenue was 11.3% for the third quarter of fiscal 2013 , as compared to 12.6% for the third quarter of fiscal 2012 , and was 10.9% for the first three quarters of fiscal 2013 , as compared to 12.0% for the first three quarters of fiscal 2012 .
The slight decrease in operating income in the third quarter was primarily driven by an increase in operating expenses, including higher amortization of purchase intangible assets, largely offset by higher revenue and gross margin expansion. The increase in operating income in the first three quarters was primarily driven by higher revenue and gross margin expansion, partially offset by higher amortization of purchased intangible assets. The decrease in operating income percentage was primarily driven by higher amortization of purchased intangible assets, offset by higher revenue and product mix, primarily due to higher margin software and subscription revenue.
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. Operating leverage is defined as an increase in operating income as a percentage of the increase in revenue.
The following table is a summary of revenue and operating income by segment:
 

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Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Engineering and Construction
 
 
 
 
 
 
 
Revenue
$
310,611

 
$
287,244

 
$
890,928

 
$
820,304

Segment revenue as a percent of total revenue
56
%
 
57
%
 
53
%
 
54
%
Operating income
$
73,488

 
$
68,451

 
$
183,301

 
$
168,001

Operating income as a percent of segment revenue
24
%
 
24
%
 
21
%
 
20
%
Field Solutions
 
 
 
 
 
 
 
Revenue
$
99,466

 
$
102,993

 
$
362,811

 
$
373,863

Segment revenue as a percent of total revenue
18
%
 
20
%
 
21
%
 
24
%
Operating income
$
31,373

 
$
36,021

 
$
134,271

 
$
145,005

Operating income as a percent of segment revenue
32
%
 
35
%
 
37
%
 
39
%
Mobile Solutions
 
 
 
 
 
 
 
Revenue
$
113,570

 
$
83,830

 
$
339,258

 
$
243,615

Segment revenue as a percent of total revenue
20
%
 
17
%
 
20
%
 
16
%
Operating income
$
15,276

 
8,218

 
$
42,284

 
21,200

Operating income as a percent of segment revenue
13
%
 
10
%
 
12
%
 
9
%
Advanced Devices
 
 
 
 
 
 
 
Revenue
$
32,855

 
$
30,696

 
$
95,909

 
$
86,808

Segment revenue as a percent of total revenue
6
%
 
6
%
 
6
%
 
6
%
Operating income
$
8,420

 
$
5,684

 
$
21,419

 
$
12,936

Operating income as a percent of segment revenue
26
%
 
19
%
 
22
%
 
15
%
A reconciliation of our consolidated segment operating income to consolidated income before taxes follows:
 
Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Consolidated segment operating income
$
128,557

 
$
118,374

 
$
381,275

 
$
347,142

Unallocated corporate expense
(21,019
)
 
(21,660
)
 
(66,886
)
 
(61,203
)
Amortization of purchased intangible assets
(41,618
)
 
(31,440
)
 
(120,713
)
 
(89,315
)
Acquisition costs
(2,891
)
 
(1,804
)
 
(9,285
)
 
(14,385
)
Consolidated operating income
63,029

 
63,470

 
184,391

 
182,239

Non-operating income, net
483

 
3,352

 
2,181

 
8,201

Consolidated income before taxes
$
63,512

 
$
66,822

 
$
186,572

 
$
190,440

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 $23.4 million or 8% and $70.6 million or 9% for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods in fiscal 2012 . Segment operating income increased $5.0 million or 7% and $15.3 million or 9% for the third quarter and the first three quarters of fiscal 2013 , as compared to the corresponding periods in fiscal 2012 .
Revenue growth for the third quarter and the first three quarters of fiscal 2013 was driven by acquisition revenue as well as continued organic growth due to global sales of building construction, heavy highway and survey products, primarily in the U.S. and Europe, including Russia. Although negatively impacted by U.S. budgetary constraints, continued improvements in the residential and commercial construction market, acquisitions, and new product introductions, including revived growth in Survey instruments due to an expanded product portfolio, led to growth in North America. Additionally, building construction and heavy

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highway sales were up in Europe. Segment operating income increased primarily due to higher revenue and product mix, including higher software and subscription revenue.
Field Solutions
Field Solutions revenue decreased by $3.5 million or 3% and $11.1 million or 3% for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods in fiscal 2012 . Segment operating income decreased $4.6 million or 13% and $10.7 million or 7% for the third quarter and the first three quarters of fiscal 2013 , as compared to the corresponding periods in fiscal 2012 .
Field Solution revenue decreased for the third quarter and first three quarters of fiscal 2013 , primarily due to a decline in GIS markets which continued to be impacted by the pullback of government funding sources, particularly in the U.S. Agriculture was up over the prior year. Weather conditions in the first half of the year, particularly in the U.S. resulted in slower than anticipated agriculture sales, however sales were up in the third quarter, with particular growth in Europe. Segment operating income decreased due to reduced operating leverage in GIS.
Mobile Solutions
Mobile Solutions revenue increased by $29.7 million or 35% and $95.6 million or 39% for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods in fiscal 2012 . Segment operating income increased by $7.1 million or 86% and $21.1 million or 99% for the third quarter and the first three quarters of fiscal 2013 , as compared to the corresponding periods in fiscal 2012 .
Mobile Solutions revenue increased for the third quarter and the first three quarters of fiscal 2013 , primarily due to the acquisition of TMW which was not applicable in the prior period, as well as continued organic growth in the transportation and logistics market. The majority of the sales are in the U.S. Operating income increased due to increased revenue and product mix, including higher software, maintenance and subscription revenue.
Advanced Devices
Advanced Devices revenue increased by $2.2 million or 7% and $9.1 million or 10% for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods in fiscal 2012 . Segment operating income increased by $2.7 million or 48% and $8.5 million or 66% for the third quarter and the first three quarters of fiscal 2013 , as compared to the corresponding periods in fiscal 2012 .
The increase in revenue and operating income for the third quarter and the first three quarters of fiscal 2013 was due to increased sales of high margin RFID solutions.
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
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Research and development
71,622

 
61,181

 
221,785

 
185,721

Percentage of revenue
13
%
 
12
%
 
13
%
 
12
%
Sales and marketing
85,507

 
76,481

 
254,437

 
230,094

Percentage of revenue
15
%
 
15
%
 
15
%
 
15
%
General and administrative
53,648

 
45,723

 
158,378

 
142,595

Percentage of revenue
10
%
 
9
%
 
10
%
 
10
%
Total
210,777

 
183,385

 
634,600

 
558,410

Percentage of revenue
38
%
 
36
%
 
38
%
 
37
%
Overall, R&D, S&M and G&A expense increased by approximately $27.4 million and $76.2 million for the third quarter and the first three quarters of fiscal 2013 , as compared to the corresponding periods in fiscal 2012 .

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Research and development expense increased by $10.4 million and $36.1 million for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods of fiscal 2012 . Research and development spending overall was at approximately 13% of revenue in both the third quarter and the first three quarters of fiscal 2013 , as compared to 12% of revenue in the corresponding periods of fiscal 2012 . The cost of software developed for external sale subsequent to reaching technical feasibility was not considered material and was expensed as incurred.
The increase in R&D expense in the third quarter of fiscal 2013 , as compared to the corresponding period of fiscal 2012 was primarily due to the inclusion of expense of $8.9 million from acquisitions not applicable in the prior corresponding period, a $1.2 million increase in compensation related expense due to headcount increases, a $0.5 million increase due to unfavorable foreign currency exchange rates, partially offset by $0.2 million decrease in other expense.
The increase in R&D expense in the first three quarters of fiscal 2013 , as compared to the corresponding period in fiscal 2012 was primarily due to the inclusion of expense of $27.9 million from acquisitions not applicable in the prior corresponding period, a $6.2 million increase in compensation related expense, a $1.2 million increase due to unfavorable foreign currency exchange rates and a $0.8 million increase in other expense.
* We believe that the development and introduction of new products are critical to our future success and we expect to continue active development of new products.
Sales and marketing expense increased by $9.0 million and $24.3 million for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods of fiscal 2012 . Sales and marketing spending overall was at approximately 15% of revenue in both the third quarter and the first three quarters of fiscal 2013 and 2012 .
The increase in Sales and marketing expense in the third quarter of fiscal 2013 , as compared to the corresponding period of fiscal 2012 was primarily due to the inclusion of expense of $7.3 million from acquisitions not applicable in the prior period and a $1.0 million increase in compensation related expense, a $0.4 million increase due to unfavorable foreign currency exchange rates and a $0.3 million increase in other expense.
The increase in Sales and marketing expense in the first three quarters of fiscal 2013 , as compared to the corresponding period in fiscal 2012 was primarily due to the inclusion of expense of $21.2 million from acquisitions not applicable in the prior corresponding period, a $1.9 million increase in compensation related expense, and a $0.7 million increase due to unfavorable foreign currency exchange rates and a $0.5 million increase in other expense.
* Our future growth will depend in part on the timely development and continued viability of the markets in which we currently compete, as well as our ability to continue to identify and develop new markets for our products.
General and administrative expense increased by $7.9 million and $15.8 million for the third quarter and the first three quarters of fiscal 2013 , respectively, as compared to the corresponding periods of fiscal 2012 . General and administrative spending overall was at approximately 10% of revenue in both the third quarter and the first three quarters of fiscal 2013 , as compared to 9% of revenue in the third quarter of fiscal 2012 and 10% of revenue in the first three quarters of fiscal 2012 .
The increase in G&A expenses in the third quarter of fiscal 2013 , as compared to the third quarter of fiscal 2012 was primarily due to the inclusion of expense of $6.9 million from acquisitions not applicable in the third quarter of fiscal 2012 , a $1.1 million increase in merger and acquisition costs and a $0.9 million increase in bad debt expense, partially offset by $1.0 million decrease in other expense.
The increase in G&A expenses in the first three quarters of fiscal 2013 , as compared to the corresponding period in fiscal 2012 was primarily due to the inclusion of expense of $20.4 million from acquisitions not applicable in the prior corresponding period, a $0.1 million increase due to unfavorable foreign currency exchange rates, partially offset by a decrease of $3.5 million in merger and acquisition costs, a $0.6 million decrease in compensation related expense, a $0.3 million decrease in bad debt expense and a $0.3 million decrease in other expense.
Amortization of Purchased Intangible Assets
Amortization of purchased intangible assets was $41.6 million in the third quarter of fiscal 2013 , as compared to $31.4 million in the third quarter of fiscal 2012 . Of the total $41.6 million in the third quarter of fiscal 2013 , $21.2 million is presented as a separate line within Operating expense and $20.4 million is presented as a separate line within Cost of sales on our Condensed Consolidated Statements of Income. The increase was due to acquisitions not included in the third quarter of fiscal 2012 . As of the third quarter of fiscal 2013 , future amortization of intangible assets is expected to be $41.6 million during the remaining one quarter of fiscal 2013 , $144.2 million during 2014 , $132.0 million during 2015 , $112.5 million during 2016 , $90.6 million during 2017 and $100.8 million thereafter.

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Table of Contents

Non-operating Income, Net
The components of non-operating income, net, were as follows:
 
 
Third Quarter of
 
First Three Quarters of
 
2013
 
2012
 
2013
 
2012
(Dollars in thousands)
 
 
 
 
 
 
 
Interest expense, net
(4,122
)
 
(3,925
)
 
(13,448
)
 
(11,561
)
Foreign currency transaction gain (loss)
(157
)
 
174

 
(1,126
)
 
(1,843
)
Income from equity method investments, net
4,494

 
6,453

 
15,908

 
19,708

Other income, net
268