Summary of TRIMBLE NAVIGATION LTD /CA/

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.

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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 farmers, 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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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.


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                           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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                                          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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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 . . .