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Trimble Navigation 10-Q 2008

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
form10q.htm


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



FORM 10-Q
 

 

(Mark One)

S          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 27, 2008

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: 0-18645

TRIMBLE NAVIGATION LIMITED
(Exact name of registrant as specified in its charter)


California
94-2802192
(State or other jurisdiction of incorporation or organization)
 (I.R.S. Employer Identification Number)
                                                                           
                                                                                     
935 Stewart Drive, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)

Telephone Number (408) 481-8000
(Registrant's telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes           S           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 “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer
S
 
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           S

As of July 31, 2008, there were 120,905,512 shares of Common Stock (no par value) outstanding.
 


 
 

 
 
TRIMBLE NAVIGATION LIMITED
FORM 10-Q for the Quarter Ended June 27, 2008


       
       
       
       
PART I.
 
Financial Information
Page
       
ITEM 1.
   
       
   
3
       
   
4
       
   
5
       
   
6
       
ITEM 2.
 
21
       
ITEM 3.
 
30
       
ITEM 4.
 
31
       
       
PART II.
 
Other Information
 
       
ITEM 1.
 
31
       
ITEM 1A.
 
31
       
ITEM 2.
 
31
       
ITEM 4.
 
32
       
ITEM 6.
 
33
       
34
 
PART I – FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
   
June 27,
   
December 28,
 
   
2008
   
2007
 
(In thousands)
           
             
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 79,823     $ 103,202  
Accounts receivable, net
    267,200       239,884  
Other receivables
    9,985       10,201  
Inventories, net
    153,369       143,018  
Deferred income taxes
    42,257       44,333  
Other current assets
    17,004       15,661  
Total current assets
    569,638       556,299  
Property and equipment, net
    51,615       51,444  
Goodwill
    713,010       675,850  
Other purchased intangible assets, net
    186,971       197,777  
Other non-current assets
    62,598       57,989  
Total assets
  $ 1,583,832     $ 1,539,359  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
Current liabilities:
               
Current portion of long-term debt
  $ 137     $ 126  
Accounts payable
    73,581       67,589  
Accrued compensation and benefits
    56,149       55,133  
Deferred revenue
    59,077       49,416  
Accrued warranty expense
    11,942       10,806  
Income taxes payable
    14,060       14,802  
Other current liabilities
    36,333       51,980  
Total current liabilities
    251,279       249,852  
Non-current portion of long-term debt
    432       60,564  
Non-current deferred revenue
    10,719       15,872  
Deferred income taxes
    59,976       47,917  
Other non-current liabilities
    52,503       56,128  
Total liabilities
    374,909       430,333  
                 
Commitments and contingencies
               
                 
Shareholders' equity:
               
Preferred stock no par value; 3,000 shares authorized; none outstanding
    --       --  
Common stock, no par value; 180,000 shares authorized; 121,652 and 121,596 shares issued and outstanding at June 27, 2008 and December 28, 2007, respectively
    683,274       660,749  
Retained earnings
    447,806       388,557  
Accumulated other comprehensive income
    77,843       59,720  
Total shareholders' equity
    1,208,923       1,109,026  
Total liabilities and shareholders' equity
  $ 1,583,832     $ 1,539,359  
 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 
TRIMBLE NAVIGATION LIMITED
 CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
   
2008
   
2007
   
2008
   
2007
 
(In thousands, except per share data)
                       
                         
Revenue  (1)
  $ 377,767     $ 327,732     $ 733,063     $ 613,464  
Cost of sales (1)
    190,668       160,563       371,588       303,165  
Gross margin
    187,099       167,169       361,475       310,299  
                                 
Operating expenses
                               
Research and development
    39,405       33,867       76,750       65,030  
Sales and marketing
    51,904       47,546       103,062       89,693  
General and administrative
    25,289       24,278       47,979       45,920  
Restructuring charges
    2,414       333       2,414       3,025  
Amortization of purchased intangible assets
    5,163       5,195       10,306       9,301  
In-process research and development
    --       --       --       2,112  
Total operating expenses
    124,175       111,219       240,511       215,081  
Operating income
    62,924       55,950       120,964       95,218  
Non-operating income, net
                               
Interest income
    508       593       965       1,837  
Interest expense
    (413 )     (2,459 )     (1,175 )     (3,860 )
Foreign currency transaction gain (loss), net
    1,253       (430 )     2,221       (73 )
Income from joint ventures
    2,618       2,080       4,633       4,502  
Other income (expense ), net
    153       487       (754 )     722  
Total non-operating income, net
    4,119       271       5,890       3,128  
Income before taxes
    67,043       56,221       126,854       98,346  
Income tax provision
    18,444       21,195       38,188       34,637  
Net income
  $ 48,599     $ 35,026     $ 88,666     $ 63,709  
                                 
Basic earnings per share
  $ 0.40     $ 0.29     $ 0.73     $ 0.54  
Shares used in calculating basic earnings per share
    121,523       119,621       121,495       117,535  
                                 
Diluted earnings per share
  $ 0.39     $ 0.28     $ 0.71     $ 0.52  
Shares used in calculating diluted earnings per share
    125,712       124,584       125,435       122,539  
 
(1) Sales to related parties, Caterpillar Trimble Control Technologies Joint Venture (CTCT) and Nikon-Trimble Joint Venture (Nikon-Trimble), were $8.7 million and $6.3 million for the three months ended June 27, 2008 and June 29, 2007, respectively, with associated cost of sales of $7.2 million and $4.2 million, respectively.  Sales to CTCT and Nikon-Trimble were $15.2 million and $11.4 million for the six months ended June 27, 2008 and June 29, 2007, respectively, with associated cost of sales of $11.8 million and $7.7 million, respectively.  In addition, cost of sales associated with CTCT net inventory purchases was $7.4 million and $7.5 million for the three months ended June 27, 2008 and June 29, 2007, respectively, and $13.5 million and $14.2 million for the six months ended June 27, 2008 and June 29, 2007, respectively.  See Note 5 regarding joint ventures for further information about related party transactions.
 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 
TRIMBLE NAVIGATION LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
Six Months Ended
 
     
June 27, 
     
June 29, 
 
     
2008
     
2007
 
(In thousands)
               
                 
Cash flow from operating activities:
               
Net income
 
$
88,666
   
$
63,709
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation expense
   
9,274
     
8,426
 
Amortization expense
   
21,811
     
18,394
 
Provision for doubtful accounts
   
119
     
358
 
Amortization of debt issuance cost
   
113
     
105
 
Deferred income taxes
   
(2,791
   
(8,636
Non-cash restructuring charges
   
--
     
1,725
 
Stock-based compensation
   
7,777
     
7,145
 
In-process research and development
   
--
     
2,112
 
Equity gain from joint venture
   
(4,633
   
(4,503
Excess tax benefit for stock-based compensation
   
(5,249
)    
(5,929
Provision for excess and obsolete inventories
   
3,283
     
1,941
 
Other non-cash items
   
1
     
140
 
Add decrease (increase) in assets:
               
Accounts receivable
   
(26,832
)    
(41,832
Other receivables
   
481
     
2,968
 
Inventories
   
(8,997
)    
(11,760
Other current and non-current assets
   
(464
)    
9,414
 
Add increase (decrease) in liabilities:
               
Accounts payable
   
4,637
     
(6,298
Accrued compensation and benefits
   
(303
)    
80
 
Accrued liabilities
   
(597
)    
3,136
 
Deferred revenue
   
3,974
     
12,132
 
Income taxes payable
   
10,093
     
33,630
 
Net cash provided by operating activities
   
100,363
     
86,457
 
                 
Cash flow from investing activities:
               
Acquisitions of businesses, net of cash acquired
   
(45,082
)    
(277,743
)
Acquisitions of property and equipment
   
(7,932
)    
(6,270)
 
Other
   
137
 
   
959
 
Net cash used in investing activities
   
(52,877
   
(283,054
                 
Cash flow from financing activities:
               
Issuances of common stock
   
15,425
     
15,761
 
Excess tax benefit for stock-based compensation
   
5,249
     
5,929
 
Repurchase and retirement of common stock
   
(36,293
)    
--
 
Proceeds from long-term debt and revolving credit lines
   
--
     
250,000
 
Payments on long-term debt and revolving credit lines
   
(60,314)
     
        (127,517
Net cash provided by (used in) financing activities
   
(75,933
   
144,173
 
                 
Effect of exchange rate changes on cash and cash equivalents
   
5,068
     
(3,437
)
                 
Net decrease in cash and cash equivalents
   
(23,379
)    
(55,861
)
Cash and cash equivalents, beginning of period
   
103,202
     
129,621
 
Cash and cash equivalents, end of period
 
$
79,823
   
$
73,760
 
 
See accompanying Notes to the Condensed Consolidated Financial Statements.
 
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 2007 was December 28. The second quarters of fiscal 2008 and fiscal 2007 ended on June 27, 2008 and June 29, 2007, respectively.  Fiscal 2008 is a 53-week year and fiscal 2007 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 subsidiaries.  Inter-company accounts and transactions have been eliminated.  The Condensed Consolidated Balance Sheet is derived from the December 28, 2007 audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2007. Certain amounts from prior periods have been reclassified to conform to the current period presentation.
 
The accompanying financial data as of June 27, 2008 and for the three and six months ended June 27, 2008 and June 29, 2007 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations.  The following discussion should be read in conjunction with the Company’s 2007 Annual Report on Form 10-K.

In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present a fair statement of financial position as of June 27, 2008, results of operations for the three and six months ended June 27, 2008 and June 29, 2007 and cash flows for the six months ended June 27, 2008 and June 29, 2007, as applicable, have been made.  The results of operations for the three and six months ended June 27, 2008 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.

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in its Condensed Consolidated Financial Statements and accompanying notes.  Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates.

On January 17, 2007, the Company’s Board of Directors approved a 2-for-1 split of all outstanding shares of the Company’s Common Stock, payable February 22, 2007 to stockholders of record on February 8, 2007.  All shares and per share information presented have 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 changes to the Company’s significant accounting polices during the six months ended June 27, 2008 from those disclosed in the Company’s 2007 Form 10-K. 

Recent Accounting Pronouncements

Updates to recent accounting standards as disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 28, 2007 are as follows:

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

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.”  SFAS No. 159 allows an entity the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities under an instrument-by-instrument election. Subsequent measurements for the financial assets and liabilities an entity elects to fair value will be recognized in earnings.  SFAS No. 159 also establishes additional disclosure requirements. SFAS No. 159 became effective for the Company at the beginning of its first quarter of fiscal 2008.  The Company did not elect the fair value option for any of its financial assets or liabilities.  However, the Company may decide to elect the fair value option on new items in the future.  The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
 
In March 2008, the FASB issued SFAS No. 161, “Disclosures About Derivative Instruments and Hedging Activities - An Amendment of FASB Statement No. 133” which requires enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged.  The Company does not expect the adoption of SFAS No. 161 will have a material impact on the Company’s financial position, results of operations or cash flows.

 
NOTE 3. BUSINESS COMBINATIONS

@Road, Inc.

On December 10, 2006, the Company and @Road, Inc. (@Road) entered into a definitive merger agreement.  The acquisition became effective on February 16, 2007.  @Road is a global provider of solutions designed to automate the management of mobile resources and to optimize the service delivery process for customers across a variety of industries. The acquisition of @Road expands the Company’s investment and reinforces the existing growth strategy for its Mobile Solutions segment.  @Road’s results of operations since February 17, 2007 have been included in the Company’s Condensed Consolidated Statements of Income within the Mobile Solutions business segment.

Purchase Price

Under the terms of the agreement, the Company acquired all of the outstanding shares of @Road common stock for $7.50 per share.  The Company elected to issue $2.50 per share of the consideration in the form of the Company’s common stock (Common Stock) to be based upon the five-day average closing price of the Company’s shares six trading days prior to the closing of the transaction and the remaining $5.00 per share consideration was paid in cash. Further, each share of Series A-1 and Series A-2 Redeemable Preferred Stock, par value $0.001 per share, of @Road was converted into the right to receive an amount in cash equal to $100.00 plus all declared or accumulated but unpaid dividends with respect to such shares as of immediately prior to the effective time of the merger and each share of Series B-1 Redeemable Preferred Stock, par value $0.001 per share, of @Road and each share of Series B-2 Redeemable Preferred Stock, par value $0.001 per share, of @Road was converted into the right to receive an amount in cash equal to $831.39 plus all declared or accumulated but unpaid dividends with respect to such shares as of immediately prior to the effective time of the merger. In addition, all @Road vested stock options were terminated and the holders of each such option were entitled to receive the excess, if any, of the aggregate consideration over the exercise price. At the effective time of the merger, all unvested @Road stock options with an exercise price in excess of $7.50 were terminated and all unvested stock options that had exercise prices of $7.50 or less were assumed by the Company.

Concurrent with the merger, the Company amended its existing $200 million unsecured revolving credit agreement with a syndicate of 11 banks with The Bank of Nova Scotia as the administrative agent (the 2007 Credit Facility) and incurred a five-year term loan under the 2007 Credit Facility.  See Note 9 to the Condensed Consolidated Financial Statements for additional information.

The Company paid approximately $327.4 million in cash from debt and existing cash, and issued approximately 5.9 million shares of the Company’s common stock based on an exchange ratio of 0.0893 shares of the Company’s common stock for each outstanding share of @Road common stock as of February 16, 2007. The common stock issued had a fair value of $161.9 million and was valued using the average closing price of the Company’s common stock of $27.69 over a range of two trading days (February 14, 2007 through February 15, 2007) prior to, and including, the close date (February 16, 2007) of the transaction, which is also the date that the amount of the Company’s shares to be issued in accordance with the merger agreement was settled. The total purchase price is estimated as follows (in thousands):

Cash consideration
  $ 327,370  
Common stock consideration
    161,947  
Merger costs *
    5,712  
Total Purchase price
  $ 495,029  

* Merger costs consist of legal, advisory, accounting and administrative fees.

Purchase Price Allocation

In accordance with SFAS 141, "Business Combinations,” the total purchase price was allocated to @Road net tangible assets, identifiable intangible assets and in-process research and development based upon their estimated fair values as of February 16, 2007. The excess purchase price over the net tangible, identifiable intangible assets and in-process research and development was recorded as goodwill. The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed are based on estimates and assumptions provided by management.
 
The total purchase price has been allocated as follows (in thousands):
 
Value to be allocated to assets, based upon merger consideration
  $ 495,029  
Less: value of @Road’s assets acquired:
       
Net tangible assets acquired
    138,132  
Amortizable intangibles assets:
       
Developed product technology
    66,600  
Customer relationships
    75,300  
Trademarks and tradenames
    5,200  
Subtotal
    147,100  
         
In-process research and development
    2,100  
Deferred tax liability
    (56,855 )
         
Goodwill
  $ 264,552  

Net Tangible Assets
 
   
As of
 
   
February 16,
 
(in thousands)
 
2007
 
Cash and cash equivalents
  $ 74,729  
Accounts receivable, net
    14,255  
Other receivables
    8,774  
Inventories, net
    15,272  
Other current assets
    12,627  
Property and equipment, net
    5,854  
Deferred income taxes
    42,147  
Other non-current assets
    7,935  
         
Total assets acquired
  $ 181,593  
         
Accounts payable
    19,285  
Deferred revenue
    7,365  
Other current liabilities
    16,811  
         
Total liabilities assumed
  $ 43,461  
         
Total net assets acquired
  $ 138,132  

The Company reviewed and adjusted @Road's net tangible assets and liabilities to fair value, as necessary, as of February 16, 2007, including the following adjustments:

Fixed assets – the Company decreased @Road's historical value of fixed assets by $2.1 million to adjust fixed assets to an amount equivalent to fair value.

Deferred revenue and cost of sales – the Company reduced @Road's historical value of deferred revenue by $39.6 million to adjust deferred revenue to the fair value of the direct cost associated with servicing the underlying obligation plus a reasonable margin. @Road’s deferred revenue balance consists of upfront payments of its hosted product, licensed product, extended warranty and maintenance. The Company reduced @Road's historical value of deferred product cost by $47.1 million to adjust deferred product cost to the asset's underlying fair value. The deferred product costs adjustment to fair value related to deferral of cost of sales of hardware that have shipped, resulting in no fair value relating to the associated deferred product costs.

Other receivables and non-current assets – Other receivables and non-current assets were increased by $15.4 million to adjust for the fair value of future cash collections from customer contracts assumed for products delivered prior to the acquisition date.   As the products were delivered prior to the acquisition date, revenue is not recognizable in the Company’s Condensed Consolidated Statements of Income.
 
Intangible Assets

Developed product technology, which is comprised of products that have reached technological feasibility, includes products in @Road's current product offerings. @Road's technology includes hardware, software and services that serve the mobile resource management market internationally. The Company expects to amortize the developed and core technology over a weighted average estimated life of seven years.

Customer relationships represent the value placed on @Road’s distribution channels and end users. The Company expects to amortize the fair value of these assets over a weighted average estimated life of seven years.

Trademarks and trade names represent the value placed on the @Road brand and recognition in the mobile resource management market. The Company expects to amortize the fair value of these assets over a weighted average estimated life of eight years.

In-process Research and Development

The Company recorded an expense of $2.1 million relating to in-process research and development projects in @Road’s license business.   In-process research and development represents incomplete @Road research and development projects that had not reached technological feasibility and had no alternative future use as of the consummation of the merger.

Goodwill

The excess purchase price over the net tangible, identifiable intangible assets and in-process research and development was recorded as goodwill. The goodwill was attributed to the premium paid for the opportunity to expand and better serve the global mobile resource management market and achieve greater long-term growth opportunities than either company had operating alone. The Company believes these opportunities could include accelerating the rate at which products are brought to market and increasing the diversity and global reach of those products. In addition, the Company expects that the combined companies may be able to obtain greater operating leverage by reducing costs in areas of redundancy. Of the total $264.6 million assigned to goodwill, approximately $4.4 million is expected to be deductible for tax purposes.

Restructuring

Liabilities related to restructuring @Road's operations that meet the requirements of EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination,” have been recorded as adjustments to the purchase price and an increase in goodwill. Liabilities related to restructuring the Company's operations have been recorded as expenses in the Company's Condensed Consolidated Statements of Income in the period that the costs are incurred.

Deferred Tax Assets/Liabilities

The Company recognized $56.9 million in net deferred tax liabilities for the tax effects of differences between assigned values in the purchase price and the tax bases of assets acquired and liabilities assumed.

@Road Stock Options Assumed

In accordance with the merger agreement, the Company assumed all @Road unvested stock options that had exercise prices of $7.50 or less.  The Company issued approximately 795,000 stock options based on an exchange ratio of 0.268 shares of the Company’s common stock for each unvested stock option with exercise prices of $7.50 or less as of February 16, 2007.  The fair value of these assumed options was determined to be $10.1 million which will be expensed over the remaining vesting terms of the assumed options which is approximately three to four years.  The assumed options were valued using the binomial model similar to previously granted Trimble stock options as discussed in the Company’s fiscal 2007 Form 10-K.

Pro-Forma Results

The following table presents pro-forma results of operations of the Company and @Road, as if the companies had been combined as of December 31, 2005. The unaudited pro-forma results of operations are not necessarily indicative of results that would have occurred had the acquisition taken place on December 31, 2005 or of future results.  Included in the pro-forma results are fair value adjustments based on the fair values of assets acquired and liabilities assumed as of the acquisition date of February 16, 2007 and adjustments for interest expense related to debt and stock options assumed as part of the merger consideration.

The Company excluded the effect of non-recurring items as the impact is short-term in nature. The pro-forma information is as follows:
 
   
Six Months Ended
 
   
June 29,
 
   
2007 (a)
 
(in thousands, except per share data)
     
Pro-forma revenue
  $ 627,582  
Pro-forma net income
    60,964  
Pro-forma basic net income per share
  $ 0.51  
Pro-forma diluted net income per share
  $ 0.51  
 
(a)
The pro-forma results of operations represent the Company’s results for the six months ended June 29, 2007 together with @Road’s historical results through the acquisition date of February 16, 2007 as though they had been combined as of December 31, 2005.  Pro-forma adjustments have been made based on the fair values of assets acquired and liabilities assumed as of February 16, 2007.  Pro-forma revenue includes a $0.1 million decrease due to the timing of recognizing deferred revenue write-downs and customer contracts where the product was delivered prior to the acquisition date. Pro-forma net income includes a $0.3 million increase due to the timing of recognizing revenue write-downs and related deferred cost of sales write-downs, amortization of intangible assets related to the acquisition of $2.2 million, and interest expense for debt used to purchase @Road of $1.4 million. The pro-forma amounts provided herein include adjustments to previously filed pro-forma numbers in the Company’s 10-Q’s.
 
 
NOTE 4. SHAREHOLDERS’ EQUITY

Stock Repurchase Activities

In January 2008, the Company’s Board authorized a stock repurchase program (“2008 Stock Repurchase Program”), authorizing the Company to repurchase up to $250 million of Trimble’s common stock under this program.  During the six months ended June 27, 2008, the Company repurchased approximately 1,255,000 shares of common stock in open market purchases at an average price of $28.90 per share.  The total purchase price of $36.3 million was reflected as a decrease to common stock based on the average stated value per share with the remainder to retained earnings.  Common stock repurchases under the program were recorded based upon the settlement date of the applicable trade for accounting purposes.  All common shares repurchased under this program have been retired. As of June 27, 2008, the 2008 Stock Repurchase Program had remaining authorized funds of $213.7 million.  The timing and actual number of future shares repurchased will depend on a variety of factors including price, regulatory requirements, capital availability, and other market conditions.  The program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without public notice.

Stock-Based Compensation

The Company accounts for its employee stock options and rights to purchase shares under its stock participation plans at fair value, in accordance with SFAS 123(R), “Share-Based Payment.” SFAS 123(R) requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s Condensed Consolidated Statements of Income.

The following table summarizes stock-based compensation expense, net of tax, related to employee stock-based compensation included in the Consolidated Condensed Statements of Income in accordance with SFAS 123(R) for the three and six months ended June 27, 2008 and June 29, 2007.
 
   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29,
   
June 27,
   
June 29,
 
   
2008
   
2007
   
2008
   
2007
 
(in thousands)
                       
                         
Cost of sales
  $ 487     $ 429     $ 980     $ 771  
                                 
Research and development
    916       1,022       1,833       1,751  
Sales and marketing
    931       974       1,961       1,741  
General and administrative
    1,461       1,367       3,003       2,882  
Total operating expenses
    3,308       3,363       6,797       6,374  
                                 
Total stock-based compensation expense
    3,795       3,792       7,777       7,145  
Tax benefit (1)
    (458 )     (520 )     (552 )     (868 )
Total stock-based compensation expense, net of tax
  $ 3,337     $ 3,272     $ 7,225     $ 6,277  
 
(1) Tax benefit related to U.S. non-qualified options and restricted stock units, applying a Federal statutory and State (Federal effected) tax rate for the respective periods.


Options

Stock option expense recognized during the period is based on the value of the portion of the stock option that is expected to vest during the period. The fair value of each stock option is estimated on the date of grant using a binomial valuation model. The Black-Scholes model was used to value those options granted prior to the fourth quarter of fiscal 2005. Similar to the Black-Scholes model, the binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. For options granted for the three and six months ended June 27, 2008 and June 29, 2007, the following assumptions were used:
 
   
 
Three Months Ended
   
Six Months Ended
 
   
June 27,
2008
   
June 29,
2007
   
June 27,
2008
   
June 29,
2007
 
Expected dividend yield
 
--
   
--
   
--
   
--
 
Expected stock price volatility
 
39.8%
   
36.9%
   
39.7%
   
37.2%
 
Risk free interest rate
 
2.7%
 
 
4.5%
   
2.7%
   
4.5%
 
Expected life of option
 
4.1 years
   
3.9 years
   
4.1 years
   
3.9 years
 

Expected Dividend Yield – The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Expected Stock Price Volatility – The Company’s computation of expected volatility is based on a combination of implied volatilities from traded options on the Company’s stock and historical volatility, commensurate with the expected life of the stock options.

Expected Risk Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock options.

Expected Life Of Option – The Company’s expected life represents the period that the Company’s stock options are expected to be outstanding and was determined based on historical experience of similar stock options with consideration to the contractual terms of the stock options, vesting schedules and expectations of future employee behavior.
 
 
NOTE 5. JOINT VENTURES

Caterpillar Trimble Control Technologies Joint Venture

On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT), a joint venture formed by the Company and Caterpillar began operations. CTCT develops advanced electronic guidance and control products for earth moving machines in the construction and mining industries. The joint venture is 50% owned by the Company and 50% owned by Caterpillar, with equal voting rights. The joint venture is accounted for under the equity method of accounting. Under the equity method, the Company’s share of profits and losses are included in Income from joint ventures in the Non-operating income, net section of the Condensed Consolidated Statements of Income.  During the three and six months ended June 27, 2008, the Company recorded $2.9 million and $4.7 million, respectively, as its proportionate share of CTCT net income.  During the comparable period of 2007 the Company recorded $2.3 million and $4.5 million, respectively, as its proportionate share of CTCT net income.  During the fiscal quarters ended June 27, 2008 and June 29, 2007, there were no dividends received from CTCT.  The carrying amount of the investment in CTCT was $14.3 million at June 27, 2008 and $9.6 million at December 28, 2007, and is included in Other non-current assets on the Condensed Consolidated Balance Sheets.

The Company acts as a contract manufacturer for CTCT.  Products are manufactured based on orders received from CTCT and are sold at direct cost plus a mark-up for the Company’s overhead costs to CTCT.  CTCT then resells products at cost plus a mark-up in consideration for CTCT’s research and development efforts to both Caterpillar and to the Company for sales through their respective distribution channels. Generally, the Company sells products through its after-market dealer channel, and Caterpillar sells products for factory and dealer installation.  CTCT does not have net inventory on its balance sheet in that the resale of products to Caterpillar and the Company occur simultaneously when the products are purchased from the Company.  During the three and six months ended June 27, 2008, the Company recorded $3.5 million and $6.2 million of revenue, respectively, and $3.1 million and $5.4 million of cost of sales, respectively, for the manufacturing of products sold by the Company to CTCT and then sold through the Caterpillar distribution channel.  During the comparable three and six months ended June 29, 2007, the Company recorded $2.7 million and $4.9 million of revenue, respectively, and $2.4 million and $4.4 million of cost of sales, respectively.  In addition, during the three and six months ended June 27, 2008, the Company recorded $7.4 million and $13.5 million in net cost of sales for the manufacturing of products sold by the Company to CTCT and then repurchased by the Company upon sale through the Company’s distribution channel.  The comparable net cost of sales recorded by the Company for the three and six months ended June 29, 2007 were $7.5 million and $14.2 million, respectively.

In addition, the Company received reimbursement of employee-related costs from CTCT for company employees dedicated to CTCT or performance of work for CTCT totaling $3.5 million and $7.5 million for the three and six months ended June 27, 2008, respectively, and totaling $3.0 million and $6.3 million for the three and six months ended June 29, 2007, respectively. The reimbursements were offset against operating expenses.

 
At June 27, 2008 and December 28, 2007, the Company had amounts due to and from CTCT.  Receivables and payables to CTCT are settled individually with terms comparable to other non-related parties.  The amounts due to and from CTCT are presented on a gross basis in the Condensed Consolidated Balance Sheets.  At June 27, 2008 and December 28, 2007, the receivables from CTCT were $5.9 million and $5.6 million, respectively, and are included within Accounts receivable, net, on the Condensed Consolidated Balance Sheets.  As of the same dates, the payables due to CTCT were $5.9 million and $5.2 million, respectively, and are included within Accounts payable on the Condensed Consolidated Balance Sheets.

Nikon-Trimble Joint Venture

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

The joint venture is accounted for under the equity method of accounting.  Under the equity method, the Company’s share of profits and losses are included in Income from joint ventures in the Non-operating income, net section of the Condensed Consolidated Statements of Income.  During the three and six months ended June 27, 2008, the Company recorded a loss of $0.3 million and a loss of $0.1 million, respectively, and during the three and six months ended June 29, 2007, the Company recorded a loss of $0.3 million and a profit of $4,000, respectively, as its proportionate share of Nikon-Trimble net income.  During the six months ended June 27, 2008 and June 29, 2007, dividends received from Nikon-Trimble, amounted to $0.2 million and $0.6 million, and were recorded against Other non-current assets on the Condensed Consolidated Balance Sheets.  The carrying amount of the investment in Nikon-Trimble was $13.8 million at June 27, 2008 and $13.4 million at December 28, 2007, and is included in Other non-current assets on the Condensed Consolidated Balance Sheets.

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

The terms and conditions of the sales of products from the Company to Nikon-Trimble are comparable with those of the standard distribution agreements which the Company maintains with its dealer channel and margins earned are similar to those from third party dealers. Similarly, the purchases of product by the Company from Nikon-Trimble are made on terms comparable with the arrangements which Nikon maintained with its international distribution channel prior to the formation of the joint venture with the Company.  During the three and six months ended June 27, 2008, the Company recorded $5.1 million and $9.0 million of revenue and $4.1 million and $6.4 million of cost of sales for the manufacturing of products sold by the Company to Nikon-Trimble. During the three and six months ended June 29, 2007, the Company recorded $3.6 million and $6.5 million of revenue and $1.8 million and $3.3 million of cost of sales for the manufacturing of products sold by the Company to Nikon-Trimble.  The Company also purchases product from Nikon-Trimble for future sales to third party customers. Purchases of inventory from Nikon-Trimble were $4.1 million and $7.0 million during the three and six months ended June 27, 2008; and $6.0 million and $12.9 million during the three and six months ended June 29, 2007, respectively.

At June 27, 2008 and December 28, 2007, the Company had amounts due to and from Nikon-Trimble.  Receivables and payables to Nikon-Trimble are settled individually with terms comparable to other non-related parties.  The amounts due to and from Nikon-Trimble are presented on a gross basis in the Condensed Consolidated Balance Sheets. At June 27, 2008 and December 28, 2007, the amounts due from Nikon-Trimble were $3.5 million and $3.3 million, respectively, and are included within Accounts receivable, net on the Condensed Consolidated Balance Sheets.  As of the same dates, the amounts due to Nikon-Trimble were $5.6 million and $5.7 million, respectively, and are included within Accounts payable on the Condensed Consolidated Balance Sheets.
 
 
NOTE 6. GOODWILL AND INTANGIBLE ASSETS

Intangible Assets
 
Intangible Assets consisted of the following:

   
June 27, 2008
 
                   
   
Gross
             
   
Carrying
   
Accumulated
   
Net Carrying
 
(in thousands)
 
Amount
   
Amortization
   
Amount
 
Developed product technology
  $ 165,246     $ (72,074 )   $ 93,172  
Trade names and trademarks
    19,486       (12,839 )     6,647  
Customer relationships and other intellectual properties
    129,358       (42,206 )     87,152  
    $ 314,090     $ (127,119 )   $ 186,971  
 
   
December 28, 2007
 
                   
   
Gross
             
   
Carrying
   
Accumulated
   
Net Carrying
 
(in thousands)
 
Amount
   
Amortization
   
Amount
 
Developed product technology
  $ 157,394     $ (58,273 )   $ 99,121  
Trade names and trademarks
    19,192       (12,490 )     6,702  
Customer relationships and other intellectual properties
    124,281       (32,327 )     91,954  
    $ 300,867     $ (103,090 )   $ 197,777  
 
The estimated future amortization expense of intangible assets as of June 27, 2008, is as follows:

   
Amortization Expense
 
(in thousands)
     
2008 (Remaining)
  $ 21,704  
2009
    40,134  
2010
    37,887  
2011
    33,033  
2012
    25,010  
Thereafter
    29,203  
Total
  $ 186,971  

Goodwill

The changes in the carrying amount of goodwill for the six months ended June 27, 2008, are as follows:

   
Engineering and Construction
   
Field Solutions
   
Mobile Solutions
   
Advanced Devices
   
Total
 
(in thousands)
                             
Balance as of December 28, 2007
  $ 317,886     $ 5,224     $ 337,661     $ 15,079     $ 675,850  
Additions due to acquisitions
    14,963       --       --       --       14,963  
Purchase price adjustments
    5,578       2,046       1,218       --       8,842  
Foreign currency translation adjustments
    13,612       --       (77 )     (180 )     13,355  
Balance as of June 27, 2008
  $ 352,039     $ 7,270     $ 338,802     $ 14,899     $ 713,010  
 
The purchase price adjustments relate entirely to previous business acquisitions.  The total purchase price adjustments of $8.8 million recorded during the six months ended June 27, 2008 is comprised of earn-out payments of $3.1 million, tax adjustments of $5.6 million and $0.1 million for changes in purchase price allocation estimates.
 
 
NOTE 7. CERTAIN BALANCE SHEET COMPONENTS

Inventories, net consisted of the following:
 
   
June 27,
   
December 28,
 
As of
 
2008
   
2007
 
(in thousands)
           
Raw materials
  $ 66,743     $ 63,465  
Work-in-process
    7,739       9,267  
Finished goods
    78,887       70,286  
Total inventories, net
  $ 153,369     $ 143,018  
 
Deferred costs of revenue are included within finished goods and were $15.9 million at June 27, 2008 and $11.0 million at December 28, 2007.

 
Other non-current liabilities consisted of the following:
 
   
June 27,
   
December 28,
 
As of
 
2008
   
2007
 
(in thousands)
           
             
Deferred compensation
  $ 8,240     $ 8,646  
Unrecognized tax benefits
    28,103       25,774  
Other non-current liabilities
    16,160       21,708  
Total other non-current liabilities
  $ 52,503     $ 56,128  
 
As of June 27, 2008 and December 28, 2007, the Company has $28.1 million and $25.8 million, respectively, of unrecognized tax benefits included in Other non-current liabilities that, if recognized, would favorably affect the effective income tax rate in future periods and interest and/or penalties related to income tax matters.
 
 
NOTE 8. THE COMPANY AND SEGMENT INFORMATION

The Company is a designer and distributor of positioning solutions enabled by GPS, optical, laser, and wireless communications technology. The Company provides products for diverse applications in its targeted markets.

To achieve distribution, marketing, production, and technology advantages, the Company manages its operations in the following four segments:

 
·
Engineering and Construction — Consists of products currently used by survey and construction professionals in the field for positioning, data collection, field computing, data management, and machine guidance and control. The applications served include surveying, road, runway, construction, site preparation and building construction.

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

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

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

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

The following table presents revenue, operating income, and identifiable assets for the four segments. Operating income is revenue less cost of sales and operating expenses, excluding general corporate expenses, amortization of purchase intangibles, in-process research and development expenses and restructuring charges. The identifiable assets that the Company's Chief Operating Decision Maker views by segment are accounts receivable and inventory.


 
Reporting Segments
       
   
Engineering and
   
Field
   
Mobile
   
Advanced
       
   
Construction
   
Solutions
   
Solutions
   
Devices
   
Total
 
(In thousands)
                             
                               
Three Months Ended June 27, 2008
                         
Segment revenue
  $ 213,019     $ 90,070     $ 42,285     $ 32,393     $ 377,767  
Operating income
    45,161       34,808       1,942       6,578       88,489  
                                         
Three Months Ended June 29, 2007
                                 
Segment revenue
  $ 198,853     $ 55,273     $ 40,927     $ 32,679     $ 327,732  
Operating income
    52,371       18,398       2,906       5,384       79,059  
                                         
Six Months Ended June 27, 2008
                                 
Segment revenue
  $ 407,199     $ 178,107     $ 86,296     $ 61,461     $ 733,063  
Operating income
    82,115       69,903       4,395       11,270       167,683  
                                         
Six Months Ended June 29, 2007
                                 
Segment revenue
  $ 374,457     $ 106,235     $ 70,784     $ 61,988     $ 613,464  
Operating income
    94,535       35,026       3,923       8,727       142,211  
                                         
As of June 27, 2008
                                       
Accounts receivable (1)
  $ 170,728     $ 48,471     $ 27,812     $ 20,189     $ 267,200  
Inventories
    99,725       18,618       17,829       17,197       153,369  
                                         
As of December 28, 2007
                                       
Accounts receivable (1)
  $ 158,913     $ 37,294     $ 25,469     $ 18,208     $ 239,884  
Inventories
    89,780       15,745       18,781       18,712       143,018  
 
(1)
As presented, accounts receivable represents trade receivables, net, which are specified between segments.



A reconciliation of our consolidated segment operating income to consolidated income before income taxes is as follows:


   
Three Months Ended
   
Six Months Ended
 
   
June 27,
   
June 29
   
June 27,
   
June 29
 
   
2008
   
2007
   
2008
   
2007
 
(In thousands)
                       
                         
Consolidated segment operating income
  $ 88,489     $ 79,059     $ 167,683     $ 142,211  
Unallocated corporate expense
    (11,303 )     (12,344 )     (21,653 )     (23,529 )
Amortization of purchased intangible assets
    (10,918 )     (10,432 )     (21,722 )     (18,327 )
In-process research and development expense
    --       --       --       (2,112 )
Restructuring charges
    (3,344 )     (333 )     (3,344 )     (3,025 )
Consolidated operating income
    62,924       55,950       120,964       95,218  
Non-operating income (expense), net
    4,119       271       5,890       3,128  
Consolidated income before income taxes
  $ 67,043     $ 56,221     $ 126,854     $ 98,346  


NOTE 9. LONG-TERM DEBT, COMMITMENTS AND CONTINGENCIES

Long-term debt consisted of the following:
 
   
June 27,
   
December 28,
 
As of
 
2008
   
2007
 
(In thousands)
           
             
Credit Facilities:
           
Term loan
  $ -     $ 60,000  
Promissory notes and other
    569       690  
Total debt
    569       60,690  
 
               
Less current portion of long-term debt
    137       126  
Non-current portion
  $ 432     $ 60,564  
 
Credit Facilities

On July 28, 2005, the Company entered into a $200 million unsecured revolving credit agreement (the 2005 Credit Facility) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent.   On February 16, 2007, the Company amended its existing $200 million unsecured revolving credit agreement with a syndicate of 11 banks with The Bank of Nova Scotia as the administrative agent (the 2007 Credit Facility). Under the 2007 Credit Facility, the Company exercised the option in the existing credit agreement to increase the availability under the revolving credit line by $100 million, for an aggregate availability of up to $300 million, and extended the maturity date of the revolving credit line by 18 months, from July 2010 to February 2012.  Up to $25 million of the availability under the revolving credit line may be used to issue letters of credit, and up to $20 million may be used for swing line loans.  In addition, during the first quarter of fiscal 2007 the Company incurred a five-year term loan under the 2007 Credit Facility in an aggregate principal amount of $100 million, which has subsequently been paid off.  The maximum leverage ratio under the 2007 Credit Facility is 3.00:1.   The funds available under the 2007 Credit Facility may be used by the Company for acquisitions, stock repurchases, and general corporate purposes.

As of June 27, 2008 and December 28, 2007, the Company did not have an outstanding balance on the revolving credit line. The term loan balance was fully paid off in the second quarter of 2008.  The Company was in compliance with all financial debt covenants.

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

The 2007 Credit Facility contains customary affirmative, negative and financial covenants including, among other requirements, negative covenants that restrict the Company's ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions, make investments, enter into mergers and consolidations and make capital expenditures, within certain limitations, and financial covenants that require the maintenance of leverage and fixed charge coverage ratios. The 2007 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments, and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company's obligations under the 2007 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.

Notes Payable

As of June 27, 2008 and December 28, 2007, the Company had notes payable totaling approximately $569,000 and $690,000, respectively, consisting of government loans to foreign subsidiaries and loans assumed from acquisitions.

Leases and other commitments

The estimated future minimum operating lease commitments as of June 27, 2008, is as follows (in thousands):

2008 (Remaining)
  $ 9,806  
2009
    17,819  
2010
    12,007  
2011
    7,571  
2012
    5,920  
Thereafter
    1,501  
Total
  $ 54,624  

Additionally, as of June 27, 2008, the Company had acquisition-related earn-outs of $6.9 million and holdbacks of $11.7 million recorded in Other current liabilities and Other non-current liabilities. The maximum remaining payments, including the $6.9 million and $11.7 million recorded, will not exceed $72.9 million.  The remaining payments are based upon targets achieved or events occurring over time that would result in amounts paid that may be lower than the maximum remaining payments.  The remaining earn-outs and holdbacks are payable through 2010.

At June 27, 2008, the Company had unconditional purchase obligations of approximately $68.7 million. These unconditional purchase obligations primarily represent open non-cancelable purchase orders for material purchases with our vendors. Purchase obligations exclude agreements that are cancelable without penalty. These unconditional purchase obligations are related primarily to inventory and other items.

 
NOTE 10.  FAIR VALUE OF FINANCIAL INSTRUMENTS

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

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

Level I – Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.

Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability.  These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.


   
Fair Values as of June 27, 2008
 
(In thousands)
 
Level I
   
Level II
   
Level III
   
Total
 
Assets
                       
Deferred compensation plan assets (1)
    8,340                   8,340  
Derivative assets (2)
          172             172  
Total
    8,340       172             8,512  
                                 
Liabilities
                       
Deferred compensation plan liabilities (1)
    8,240                   8,240  
Derivative liabilities (2)
                       
Total
    8,240                   8,240  

(1)
Deferred compensation plan assets and liabilities:  The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. The investment assets and liabilities included in Level I are valued using quoted market prices.

(2)
Derivative assets and liabilities:  Derivative assets and liabilities included in Level II primarily represent forward currency exchange contracts. The fair values are determined using inputs based on observable quoted prices.
 
 
NOTE 11. PRODUCT WARRANTIES

The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on the Company's behalf.  The Company’s expected future costs are primarily estimated based upon historical trends in the volume of product returns within the warranty period and the costs to repair or replace the equipment. The products sold are generally covered by a warranty for periods ranging from 90 days to three years, and in some instances up to 5.5 years.

While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.

 
Changes in the Company’s product warranty liability during the six months ended June 27, 2008 are as follows (in thousands):
 
Balance as of December 28, 2007
  $ 10,806  
Accruals for warranties issued
    10,683  
Changes in estimates
    --  
Warranty settlements (in cash or in kind)
    (9,547 )
Balance as of June 27, 2008
  $ 11,942  


NOTE 12. EARNINGS PER SHARE

The following data was used in computing earnings per share and the effect on the weighted-average number of shares of potentially dilutive common stock.
 
   
Three Months Ended
 
Six Months Ended
     
June 27,
     
June 29,
     
June 27,
     
June 29,
 
     
2008
     
2007
     
2008
     
2007
 
(In thousands, except per share amounts)
                               
                                 
Numerator:
                               
Income available to common shareholders:
                               
Used in basic and diluted earnings per share
 
$
48,599
   
$
35,026
   
$
88,666
   
$
63,709
 
                                 
Denominator:
                               
Weighted average number of common shares used in basic earnings per share
   
121,523
     
119,621
     
121,495
     
117,535
 
Effect of dilutive securities (using treasury stock method):
                               
Common stock options and restricted stock units
   
4,189
     
4,713
     
3,929
     
4,757
 
Common stock warrants
   
--
     
250
     
11
     
247
 
Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share
   
125,712
     
124,584
     
125,435
     
122,539
 
                                 
Basic earnings per share
 
$
0.40
   
$
0.29
   
$
0.73
   
$
0.54
 
Diluted earnings per share
 
$
0.39
   
$
0.28
   
$
0.71
   
$
0.52
 


NOTE 13: RESTRUCTURING CHARGES:

Restructuring expenses for the three and six months ended June 27, 2008 and June 29, 2007 were as follows:
 
     
Three Months Ended
     
Six Months Ended
 
     
June 27,
     
June 29,
     
June 27,
&#