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TMCNet:  TRIMBLE NAVIGATION LTD /CA/ - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

[February 25, 2013]

TRIMBLE NAVIGATION LTD /CA/ - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations

(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed under "Risks Factors." We have attempted to identify forward-looking statements in this report by placing an asterisk (*) before paragraphs containing such material.



EXECUTIVE LEVEL OVERVIEW Trimble's focus is on integrating its broad technological and application capabilities to create system-level solutions that transform how work is done within the industries we serve, enhancing productivity, accuracy, safety and regulatory compliance for our customers. The majority of our markets are end-user markets, including engineering and construction firms, surveyors, farmers, governmental organizations, energy and utility companies and organizations who must manage fleets of mobile workers and assets. We also provide components to original equipment manufacturers to incorporate into their products. In the end user markets, we provide stand-alone systems which may consist of software, hardware or some combination of the two, as well as integrated enterprise or workflow solutions which address the entire work process. Some examples of our solutions include products that automate and simplify the process of surveying land, products that automate the control, management and utilization of equipment such as tractors and bulldozers, products for engineering or building design, construction and operations management, products that enable a company to manage its mobile workforce and assets, and products that allow municipalities or utilities to manage their fixed assets and operations. To achieve distribution, marketing, production, and technology advantages in our targeted markets, we manage our operations in the following four segments: Engineering and Construction, Field Solutions, Mobile Solutions, and Advanced Devices.

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

We continue to execute our strategy with a series of actions across new and existing markets: Reinforcing our position in new and existing markets We believe many of our markets continue to be underpenetrated and provide us with additional, substantial potential for substituting our technology for traditional methods. We continue to utilize the strength of the Trimble brand in our markets to expand our revenue by bringing new products to both new and existing users.

In our Engineering and Construction segment, during the year we acquired SketchUp, one of the most popular 3D modeling tools in the world which allows modelers worldwide, across a wide range of industries, to express design concepts easily, accurately and efficiently. Subsequently, we were able to extend our BIM-to-Field Capabilities for building contractors by launching the first integration of SketchUp file import capabilities into the Trimble Field Link layout software. Trimble Field Link 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 demonstrated our leadership in technology innovation by introducing the Trimble R10 GNSS system, which is our next generation state-of-the-art GNSS surveying solution. It is the smallest and lightest receiver in its class yet combines powerful features and groundbreaking technologies.

In our Field Solutions segment, the Agriculture division introduced four new innovations designed to assist growers with planting and spreading operations-Vehicle Sync, seed monitoring capability, application management of up to two variable rate products and spinner speed control. These innovations enable enhanced grower efficiency by increasing the quality of seed placement and providing real-time wireless communication between vehicles in the field.

Furthermore, we launched the Connected Farm application for smartphone platforms which 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.

In our Mobile Solutions segment, our acquisition of trucking industry enterprise software TMW Systems will further expand our transportation and logistics reach.

TMW's software capability spans the entire surface transportation lifecycle, delivering visibility, control and decision support for the intricate relationships and complex processes involved in the movement of freight. TMW's enterprise software currently integrates with Trimble's T&L solutions on many fleets and when combined will jointly serve more than 3,000 fleets around the world.

29-------------------------------------------------------------------------------- Table of Contents In our Advanced Devices segment, we introduced our next-generation UHF RFID reader module which is designed to be embedded into a wide variety of handheld, portable and stationary devices. The exceptionally small size and powerful performance of the Mercury6e-Micro yields increased efficiency, reduced development costs and time-to-market advantages for RFID applications.

Bringing existing technology to new geographic markets We continue to position ourselves in newer geographic markets that will serve as important sources of future growth. In our Engineering and Construction segment, we further expanded our network of SITECH Technology Dealers during the year by adding new dealerships to serve geographic markets such as Bahrain, Kuwait, Qatar, United Arab Emirates, Tunisia and Siberia. We also expanded coverage of our satellite-delivered Trimble RTX technology to most of the world. This technology enables the Trimble xFill service, a new technique in surveying that allows surveyors to continue working in the event the primary correction stream is not available. In our Field Solutions segment, our high-accuracy CenterPoint RTX correction service is also now available worldwide for agriculture customers. This GPS and GLONASS-enabled correction service is delivered via cellular communications and is currently certified for use in 38 countries on 5 continents. In our Mobile Solutions segment, we announced that Holcim Services (South Asia) Limited, a unit of Holcim Group, one of the largest global cement manufacturers, will deploy the Trimble trako Fleet Management and Visual Cargo solutions in their outbound logistics fleet that transports cement to various destinations across India.

Our acquisition of Plancal Corporation (headquartered in Horgen, Switzerland), a leading 3D CAD/CAE and ERP software provider for the mechanical, electrical, and plumbing (MEP) and HVAC industries also helps to broaden our industry-leading BIM to Field solutions for MEP and HVAC contractors in Western Europe.

We also continue to focus on expansion initiatives in Africa, China, India, the Middle-East, Russia, South America and South East Asia.

Recent Development On February 11, 2013, our Board of Directors approved a 2-for-1 split of all outstanding shares of our common stock. Each shareholder of record of our common stock on the close of business on March 6, 2013 will be entitled to receive one additional share of common stock for every outstanding share held on the record date. The distribution of the new shares will occur on March 20, 2013 and trading will begin on a split-adjusted basis on March 21, 2013. All shares and per share information presented herein does not reflect the upcoming stock split.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our accounting policies are more fully described in Note 2 of the Notes to the Consolidated Financial Statements. The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements. We consider the accounting polices described below to be our critical accounting policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.

Revenue Recognition We recognize product revenue when persuasive evidence of an arrangement exists, shipment has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product is specified by the customer or is uncertain, revenue is deferred until all acceptance criteria have been met.

Contracts and/or customer purchase orders are used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analyses, as well as the customer's payment history.

Revenue for orders is generally not recognized until the product is shipped and title has transferred to the buyer. We bear all costs and risks of loss or damage to the goods up to that point. Our shipment terms for U.S. orders and international orders fulfilled from our European distribution center typically provide that title passes to the buyer upon delivery of the goods to the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, delivery is deemed to occur when the carrier takes the goods into its charge from the place determined by us. Other shipment terms may provide that title passes to the buyer upon delivery of the goods to the buyer. Shipping and handling costs are included in Cost of sales.

30-------------------------------------------------------------------------------- Table of Contents Revenue from sales to distributors and resellers is recognized upon shipment, assuming all other criteria for revenue recognition have been met. Distributors and resellers do not have a right of return.

Revenue from purchased extended warranty and post contract support (PCS) agreements is deferred and recognized ratably over the term of the warranty or support period.

We present revenue net of sales taxes and any similar assessments.

Our software arrangements generally consist of a perpetual license fee and PCS.

We generally have established vendor-specific objective evidence (VSOE) of fair value for our PCS contracts based on the renewal rate. The remaining value of the software arrangement is allocated to the license fee using the residual method. License revenue is primarily recognized when the software has been delivered and fair value has been established for all remaining undelivered elements.

Some of our subscription product offerings include hardware, subscription services and extended warranty. Under these hosted arrangements, the customer typically does not have the contractual right to take possession of the software at any time during the hosting period without incurring a significant penalty and it is not feasible for the customer to run the software either on its own hardware or on a third-party's hardware. Upfront fees related to our hosted solutions typically consist of amounts for the in-vehicle enabling hardware device and peripherals.

Our multiple deliverable product offerings include hardware with embedded firmware, extended warranty, software, PCS services and subscription services, which are considered separate units of accounting. For certain of our products, software and non-software components function together to deliver the tangible product's essential functionality.

In evaluating the revenue recognition for our hardware or subscription agreements which contain multiple deliverable arrangements, we determined that in certain instances we were not able to establish VSOE for some or all deliverables in an arrangement as we infrequently sold each element on a standalone basis, did not price products within a narrow range, or had a limited sales history. When VSOE cannot be established, we attempt to establish the selling price of each element based on relevant third-party evidence (TPE). TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of competitors, and offerings may contain a significant level of proprietary technology, customization or differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products' selling prices are on a stand-alone basis. Therefore, we typically are not able to establish the selling price of an element based on TPE.

When we are unable to establish selling price using VSOE or TPE, we use our best estimate of selling price (BESP) in our allocation of arrangement consideration.

The objective of BESP is to determine the price at which we would transact a sale if the product or service were sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. We determine BESP for a product or service by considering multiple factors including, but not limited to, pricing practices, market conditions, competitive landscape, internal costs, geographies and gross margin. The determination of BESP is made through consultation with and formal approval by our management, taking into consideration our go-to-market strategy.

Allowance for Doubtful Accounts Our accounts receivable balance, net of allowance for doubtful accounts and sales returns reserve, was $323.5 million at the end of fiscal 2012, as compared with $275.2 million at the end of fiscal 2011. The allowance for doubtful accounts was $6.3 million and $6.7 million at the end of fiscal 2012 and 2011, respectively. We evaluate ongoing collectibility of our trade accounts receivable based on a number of factors such as age of the accounts receivable balances, credit quality, historical experience, and current economic conditions that may affect a customer's ability to pay. In circumstances where we are aware of a specific customer's inability to meet its financial obligations to us, a specific allowance for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.

Inventory Valuation Our inventories, net balance was $240.5 million at the end of fiscal 2012 as compared with $232.1 million at the end of fiscal 2011. Our inventory allowances at the end of fiscal 2012 were $40.3 million, as compared with $37.6 million at the end of fiscal 2011. Our inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market.

Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, or obsolescence balances. Factors influencing these adjustments include decline in demand, technological changes, product life cycle 31-------------------------------------------------------------------------------- Table of Contents and development plans, component cost trends, product pricing, physical deterioration and quality issues. If actual factors are less favorable than those projected by us, additional inventory write-downs may be required.

Income Taxes Income taxes are accounted for under the liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized.

Relative to uncertain tax positions, we only recognize the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

Our valuation allowance is primarily attributable to net operating losses and research and development credit carryforwards. Management believes that it is more likely than not that we will not realize these deferred tax assets, and, accordingly, a valuation allowance has been provided for such amounts. Valuation allowance adjustments associated with an acquisition after the measurement period are recorded through income tax expense.

Goodwill and Purchased Intangible Assets Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets acquired individually, with a group of other assets, or in a business combination, are recorded at fair value. Identifiable intangible assets are comprised of distribution channels and distribution rights, patents, licenses, technology, acquired backlog, trademarks, and in-process research and development. The fair value of intangible assets acquired is generally determined based on a discounted cash flow analysis.

Identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line method, reflecting the pattern of economic benefits associated with these assets, and have estimated useful lives ranging from one to ten years with a weighted average useful life of 6.5 years. Goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.

Impairment of Goodwill, Intangible Assets and Other Long-Lived Assets We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The annual goodwill impairment testing is performed in the fourth fiscal quarter of each year based on the values on the first day of that quarter. Goodwill is reviewed for impairment utilizing a two-step process.

However, the provisions of the accounting standard for goodwill and other intangibles allows us to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test.

For our annual goodwill impairment test in the fourth quarter of fiscal 2012, we performed a quantitative test for all of our reporting units. In the first step of this test, goodwill is tested for impairment at the reporting unit level by comparing the reporting unit's carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a discounted cash flow approach. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to measure the amount of impairment loss, if any. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit's goodwill, the difference is recognized as an impairment loss. When we perform a quantitative assessment of goodwill impairment, the determination of fair value of a reporting unit involves the use of significant estimates and assumptions.

The discounted cash flows are based upon, among other things, assumptions about expected future operating performance using risk-adjusted discount rates. Actual future results may differ from those estimates. As of the first day of the fourth quarter of fiscal 2012, for each reporting unit, our estimated fair values exceeded the carrying value by substantial margins on a percentage basis.

However for certain earlier stage reporting units, due to the smaller magnitude of the carrying value and fair value of each respective reporting units, the margins by which the fair value exceeded the carrying value on an absolute dollar basis were relatively small.

Depreciation and amortization of the intangible assets and other long-lived assets is provided using the straight-line method over their estimated useful lives, reflecting the pattern of economic benefits associated with these assets.

Changes in circumstances such as technological advances, changes to our business model, or changes in the capital strategy could result in the actual useful lives of intangible assets or other long-lived assets differing from initial estimates. In those cases where we determine that the useful life of an asset should be revised, the net book value in excess of the estimated residual value will be depreciated over its revised remaining useful life. These assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable based on their future cash flows. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash 32-------------------------------------------------------------------------------- Table of Contents flows. The assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value.

Warranty Costs The liability for product warranties was $17.1 million at the end of fiscal 2012, as compared with $18.4 million at the end of fiscal 2011. We accrue for warranty costs as part of cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on our behalf. Our expected future cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. The products sold are generally covered by a warranty for periods ranging from 90 days to 5.5 years.

While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our 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 our estimates, revisions to the estimated warranty accrual and related costs may be required.

Stock-Based Compensation We recognize compensation expense for all share-based payment awards made to our employees and directors based on estimated fair values. The grant date fair value for options is estimated using a binomial valuation model. The fair value of rights to purchase shares under our employee stock purchase plan is estimated using the Black-Scholes option-pricing model.

The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, and expected dividends. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option's contractual term.

We base the expected stock price volatility for stock purchase rights on implied volatilities of traded options on our stock and our expected stock price volatility for stock options is based on a combination of our historical stock price volatility for the period commensurate with the expected life of the stock option and the implied volatility of traded options. The use of implied volatilities is based upon the availability of actively traded options on our stock with terms similar to our awards and also upon our assessment that implied volatility is more representative of future stock price trends than historical volatility. However, because the expected life of our stock options is greater than the terms of our traded options, we use a combination of our historical stock price volatility commensurate with the expected life of our stock options and implied volatility of traded options.

We estimate the expected life of the awards based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the options and purchase rights. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the awards.

We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, our expected dividend yield is zero.

Stock-based compensation expense recognized in the Consolidated Statement of Income for fiscal 2012, 2011 and 2010 is based on awards ultimately expected to vest, and has been reduced for estimated forfeitures. The stock-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.

If factors change and we employ different assumptions to determine the fair value of our share-based payment awards granted in future periods, the compensation expense that we record under it may differ significantly from what we have recorded in the current period. In addition, valuation models, including the Black-Scholes and binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination, or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, values may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.

See Note 2 and Note 12 to the Consolidated Financial Statements for additional information.

33-------------------------------------------------------------------------------- Table of Contents 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.

Fiscal Years 2012 2011 2010 (Dollars in thousands) Revenues: Product $ 1,566,975 $ 1,345,876 $ 1,090,420 Service 262,889 159,095 109,185 Subscription 210,249 139,094 94,332 Total revenue $ 2,040,113 $ 1,644,065 $ 1,293,937 Gross margin 1,046,177 829,581 645,501 Gross margin % 51.3 % 50.5 % 49.9 % Total consolidated operating income 212,568 156,402 127,602 Operating income % 10.4 % 9.5 % 9.9 % Basis of Presentation We have a 52-53 week fiscal year, ending on the Friday nearest to December 31, which for fiscal 2012 was December 28, 2012. Fiscal 2012, 2011, and 2010 were all 52-week years.

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 fiscal 2012, total revenue increased by $396.0 million, or 24%, to $2.04 billion from $1.64 billion in fiscal 2011. Of this increase, product revenue increased $221.1 million, or 16%, service revenue increased $103.8 million, or 65%, and subscription revenue increased $71.2 million, or 51%. The product and service revenue increase in fiscal 2012 as compared to fiscal 2011 was driven by organic growth and acquisitions not applicable in the prior periods including Tekla and PeopleNet which were both acquired in the third quarter of 2011.

Subscription revenue increased primarily due to organic growth and PeopleNet.

On a segment basis, the increase in fiscal 2012 was primarily due to stronger results from the Engineering and Construction, Field Solutions and Mobile Solutions segments. Engineering and Construction revenue increased $182.9 million, or 20%, Field Solutions increased $68.2 million, or 16%, Mobile Solutions increased $129.6 million, or 59%, and Advanced Devices increased $15.3 million, or 15%, as compared to fiscal 2011. Revenue growth within Engineering and Construction was driven by growth from all main product categories, particularly sales of heavy and highway and vertical construction solutions, as well as the impact of acquisitions. Field Solutions revenue increased primarily due to continued strength in the Agriculture market driven by continued strength in commodity prices and farmer income and to a lesser extent, a full year of revenue from Tekla. Mobile Solutions revenue increased primarily due to PeopleNet's continued organic growth as well as the incremental impact of the PeopleNet acquisition itself, which closed in the third quarter of fiscal 2011.

To a lesser extent, the fourth quarter 2012 TMW acquisition also had an impact on Mobile Solutions revenue growth. Advanced Devices revenue increased primarily due to unusually stronger sales of timing devices related to cellular infrastructure build-outs and to a lesser extent, stronger sales of embedded devices.

In fiscal 2011, total revenue increased by $350.1 million, or 27%, to $1.64 billion from $1.29 billion in fiscal 2010. Of this increase, product revenue increased $255.5 million, or 23%, service revenue increased $49.9 million, or 46%, and subscription revenue increased $44.8 million, or 47%. The product and service revenue increase in fiscal 2011 as compared to fiscal 2010 was driven by organic growth and acquisitions not applicable in the prior periods including Tekla and PeopleNet which were both acquired in the third quarter of 2011.

Subscription revenue increased primarily due to organic growth and PeopleNet.

On a segment basis, the increase in fiscal 2011 was primarily due to stronger results from the Engineering and Construction and Field Solutions segments.

Engineering and Construction revenue increased $187.4 million, or 26%, Field Solutions increased $95.6 million, or 30%, Mobile Solutions increased $64.3 million, or 41%, and Advanced Devices increased $2.8 million, or 3%, as compared to fiscal 2010. Revenue growth within Engineering and Construction was driven by strong organic growth due to expanded distribution, improved end user markets and acquisitions, including Tekla. Sales were strong in the U.S. and Europe for heavy and highway and survey products. Additionally, Field Solutions revenue increased primarily due to the increased demand 34-------------------------------------------------------------------------------- Table of Contents for agricultural products as relatively high commodity prices led to good farmer income and spending. Mobile Solutions revenue increased primarily due to the PeopleNet acquisition and growth within the existing business, partially offset by the loss of a large customer in the second quarter of 2010.

* During fiscal 2012, sales to customers in the United States represented 47%, Europe represented 22%, Asia Pacific represented 16% and other regions represented 15% of our total revenue. During fiscal 2011, sales to customers in the United States represented 45%, Europe represented 24%, Asia Pacific represented 15%, and other regions represented 16% of our total revenue. During the 2010 fiscal year, sales to customers in the United States represented 46%, Europe represented 22%, Asia Pacific represented 18%, and other regions represented 14% of our total revenue. We anticipate that sales to international customers will continue to account for a significant portion of our revenue.

* No single customer accounted for 10% or more of our total revenue in fiscal 2012, 2011 and 2010. It is possible, however, that in future periods the failure of one or more large customers to purchase products in quantities anticipated by us may adversely affect the results of operations.

Gross Margin Our gross margin varies due to a number of factors including product mix, pricing, distribution channel, production volumes, new product start-up costs, and foreign currency translations.

In fiscal 2012, our gross margin increased by $216.6 million as compared to fiscal 2011 primarily due to the increase in total revenue. Gross margin as a percentage of total revenue was 51.3% in fiscal 2012 and 50.5% in fiscal 2011.

The increase in the gross margin percentage was due to improved product mix in Engineering and Construction, Field Solutions and Mobile Solutions, particularly software, software maintenance and subscription revenue which was partially offset by higher amortization of purchased intangibles.

In fiscal 2011, our gross margin increased by $184.1 million as compared to fiscal 2010 primarily due to the increase in total revenue. Gross margin as a percentage of total revenue was 50.5% in fiscal 2011 and 49.9% in fiscal 2010.

The increase in gross margin percentage 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 intangibles.

* Because of potential product mix changes within and among the industry markets, market pressures on unit selling prices, fluctuations in unit manufacturing costs, including increases in component prices and other factors, current level gross margin cannot be assured in the future.

Operating Income Operating income increased by $56.2 million for fiscal 2012 as compared to fiscal 2011. Operating income as a percentage of total revenue for fiscal 2012 was 10.4% as compared to 9.5% for fiscal 2011. The increase in operating income and operating income percentage was primarily driven by higher revenue and associated gross margin, partially offset by higher amortization of purchased intangibles due to acquisitions.

Operating income increased by $28.8 million for fiscal 2011 as compared to fiscal 2010. Operating income as a percentage of total revenue for fiscal 2011 was 9.5% as compared to 9.9% for fiscal 2010. The increase in operating income was primarily driven by higher revenue and associated gross margin. The decrease in operating income percentage was primarily due to higher amortization of purchased intangibles due to acquisitions.

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, acquisition costs, and restructuring charges.

The following table is a breakdown of revenue and operating income by segment for the periods indicated and should be read in conjunction with the narrative descriptions below.

35-------------------------------------------------------------------------------- Table of Contents Fiscal Years 2012 2011 2010 (Dollars in thousands) Engineering and Construction Revenue 1,089,424 906,497 719,053 Segment revenue as a percent of total revenue 53 % 55 % 55 % Operating income 207,174 149,015 110,965 Operating income as a percent of segment revenue 19 % 16 % 15 % Field Solutions Revenue 481,962 413,721 318,137 Segment revenue as a percent of total revenue 24 % 25 % 25 % Operating income 182,134 160,139 116,373 Operating income as a percent of segment revenue 38 % 39 % 37 % Mobile Solutions Revenue 348,147 218,540 154,254 Segment revenue as a percent of total revenue 17 % 13 % 12 % Operating income 32,459 4,461 1,873 Operating income as a percent of segment revenue 9 % 2 % 1 % Advanced Devices Revenue 120,580 105,307 102,493 Segment revenue as a percent of total revenue 6 % 7 % 8 % Operating income 19,166 13,891 18,325 Operating income as a percent of segment revenue 16 % 13 % 18 % A reconciliation of our consolidated segment operating income to consolidated income before income taxes follows: Fiscal Years 2012 2011 2010 (in thousands) Consolidated segment operating income $ 440,933 $ 327,506 $ 247,536 Unallocated corporate expense (80,996 ) (70,310 ) (55,758 ) Acquisition costs (21,662 ) (14,892 ) (6,537 ) Amortization of purchased intangible assets (125,707 ) (85,902 ) (57,639 ) Consolidated operating income 212,568 156,402 127,602 Non-operating income, net 16,856 11,052 13,485 Consolidated income before taxes $ 229,424 $ 167,454 $ 141,087 Unallocated corporate expense includes general corporate expense, amortization of inventory step-up, and restructuring cost.

Engineering and Construction Engineering and Construction revenue increased by $182.9 million, or 20%, while segment operating income increased by $58.2 million, or 39.0%, for fiscal 2012 as compared to fiscal 2011. The revenue growth was primarily driven by organic growth due to increased sales of heavy and highway and vertical construction products and acquisitions not applicable in the prior periods, including Tekla which was acquired at 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 due to greater software sales and increased operating leverage. The foreign exchange impact was immaterial to operating income.

Engineering and Construction revenue increased by $187.4 million, or 26%, while segment operating income increased by $38.1 million, or 34.3%, for fiscal 2011 as compared to fiscal 2010. The revenue growth was primarily driven by strong organic growth due to expanded distribution and improved end user markets and acquisitions, including Tekla. Sales were strong in the U.S. and Europe for heavy and highway and survey products. Although residential and commercial construction was flat in the U.S. and most parts of Europe, and China sales slowed, products sales associated with infrastructure build out were strong.

Operating income increased primarily due to higher revenue, higher gross margin, and increased operating leverage.

36-------------------------------------------------------------------------------- Table of Contents Field Solutions Field Solutions revenue increased by $68.2 million, or 16%, while segment operating income increased by $22.0 million, or 13.7%, for fiscal year 2012 as compared to fiscal 2011. There was growth in all major regions in our Agriculture markets due to market penetration as a result of demand for new information and flow control products and increased sales presence and to a lesser extent, Tekla. Segment operating income increased primarily due to higher revenue and associated higher gross margin.

Field Solutions revenue increased by $95.6 million, or 30%, while segment operating income increased by $43.8 million, or 37.6%, for fiscal year 2011 as compared to fiscal 2010. The revenue growth was primarily due to higher sales across the world for our agricultural products as relatively high commodity prices increased farmer income and spending. Sales for agricultural products were robust across the Americas, Europe, and Asia Pacific regions. Additionally, GIS contributed to strong Field Solutions revenue due to the new product introductions and the Tekla acquisition. Operating income increased primarily due to higher revenue, higher gross margin, and increased operating leverage.

Mobile Solutions Mobile Solutions revenue increased by $129.6 million, or 59%, while segment operating income increased by $28.0 million, or 627.6%, for fiscal 2012 as compared to fiscal 2011. The revenue increase was primarily due to PeopleNet's continued organic growth as well as acquisition-related growth from a partial period of PeopleNet results in fiscal 2011. Operating income increased due to primarily higher subscription revenue with contributions from PeopleNet as well as field service management gross margin expansion and operating leverage.

Mobile Solutions revenue increased by $64.3 million, or 41%, while segment operating income increased by $2.6 million, or 138.2%, for fiscal 2011 as compared to fiscal 2010. The revenue increase was primarily due to acquisitions, including PeopleNet, and growth within the existing business, partially offset by a loss of a large customer in the second quarter of fiscal 2010. Operating income increased primarily due to the PeopleNet acquisition and organic growth.

Advanced Devices Advanced Devices revenue increased by $15.3 million, or 15%, and segment operating income increased by $5.3 million, or 38.0%, for fiscal 2012 as compared to fiscal 2011. The increase in revenue and operating income was primarily driven by unusually stronger sales of timing devices related to infrastructure build-outs for cellular networks and to a lesser extent, stronger sales of embedded devices.

Advanced Devices revenue increased by $2.8 million, or 3%, and segment operating income decreased by $4.4 million, or 24.2%, for fiscal 2011 as compared to fiscal 2010. The increase in revenue was driven by new product introductions within Applanix and acquisition revenue, partially offset by a reduction in demand for GPS-based timing and synchronization devices. The decrease in operating income was primarily driven by product mix and acquisitions.

Research and Development, Sales and Marketing, and General and Administrative Expenses The following table shows research and development ("R&D"), sales and marketing, and general and administrative ("G&A") expenses in absolute dollars and as a percentage of total revenue for fiscal years 2012, 2011 and 2010 and should be read in conjunction with the narrative descriptions of those operating expenses below.

Fiscal Years 2012 2011 2010(Dollars in thousands) Research and development $ 256,458 $ 197,007 $ 150,089 Percentage of revenue 13 % 12 % 11 % Sales and marketing 313,692 266,804 215,127 Percentage of revenue 15 % 16 % 17 % General and administrative 195,802 158,375 118,352 Percentage of revenue 10 % 10 % 9 % Total $ 765,952 $ 622,186 $ 483,568 Percentage of revenue 38 % 38 % 37 % Overall, R&D, sales and marketing, and G&A expenses increased by approximately $143.8 million in fiscal 2012 compared to fiscal 2011.

37-------------------------------------------------------------------------------- Table of Contents Research and development expense increased by $59.5 million in fiscal 2012, as compared to fiscal 2011. Substantially all of our R&D costs have been expensed as incurred. Overall research and development spending was approximately 13% of revenue in fiscal 2012 and 12% in fiscal 2011. The increase in R&D expense in fiscal 2012, as compared to fiscal 2011 was primarily due to the inclusion of expense of $39.4 million from acquisitions not applicable in fiscal 2011, a $3.2 million increase in engineering costs associated with new product roll-outs, a $12.6 million increase in compensation related expense, and a $8.7 million increase in other expense, partially offset by a $4.4 million decrease due to favorable foreign currency exchange rates.

Research and development expense increased by $46.9 million in fiscal 2011, as compared to fiscal 2010. Overall research and development spending was approximately 12% of revenue in fiscal 2011 and 11% in fiscal 2010. The increase in R&D expense in fiscal 2011, as compared to fiscal 2010 was primarily due to the inclusion of expense of $27.8 million from acquisitions not applicable in fiscal 2010, a $8.0 million increase in engineering costs associated with new product roll-outs, a $4.9 million increase in compensation related expense, a $3.6 million increase due to unfavorable foreign currency exchange rates, and a $2.6 million increase in other expenses.

* We believe that the development and introduction of new products are critical to our future success and we expect to continue active development of new products.

Sales and marketing expense increased by $46.9 million in fiscal 2012 as compared to fiscal 2011. Spending overall was approximately 15% of revenue in fiscal 2012 compared to 16% in fiscal 2011. The increase in sales and marketing expense in fiscal 2012, as compared to fiscal 2011 was primarily due to the inclusion of expense of $34.5 million from acquisitions not applicable in the prior period, a $12.8 million increase in compensation related expense and a $5.3 million increase in other expense, including a bi-annual trade show, partially offset by a $5.7 million decrease due to favorable foreign currency exchange rates.

Sales and marketing expense increased by $51.7 million in fiscal 2011 as compared to fiscal 2010. Spending overall was approximately 16% of revenue in fiscal 2011 compared to 17% in fiscal 2010. The increase in sales and marketing expense in fiscal 2011, as compared to fiscal 2010 was primarily due to the inclusion of expense of $35.9 million from acquisitions not applicable in fiscal 2010, a $12.0 million increase in compensation related expense, a $4.5 million increase due to unfavorable foreign currency exchange rates, partially offset by a $0.7 million decrease in other expenses.

* Our future growth will depend in part on the timely development and continued viability of the markets in which we currently compete as well as our ability to continue to identify and develop new markets for our products.

General and administrative expense increased by $37.4 million in fiscal 2012 compared to fiscal 2011. Spending overall was at approximately 10% of revenue in both fiscal 2012 and 2011. The increase in general and administrative expense in fiscal 2012, as compared to fiscal 2011 was primarily due the inclusion of expense of $17.5 million from acquisitions not applicable in the prior year, a $6.8 million increase in non-recurring acquisition related costs, an $11.9 million increase in compensation related expense, a $4.8 million increase in tax, legal and consulting expense, partially offset by a $2.1 million decrease due to favorable foreign currency exchange rates and a $0.2 million decrease in other expense.

General and administrative expense increased by $40.0 million in fiscal 2011 compared to fiscal 2010. Spending overall was at approximately 10% of revenue in fiscal 2011 compared to 9% in fiscal 2010. The increase in general and administrative expense in fiscal 2011, as compared to fiscal 2011 was primarily due to the inclusion of expense of $19.3 million from acquisitions not applicable in fiscal 2010, an $8.4 million increase in non-recurring acquisition related costs, a $4.0 million increase in tax, legal and consulting expense, a $1.9 million increase in compensation related expense, a $1.5 million increase due to unfavorable foreign currency exchange rates, a $1.3 million increase in travel expense, and a $3.5 million increase in other expenses.

Other Operating Expenses Amortization of Purchased and Other Intangible Assets Fiscal Years 2012 2011 2010 (in thousands) Cost of sales $ 60,277 $ 37,197 $ 24,900 Operating expenses 65,430 48,705 32,739 Total $ 125,707 $ 85,902 $ 57,639 Total amortization expense of purchased and other intangible assets was $125.7 million in fiscal 2012, of which $60.3 million was recorded in Cost of sales and $65.4 million was recorded in Operating expenses. Total amortization expense of purchased and other intangibles represented 6.2% of revenue in fiscal 2012, an increase of $39.8 million from fiscal 2011 when it represented 5.2% of revenue.

The increase was primarily due to the Tekla, PeopleNet and SketchUp acquisitions and to a lesser extent, other 38-------------------------------------------------------------------------------- Table of Contents acquisitions made in fiscal 2012, as well as fiscal 2011 acquisition intangibles that included a full year impact of amortization expense in fiscal 2012.

Total amortization expense of purchased and other intangible assets was $85.2 million in fiscal 2011, of which $36.5 million was recorded in Cost of sales and $48.7 million was recorded in Operating expenses. Total amortization expense of purchased and other intangibles represented 5.2% of revenue in fiscal 2011, an increase of $27.5 million from fiscal 2010 when it represented 4.5% of revenue.

The increase was primarily due to the Tekla and PeopleNet acquisitions and to a lesser extent, other acquisitions made in fiscal 2011, as well as fiscal 2010 acquisition intangibles that included a full year impact of amortization expense in fiscal 2011.

Non-operating Income, Net The following table shows non-operating income, net for the periods indicated and should be read in conjunction with the narrative descriptions below: Fiscal Years 2012 2011 2010 (in thousands) Interest expense, net $ (16,357 ) $ (7,277 ) $ (669 ) Foreign currency transaction gain (loss), net (2,526 ) 1,053 (836 ) Income from equity method investments, net 24,727 15,349 11,795 Other income, net 11,012 1,927 3,195 Total non-operating income, net $ 16,856 $ 11,052 $ 13,485 Total non-operating income, net increased by $5.8 million during fiscal 2012 compared with fiscal 2011. The increase was primarily due to the impact of higher income from equity method investments, namely joint ventures, and a gain on the sale of an investment included in Other income, net, partially offset by higher interest expense due to an increase in debt associated with acquisitions and the impact of foreign currency transaction fluctuations.

Total non-operating income, net decreased by $2.4 million during fiscal 2011 compared with fiscal 2010. The decrease was primarily due to an increase in interest expense due to an increase in debt associated with acquisitions, and a reduction in deferred compensation plan asset gains and losses included in Other income, net, offset by the impact of foreign currency transaction gain primarily related to foreign exchange hedges associated with two of our larger acquisitions, and the impact of higher income from equity method investments.

Income Tax Provision Our effective income tax rate for fiscal years 2012, 2011 and 2010 was 17%, 11% and 27% respectively. The 2012 rate was less than the U.S. federal statutory rate of 35% primarily due to the geographical mix of our pre-tax income. The 2011 rate was less than the U.S. federal statutory rate of 35% primarily due to the geographical mix of our pre-tax income and the inclusion of the U.S. federal R&D credit. The 2010 rate was less than the U.S. federal statutory rate of 35% primarily due to the geographical mix of our pre-tax income and valuation allowance release, offset by the net impact of the U.S. Internal Revenue Service (IRS) 2005 through 2007 audit settlement in 2010.

The federal research and development credit expired on December 31, 2011. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law.

Under this act, the federal research and development credit was retroactively extended for amounts paid or incurred after December 31, 2011 and before January 1, 2014. The effects of these changes in the tax law will result in a tax benefit which will be recognized in the first quarter of 2013, which is the quarter in which the law was enacted.

Litigation Matters * From time to time, we are involved in litigation arising out of the ordinary course of our business. There are no known claims or pending litigation that are expected to have a material effect on our overall financial position, results of operations, or liquidity.

OFF-BALANCE SHEET ARRANGEMENTS Other than lease commitments incurred in the normal course of business (see Contractual Obligations table below), we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the consolidated financial statements. Additionally, we do not have any interest in, or relationship with, any special purpose entities.

39-------------------------------------------------------------------------------- Table of Contents In the normal course of business to facilitate sales of its products, we indemnify other parties, including customers, lessors, and parties to other transactions with us, with respect to certain matters. We have agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification obligations to our agents.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements were not material and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets at the end of fiscal 2012 and 2011.

LIQUIDITY AND CAPITAL RESOURCES At the End of Fiscal Year 2012 2011 2010 (Dollars in thousands) Cash and cash equivalents $ 157,771 $ 154,621 $ 220,788 As a percentage of total assets 4.5 % 5.8 % 11.8 % Total debt $ 911,158 $ 564,436 $ 153,153 Fiscal Years 2012 2011 2010 (Dollars in thousands) Cash provided by operating activities $ 340,700 $ 241,629 $ 124,030 Cash used in investing activities $ (764,286 ) $ (773,565 ) $ (156,374 ) Cash provided by (used in) financing activities $ 426,407 $ 464,167 $ (20,164 ) Effect of exchange rate changes on cash and cash equivalents $ 329 $ 1,602 $ (552 ) Net increase (decrease) in cash and cash equivalents $ 3,150 $ (66,167 ) $ (53,060 ) Cash and Cash Equivalents At the end of fiscal 2012, cash and cash equivalents totaled $157.8 million compared to $154.6 million at the end of fiscal 2011. We had debt of $911.2 million at the end of fiscal 2012 compared to $564.4 million at the end of fiscal 2011.

* Our ability to continue to generate cash from operations will depend in large part on profitability, the rate of collections of accounts receivable, our inventory turns and our ability to manage other areas of working capital.

*We believe that our cash and cash equivalents, together with borrowings under our 2012 Credit Facility as described below under the heading "Debt", will be sufficient to meet our anticipated operating cash needs, debt service, planned capital expenditures, and stock purchases under the stock repurchase program for at least the next twelve months.

* We anticipate that planned capital expenditures primarily for the building of a facility in Westminster, Colorado which began in 2012 and an upgrade of our Oracle ERP system, as well as computer equipment, software, manufacturing tools and test equipment and leasehold improvements associated with business expansion, will constitute a partial use of our cash resources. Decisions related to how much cash is used for investing are influenced by the expected amount of cash to be provided by operations.

Operating Activities Cash provided by operating activities was $340.7 million for fiscal 2012, as compared to $241.6 million for fiscal 2011. The increase of $99.1 million was due to an increase in net income before non-cash depreciation and amortization, primarily attributable to Engineering and Construction, Field Solutions and Mobile Solutions segments' increased revenue, and to a lesser extent, a decrease in working capital requirements due to higher accounts payable due to the timing of purchases.

Cash provided by operating activities was $241.6 million for fiscal 2011, as compared to $124.0 million for fiscal 2010. The increase of $117.6 million was due to an increase in net income before non-cash depreciation and amortization, primarily attributable to Engineering and Construction and Field Solutions segments' increased revenue, offset by an increase in accounts receivable due to higher revenue from Engineering and Construction and Field Solutions segments.

Additionally, fiscal 2010 included the payment of income taxes payable associated with the IRS tax settlement which is not applicable in fiscal 2011.

Investing Activities 40-------------------------------------------------------------------------------- Table of Contents Cash used in investing activities was $764.3 million for fiscal 2012, as compared to $773.6 million for fiscal 2011, primarily due to cash used for business and intangible asset acquisitions. Fiscal 2012 acquisitions included TMW, SketchUp, and other acquisitions. Fiscal 2011 acquisitions included Tekla, PeopleNet and other acquisitions.

Cash used in investing activities was $773.6 million for fiscal 2011, as compared to $156.4 million for fiscal 2010. The increase of $617.2 million was primarily due to higher cash used for business and intangible asset acquisitions in fiscal 2011, with the largest cash requirement due to the Tekla acquisition.

Financing Activities Cash provided by financing activities was $426.4 million for fiscal 2012, as compared to $464.2 million during fiscal 2011. The decrease of $37.8 million was primarily due to a decrease in debt proceeds, net of repayments, primarily used for acquisitions, slightly offset by an increase in proceeds received from the issuance of common stock related to stock option exercises.

Cash provided by financing activities was $464.2 million for fiscal 2011, as compared to cash used of $20.2 million during fiscal 2010. The increase of $484.3 million was primarily due to an increase in debt proceeds, net of repayments, primarily used for acquisitions, partially offset by the repurchase of common stock during fiscal 2010 which was not applicable in 2011.

Accounts Receivable and Inventory Metrics At the End of Fiscal Year 2012 2011 Accounts receivable days sales outstanding 57 58 Inventory turns per year 4.1 3.8 Accounts receivable days sales outstanding were down at 57 days at the end of fiscal 2012, as compared to 58 days at the end of fiscal 2011. Our accounts receivable days sales outstanding are calculated based on ending accounts receivable, net, divided by revenue for the fourth fiscal quarter, times a quarterly average of 91 days. Our inventory turns were 4.1 at the end of fiscal 2012, as compared to 3.8 at the end of fiscal 2011. Our inventory turnover is based on the total cost of sales for the fiscal period over the average inventory for the corresponding fiscal period.

Repatriation of Foreign Earnings and Income Taxes A significant portion of our foreign earnings continue to be permanently reinvested in our foreign subsidiaries, and it is anticipated this reinvestment will not impede cash needs at the parent company level. In our determination of which foreign earnings are permanently reinvested, we consider numerous factors, including the financial requirements of the U.S. parent company, the financial requirements of the foreign subsidiaries, and the tax consequences of remitting the foreign earnings back to the U.S. There are no other material impediments to our ability to access sources of liquidity and our resulting ability to meet short and long-term liquidity needs, other than in the event we are not in compliance with the covenants under our 2012 Credit Facility or the tax costs of remitting foreign earnings back to the U.S.

Debt On November 21, 2012, we entered into an amended and restated credit agreement with a group of lenders (the "2012 Credit Facility"). This credit facility provides for unsecured credit facilities in the aggregate principal amount of $1.4 billion, comprised of a five-year revolving loan facility of $700.0 million and a five-year $700.0 million term loan facility. Subject to the terms of the 2012 Credit Facility, the revolving loan facility may be increased, and/or additional term loan commitments may be established, in an aggregate principal amount up to $300.0 million. Additionally, the Company has a $75 million uncommitted revolving loan facility (the "2011 Uncommitted Facility"), which is callable by the bank at any time and has no covenants. The interest rate on the 2011 Uncommitted Facility is 1.00% plus either LIBOR or the bank's cost of funds or as otherwise agreed upon by the bank and us.

At the end of fiscal 2012, our total debt was comprised primarily of a term loan of $700.0 million and a revolving credit line of $208.0 million under the 2012 Credit Facility. Of the total outstanding balance, $665.0 million of the term loan and the $208.0 million revolving credit line are classified as long-term in the Consolidated Balance Sheet. For additional discussion of our debt, see Note 7 of Notes to the Consolidated Financial Statements.

The funds available under the 2012 Credit Facility may be used for general corporate purposes, the financing of certain acquisitions and the payment of transaction fees and expenses related to such acquisitions. Under the 2012 Credit Facility, we may borrow, repay and reborrow funds under the revolving loan facility until its maturity on November 21, 2017, at which time the revolving facility will terminate, and all outstanding loans, together with all accrued and unpaid interest, must be repaid. Amounts not 41-------------------------------------------------------------------------------- Table of Contents borrowed under the revolving facility will be subject to a commitment fee, to be paid in arrears on the last day of each fiscal quarter, ranging from 0.15% to 0.35% per annum depending on our leverage ratio as of the most recently ended fiscal quarter. The term loan will be repaid in quarterly installments, with the last quarterly payment to be made at September 29, 2017, with the remaining outstanding balance being due and payable on November 21, 2017. On an annualized basis, the amortization of the term loan is as follows: 5%, 5%, 10%, 10%, and 70% for years one through five respectively. The term loan may be prepaid in whole or in part, subject to certain minimum thresholds, without penalty or premium. Amounts repaid or prepaid with respect to the term loan facility may not be reborrowed.

We may borrow funds under the 2012 Credit Facility in U.S. Dollars, Euros or in certain other agreed currencies, and borrowings will bear interest, at our option, at either: (i) a floating per annum base rate based on the administrative agent's prime rate or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.00% and 1.00%, depending on the Company's leverage ratio as of the most recently ended fiscal quarter, or (ii) a reserve-adjusted fixed per annum rate based on LIBOR, EURIBOR, or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 1.00% and 2.00%, depending on our leverage ratio as of the most recently ended fiscal quarter. Interest will be paid on the last day of each fiscal quarter with respect to borrowings bearing interest based on a floating rate, or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at a fixed rate. Our obligations under the 2012 Credit Facility are guaranteed by several of our domestic subsidiaries.

The 2012 Credit Facility contains various customary representations and warranties by us, which include customary use of materiality, material adverse effect and knowledge qualifiers. The 2012 Credit Facility also contains customary affirmative and negative covenants including, among other requirements, negative covenants that restrict our ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions and make investments. Further, the 2012 Credit Facility contains financial covenants that require the maintenance of minimum interest coverage and maximum leverage ratios. Specifically, we must maintain as of the end of each fiscal quarter a ratio of (a) EBITDA (as defined in the 2012 Credit Facility) to (b) interest expenses for the most recently ended period of four fiscal quarters of not less than 3.5 to 1. We must also maintain, at the end of each fiscal quarter, a ratio of (x) total indebtedness to (y) EBITDA (as defined in the 2012 Credit Facility) for the most recently ended period of four fiscal quarters of not greater than the applicable ratio set forth in the table below; provided, that on the completion of a material acquisition, we may increase the applicable ratio in the table below by 0.25 for the fiscal quarter during which such acquisition occurred and each of the three subsequent fiscal quarters.

Fiscal Quarter Ending Maximum Leverage Ratio Prior to June 28, 2013 3.50 to 1 On and after June 28, 2013 and prior to September 27, 2013 3.25 to 1 On and after September 27, 2013 3 to 1 We were in compliance with these covenants at the end of fiscal 2012.

The 2012 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate our obligations under the 2012 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.

CONTRACTUAL OBLIGATIONS The following table summarizes our contractual obligations at the end of fiscal 2012: Payments Due By Period Less More than 1 1-3 3-5 than Total year years years 5 years (in thousands) Principal payments on debt (1) $ 908,000 $ 35,000 $ 105,000 $ 768,000 $ - Interest payments on debt (2) 76,674 3,433 4,582 68,659 - Operating leases 79,581 25,586 32,896 18,200 2,899 Other purchase obligations and commitments (3) 94,370 89,745 4,625 - - Total $ 1,158,625 $ 153,764 $ 147,103 $ 854,859 $ 2,899 42-------------------------------------------------------------------------------- Table of Contents (1) Amount represents principal payments over the life of the debt obligations.

(See Note 7 of the Notes to the Consolidated Financial Statements for further financial information regarding debt.) (2) Amount represents the expected interest cash payments relating to our debt.

Interest was estimated interest payments that are not recorded on our Consolidated Balance Sheets. Interest was estimated to be 1.96% per annum, based upon recent trends, and is not included in our Consolidated Balance Sheets.

(3) Other purchase obligations and commitments primarily represent open non-cancelable purchase orders for material purchases with our vendors, and also include estimated payments due for acquisition related earn-outs and holdbacks. Purchase obligations exclude agreements that are cancelable without penalty.

At the end of fiscal 2012 we had unrecognized tax benefits (included in Other non-current liabilities) of $22.3 million, including interest and penalties. At this time, we cannot make a reasonably reliable estimate of the period of cash settlement with tax authorities regarding this liability, and therefore, such amounts are not included in the contractual obligations table above.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS The impact of recent accounting pronouncements is disclosed in Note 2 of the Notes to Consolidated Financial Statements.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. The non-GAAP financial measures included in the following table are set forth below: Non-GAAP gross margin We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions and manufacturing costs influence our business. Non-GAAP gross margin excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation and amortization of acquisition-related inventory step-up from GAAP gross margin. We believe that these exclusions offer investors additional information that may be useful to view trends in our gross margin performance.

Non-GAAP operating expenses We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue. Non-GAAP operating expenses exclude restructuring costs, amortization of purchased intangible assets, stock-based compensation and acquisition costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs and acquisition bonus payments from GAAP operating expenses. We believe that these exclusions offer investors supplemental information to facilitate comparison of our operating expenses to our prior results.

Non-GAAP operating income We believe our investors benefit by understanding our non-GAAP operating income trends which are driven by revenue, gross margin, and spending. Non-GAAP operating income excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up and acquisition costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs and acquisition bonus payments. We believe that these exclusions offer an alternative means for our investors to evaluate current operating performance compared to results of other periods.

Non-GAAP non-operating income, net We believe this measure helps investors evaluate our non-operating income trends. Non-GAAP non-operating income, net excludes acquisition and divestiture gains associated with unusual acquisition related items such as an adjustment to a gain on bargain purchase (resulting from the fair value of identifiable net assets acquired exceeding the consideration transferred), adjustments to the fair value of earn-out liabilities and gains related to sale of certain businesses and investments. These gains are specific to particular acquisitions and divestitures and vary significantly in amount and timing. Non-GAAP non-operating income, net also excludes the write-off of debt issuance costs associated with a terminated or modified credit facility as well as foreign exchange (gains) losses specifically associated with hedges for two of our acquisitions. We believe that these exclusions provide investors with a supplemental view of our ongoing financial results.

Non-GAAP income tax provision 43-------------------------------------------------------------------------------- Table of Contents Investors benefit from the exclusion of an IRS settlement because it facilitates comparisons to our past income tax provisions. Non-GAAP income tax provisions exclude an IRS settlement and a valuation allowance release from GAAP income tax provision and includes non-GAAP items tax effected. Non-GAAP items tax effected adjusts the provision for income taxes to reflect the effect of certain non-GAAP items on non-GAAP net income. We believe this information is useful to investors because it provides for consistent treatment of the excluded items in our non-GAAP presentation.

Non-GAAP net income This measure provides a supplemental view of net income trends which are driven by non-GAAP income before taxes and our non-GAAP tax rate. Non-GAAP net income excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a write-off of debt issuance costs associated with a terminated or modified credit facility, foreign exchange (gains) losses from hedges associated with two acquisitions, and non-GAAP tax adjustments from GAAP net income. We believe our investors benefit from understanding these exclusions and from an alternative view of our net income performance as compared to our past net income performance.

Non-GAAP diluted net income per share We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company. Non-GAAP diluted net income per share excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a write-off of debt issuance costs associated with a terminated or modified credit facility, foreign exchange (gains) losses from hedges associated with two acquisitions, and non-GAAP tax adjustments from GAAP diluted net income per share. We believe that these exclusions offer investors a useful view of our diluted net income per share as compared to our past diluted net income per share.

Non-GAAP operating leverage We believe this information is beneficial to investors as a measure of how much incremental revenue is contributed to our operating income. Non-GAAP operating leverage is the increase in non-GAAP operating income as a percentage of the increase in revenue. We believe that this information offers investors supplemental information to evaluate our current performance and to compare to our past non-GAAP operating leverage.

Non-GAAP segment operating income Non-GAAP segment operating income excludes stock-based compensation from GAAP segment operating income. We believe this information is useful to investors because some may exclude stock-based compensation as an alternative view when assessing trends in the operating income of our segments.

These non-GAAP measures can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. We believe some of our investors track our "core operating performance" as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations. Core operating performance excludes items that are non-cash, not expected to recur or not reflective of ongoing financial results. Management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period to period comparisons.

Accordingly, management excludes from non-GAAP those items relating to restructuring, amortization of purchased intangible assets, stock based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a write-off of debt issuance costs associated with a terminated or modified credit facility, foreign exchange (gains) losses from hedges associated with two acquisitions, and non-GAAP tax adjustments. For detailed explanations of the adjustments made to comparable GAAP measures, see items (A)-(L) below, Fiscal Years 2012 2011 2010 (Dollars in thousands, Dollar % of Dollar % of Dollar % of except per share data) Amount Revenue Amount Revenue Amount Revenue GROSS MARGIN: GAAP gross margin: $ 1,046,177 51.3 % $ 829,581 50.5 % $ 645,501 49.9 % Restructuring ( A ) 156 - % 466 - % 443 - % Amortization of purchased intangible assets ( B ) 60,277 3.0 % 37,197 2.3 % 24,900 1.9 % Stock-based compensation ( C ) 2,005 0.1 % 1,955 0.1 % 1,816 0.1 % 44-------------------------------------------------------------------------------- Table of Contents Amortization of acquisition-related inventory step-up ( D ) 2,357 0.1 % 3,802 0.2 % 728 0.1 % Non-GAAP gross margin: $ 1,110,972 54.5 % $ 873,001 53.1 % $ 673,388 52.0 % OPERATING EXPENSES: GAAP operating expenses: $ 833,609 40.9 % $ 673,179 40.9 % $ 517,899 40.0 % Restructuring ( A ) (2,227 ) (0.1 )% (2,288 ) (0.1 )% (1,592 ) (0.1 )% Amortization of purchased intangible assets ( B ) (65,430 ) (3.2 )% (48,705 ) (3.0 )% (32,739 ) (2.5 )% Stock-based compensation ( C ) (30,655 ) (1.5 )% (26,496 ) (1.6 )% (21,309 ) (1.7 )% Acquisition costs ( E ) (21,662 ) (1.1 )% (14,892 ) (0.9 )% (6,537 ) (0.5 )% Non-GAAP operating expenses: $ 713,635 35.0 % $ 580,798 35.3 % $ 455,722 35.2 % OPERATING INCOME: GAAP operating income: $ 212,568 10.4 % $ 156,402 9.5 % $ 127,602 9.9 % Restructuring ( A ) 2,383 0.1 % 2,754 0.2 % 2,035 0.2 % Amortization of purchased intangible assets ( B ) 125,707 6.2 % 85,902 5.2 % 57,639 4.4 % Stock-based compensation ( C ) 32,660 1.6 % 28,451 1.8 % 23,125 1.8 % Amortization of acquisition-related inventory step-up ( D ) 2,357 0.1 % 3,802 0.2 % 728 - % Acquisition costs ( E ) 21,662 1.1 % 14,892 0.9 % 6,537 0.5 % Non-GAAP operating income: $ 397,337 19.5 % $ 292,203 17.8 % $ 217,666 16.8 % NON-OPERATING INCOME, NET: GAAP non-operating income, net: $ 16,856 $ 11,052 $ 13,485 Acquisition / divestiture gain ( E ) (7,257 ) (264 ) (3,177 ) Debt issuance cost write-off ( F ) 82 377 - Foreign exchange (gain) loss associated with acquisitions ( G ) 1,578 (1,768 ) - Non-GAAP non-operating income, net: $ 11,259 $ 9,397 $ 10,308 GAAP and GAAP and GAAP and Non-GAAP Non-GAAP Non-GAAP Tax Rate % (K) Tax Rate % (K) Tax Rate % (K) INCOME TAX PROVISION: GAAP income tax provision: $ 39,708 17 % $ 18,545 11 % $ 37,474 27 % Non-GAAP items tax effected: (H) 30,635 13,696 10,935 IRS settlement (I) - - (27,540 ) Valuation allowance release (J) - - 7,628 Non-GAAP income tax provision: $ 70,343 17 % $ 32,241 11 % $ 28,497 13 % NET INCOME: GAAP net income attributable to Trimble Navigation Ltd. $ 191,060 $ 150,755 $ 103,660 Restructuring ( A ) 2,383 2,754 2,035 Amortization of purchased intangible assets ( B ) 125,707 85,902 57,639 Stock-based compensation ( C ) 32,660 28,451 23,125 Amortization of acquisition-related inventory step-up ( D ) 2,357 3,802 728 Acquisition / divestiture costs, net ( E ) 14,405 14,627 3,360 Debt issuance cost write-off ( F ) 82 377 - Foreign exchange (gain) loss associated with acquisitions ( G ) 1,578 (1,768 ) - Non-GAAP tax adjustments (H),(I),(J) (30,635 ) (13,696 ) 8,986 Non-GAAP net income attributable to Trimble Navigation Ltd. $ 339,597 $ 271,204 $ 199,533 DILUTED NET INCOME PER SHARE: GAAP diluted net income per share attributable to Trimble Navigation Ltd. $ 1.49 $ 1.20 $ 0.84 Restructuring (A) 0.02 0.02 0.02 45-------------------------------------------------------------------------------- Table of Contents Amortization of purchased intangible assets (B) 0.98 0.67 0.46 Stock-based compensation (C) 0.25 0.23 0.19 Amortization of acquisition-related inventory step-up (D) 0.02 0.03 - Acquisition / divestiture costs, net (E) 0.11 0.12 0.03 Debt issuance cost write-off (F) - - - Foreign exchange (gain) loss associated with acquisitions (G) 0.01 (0.01 ) - Non-GAAP tax adjustments (H),(I),(J) (0.23 ) (0.11 ) 0.07 Non-GAAP diluted net income per share attributable to Trimble Navigation Ltd. $ 2.65 $ 2.15 $ 1.61 OPERATING LEVERAGE: Increase in non-GAAP operating income $ 105,134 $ 74,537 $ 45,605 Increase in revenue $ 396,048 $ 350,128 $ 167,678 Operating leverage (increase in non-GAAP operating income as a % of increase in revenue) 26.5 % 21.3 % 27.2 % 46-------------------------------------------------------------------------------- Table of Contents Fiscal Years 2012 2011 2010 % of % of % of (Dollars in thousands, Segment Segment Segment except per share data) Revenue Revenue Revenue SEGMENT OPERATING INCOME: Engineering and Construction GAAP operating income before corporate allocations: $ 207,174 19.0 % $ 149,015 16.4 % $ 110,965 15.4 % Stock-based compensation (L) 11,954 1.1 % 10,140 1.2 % 7,886 1.1 % Non-GAAP operating income before corporate allocations: $ 219,128 20.1 % $ 159,155 17.6 % $ 118,851 16.5 % Field Solutions GAAP operating income before corporate allocations: $ 182,134 37.8 % $ 160,139 38.7 % $ 116,373 36.6 % Stock-based compensation (L) 2,750 0.6 % 2,269 0.6 % 1,978 0.6 % Non-GAAP operating income before corporate allocations: $ 184,884 38.4 % $ 162,408 39.3 % $ 118,351 37.2 % Mobile Solutions GAAP operating income before corporate allocations: $ 32,459 9.3 % $ 4,461 2 % $ 1,873 1.2 % Stock-based compensation (L) 2,115 0.6 % 2,943 1.4 % 3,444 2.2 % Non-GAAP operating income before corporate allocations: $ 34,574 9.9 % $ 7,404 3.4 % $ 5,317 3.4 % Advanced Devices GAAP operating income before corporate allocations: $ 19,166 15.9 % $ 13,891 13.2 % $ 18,325 17.9 % Stock-based compensation (L) 2,467 2 % 2,566 2.4 % 1,934 1.9 % Non-GAAP operating income before corporate allocations: $ 21,633 17.9 % $ 16,457 15.6 % $ 20,259 19.8 % A. Restructuring cost. Included in our GAAP presentation of cost of sales and operating expenses, restructuring costs recorded are primarily for employee compensation resulting from reductions in employee headcount in connection with our company restructurings. We exclude restructuring costs from our non-GAAP measures because we believe they do not reflect expected future operating expenses, they are not indicative of our core operating performance, and they are not meaningful in comparisons to our past operating performance.

B. Amortization of purchased intangible assets. Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. US GAAP accounting requires that intangible assets are recorded at fair value and amortized over their useful lives.

Consequently, the timing and size of our acquisitions will cause our operating results to vary from period to period, making a comparison to past performance difficult for investors. This accounting treatment may cause differences when comparing our results to companies that grow internally because the fair value assigned to the intangible assets acquired through acquisition may significantly exceed the equivalent expenses that a company may incur for similar efforts when performed internally. Furthermore, the useful life that we expense our intangible assets over may be substantially different from the time period that an internal growth company incurs and recognizes such expenses. We believe that by excluding the amortization of purchased intangible assets, which primarily represents 47-------------------------------------------------------------------------------- Table of Contents technology and/or customer relationships already developed, it enhances comparability by allowing investors to compare our operations pre-acquisition to those post-acquisitions and to those of our competitors that have pursued internal growth strategies C. Stock-based compensation. Included in our GAAP presentation of cost of sales and operating expenses, stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not reflective of our core operating performance as it is a non-cash expense. For fiscal years 2012, 2011 and 2010, stock-based compensation was allocated as follows: Fiscal Years (in thousands) 2012 2011 2010 Cost of sales $ 2,005 $ 1,955 $ 1,816Research and development 5,319 4,624 3,991 Sales and Marketing 7,017 6,672 5,611 General and administrative 18,319 15,200 11,707 $ 32,660 $ 28,451 $ 23,125 D. Amortization of acquisition-related inventory step-up. The purchase accounting entries associated with our business acquisitions require us to record inventory at its fair value, which is sometimes greater than the previous book value of the inventory. Included in our GAAP presentation of cost of sales, the increase in inventory value is amortized to cost of sales over the period that the related product is sold. We exclude inventory step-up amortization from our non-GAAP measures because it is a non-cash expense that we do not believe is indicative of our ongoing operating results. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

E. Acquisition / divestiture items. Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, integration costs and acquisition bonus payments.

Included in our GAAP presentation of non-operating income, net, acquisition / divestiture gain includes unusual acquisition or divestiture related items such as an adjustment to a gain on bargain purchase (resulting from the fair value of identifiable net assets acquired exceeding the consideration transferred), gains on divestitures of certain businesses and investments, and adjustments to the fair value of earn-out liabilities. Although we do numerous acquisitions, the costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

F. Debt issuance cost write-off. Included in our non-operating income, net this amount represents a write-off of debt issuance cost for a terminated credit facility in fiscal 2011 and a modified credit facility in fiscal 2012. We excluded the debt issuance cost write-off from our non-GAAP measures. We believe that investors benefit from excluding this item from our non-operating income to facilitate a more meaningful evaluation of our non-operating income trends.

G. Foreign exchange (gain) loss associated with acquisitions. This amount represents the (gain) loss on foreign exchange hedges associated with two of our acquisitions. We excluded the foreign exchange (gain) loss from our non-GAAP measures because we believe that the exclusion of this item provides investors an enhanced view of the cost structure of our operations and facilitates comparisons with the results of other periods.

H. Non-GAAP items tax effected. This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items (A) - (G) on non-GAAP net income. We believe this information is useful to investors because it provides for consistent treatment of the excluded items in this non-GAAP presentation.

I. IRS settlement. This amount represents a net charge of $27.5 million in the second quarter of 2010 resulting from the IRS audit settlement. We excluded this because it is not indicative of our future operating results. We believe that investors benefit from excluding this charge from our operating results to facilitate comparisons to past operating performance.

J. Valuation allowance release. This amount represents a benefit of $7.6 million in the fourth quarter of 2010 resulting from a valuation allowance release. We excluded this from our non-GAAP results to enhance comparability of results across periods.

K. GAAP and non-GAAP tax rate %. These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes. We believe that investors benefit from a presentation of non-GAAP tax rate percentage as a way of facilitating a comparison to non-GAAP tax rates in prior periods.

L. Stock-based compensation. The amounts consist of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. As referred to above we exclude stock-based compensation here because investors may view it as not reflective of our core operating performance as it is a non-cash expense. However, management does include stock-based compensation for budgeting and incentive plans as well as for reviewing internal financial reporting. We discuss our operating results by segment with and without stock-based compensation expense, as we believe it is useful 48-------------------------------------------------------------------------------- Table of Contents to investors. Stock-based compensation not allocated to the reportable segments was approximately $13.4 million, $10.5 million, and $7.9 million for fiscal years 2012, 2011, and 2010, respectively.

Non-GAAP Operating Income Non-GAAP operating income increased by $105.1 million for fiscal 2012 as compared to fiscal 2011, and increased by $74.5 million for fiscal 2011 as compared to fiscal 2010. Non-GAAP operating income as a percentage of total revenue was 19.5%, 17.8%, and 16.8% for fiscal years 2012, 2011, and 2010, respectively.

The increase in operating income for 2012 was primarily driven by higher revenue in Engineering and Construction, Field Solutions and Mobile Solutions. The increase in the operating income percentage for 2012 was primarily driven by higher operating leverage in Engineering and Construction and Mobile Solutions.

The increase in the operating income and operating income percentage for 2011 was primarily driven by higher revenue and associated operating leverage in Engineering and Construction and Field Solutions.

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