Edgar Filing: TRIMBLE NAVIGATION LTD /CA/

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________

Commission file number: 0-18645

TRIMBLE NAVIGATION LIMITED

(Exact name of registrant as specified in its charter)

	California		94-2802192
	(State or other jurisdiction of		(I.R.S. Employer Identification Number)
	incorporation or organization)

935 Stewart Drive, Sunnyvale, CA 94085

(Address of principal executive offices) (Zip Code)

Telephone Number (408) 481-8000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x Accelerated Filer o Non-accelerated Filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of August 1, 2006, there were 55,109,638 shares of Common Stock (no par value) outstanding.

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TRIMBLE NAVIGATION LIMITED

FORM 10-Q for the Quarter ended June 30, 2006

TABLE OF CONTENTS

PART I.	Financial Information	Page

ITEM 1.	Financial Statements (Unaudited):

	Condensed Consolidated Balance Sheets — as of June 30, 2006 and December 30, 2005	3

	Condensed Consolidated Statements of Income — for the Three and Six Months Ended June 30, 2006 and July 1, 2005	4

	Condensed Consolidated Statements of Cash Flows — for the Six Months Ended June 30, 2006 and July 1, 2005	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	26

ITEM 4.	Controls and Procedures	26


PART II.	Other Information

ITEM 1.	Legal Proceedings	27

ITEM 1A.	Risk Factors	27

ITEM 4.	Submission of Matters To A Vote of Security Holders	33

ITEM 6.	Exhibits	34

SIGNATURES		35

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PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

TRIMBLE NAVIGATION LIMITED

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,		December 30,
	2006		2005
(In thousands)	(UNAUDITED)		(1)

ASSETS
Current assets:
Cash and cash equivalents	$	107,726	$	73,853
Accounts receivable, net		171,942		145,100
Other receivables		9,336		6,489
Inventories, net		113,925		107,851
Deferred income taxes		19,015		18,504
Other current assets		9,587		8,580
Total current assets		431,531		360,377
Property and equipment, net		47,278		42,664
Goodwill and other purchased intangible assets, net		370,946		313,456
Deferred income taxes		6,483		3,580
Other assets		24,166		23,011
Total non-current assets		448,873		382,711
Total assets	$	880,404	$	743,088

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt	$	431	$	216
Accounts payable		47,984		45,206
Accrued compensation and benefits		38,152		36,083
Accrued liabilities		22,686		16,189
Deferred revenue		24,502		12,588
Accrued warranty expense		7,475		7,466
Deferred income taxes		3,996		4,087
Income taxes payable		28,497		24,922
Total current liabilities		173,723		146,757
Non-current portion of long-term debt		459		433
Deferred income tax		14,373		5,602
Other non-current liabilities		27,110		19,041
Total liabilities		215,665		171,833

Shareholders' equity:
Preferred stock no par value; 3,000 shares authorized; none outstanding		--		--
Common stock, no par value; 90,000 shares authorized;55,031 and 53,910 shares issued and outstanding at June 30, 2006 and December 30, 2005, respectively		413,619		384,196
Retained earnings		221,857		167,525
Accumulated other comprehensive income		29,263		19,534
Total shareholders' equity		664,739		571,255
Total liabilities and shareholders' equity	$	880,404	$	743,088

(1)	Derived from the December 30, 2005 audited Consolidated Financial Statements included in the Annual Report on Form 10-K of Trimble Navigation Limited for fiscal year 2005.

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TRIMBLE NAVIGATION LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended					Six Months Ended
	June 30,		July 1,			June 30,		July 1,
	2006		2005			2006		2005
(In thousands, except per share data)

Revenue (1)	$	245,326	$	204,225		$	471,180	$	399,608
Cost of sales (1)		123,670		101,818			242,061		199,394
Gross margin		121,656		102,407			229,119		200,214

Operating expenses
Research and development		27,607		20,865			52,053		42,693
Sales and marketing		35,747		28,704			68,453		59,075
General and administrative		16,205		11,924			31,966		24,756
Restructuring charges		-		-			-		278
In-process research and development		1,020		-			1,020		-
Amortization of purchased intangible assets		2,408		2,177			3,893		4,475
Total operating expenses		82,987		63,670			157,385		131,277
Operating income		38,669		38,737			71,734		68,937
Non-operating income (expense), net
Interest income (expense), net		598		(419	)		1,032		(1,030	)
Foreign currency transaction gain, net		334		163			927		6
Income (expense) for affiliated operations, net		1,575		(2,499	)		3,191		(5,538	)
Other income, net		18		138			182		168
Total non-operating income (expense), net		2,525		(2,617	)		5,332		(6,394	)
Income before taxes		41,194		36,120			77,066		62,543
Income tax provision		12,691		12,333			22,735		21,317
Net income	$	28,503	$	23,787		$	54,331	$	41,226

Basic earnings per share	$	0.52	$	0.45		$	1.00	$	0.78
Shares used in calculating basic earnings per share		54,847		52,959			54,544		52,729

Diluted earnings per share	$	0.49	$	0.42		$	0.94	$	0.73
Shares used in calculating diluted earnings per share		58,128		57,057			57,761		56,780

(1) Sales to related parties were $5.5 million and $2.5 million for the three months period ended June 30, 2006 and July 1, 2005, respectively, while cost of sales to those related parties were $3.2 million and $1.0 million for the comparable periods. Sales to related parties were $10.4 million and $4.7 million for the six month period ended June 30, 2006 and July 1, 2005, respectively, while cost of sales to those related parties were $6.2 million and $2.0 million for the comparable periods.

See accompanying Notes to the Condensed Consolidated Financial Statements.

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TRIMBLE NAVIGATION LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended
	June 30,			July 1,
	2006			2005
(In thousands)

Cash flow from operating activities:
Net income	$	54,331		$	41,226
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		6,489			4,890
Amortization expense		6,145			4,548
Provision for doubtful accounts		95			(678	)
Amortization of debt issuance cost		90			244
Deferred income taxes		(1,678	)		3,846
Stock-based compensation		6,489			-
In-process research and development		1,020			-
Excess tax benefit for stock-based compensation		(4,770	)		-
Other		262			(48	)
Add decrease (increase) in assets:
Accounts receivable, net		(19,417	)		(26,986	)
Other receivables		(2,649	)		1,709
Inventories		(2,860	)		(4,061	)
Other current and non-current assets		(2,097	)		(1,452	)
Add increase (decrease) in liabilities:
Accounts payable		1,386			(1,997	)
Accrued compensation and benefits		1,185			158
Accrued liabilities		(2,138	)		300
Deferred gain on joint venture		-			124
Deferred revenue		9,862			2,210
Income taxes payable		7,624			12,537
Net cash provided by operating activities		59,369			36,570

Cash flow from investing activities:
Acquisitions, net of cash acquired		(38,137	)		(20,233	)
Acquisition of property and equipment		(10,943	)		(7,734	)
Dividends received		-			515
Costs of capitalized patents		-			(89	)
Net cash used in investing activities		(49,080	)		(27,541	)

Cash flow from financing activities:
Issuance of common stock		17,162			15,453
Excess tax benefit for stock-based compensation		4,770			-
Proceeds from long-term debt and revolving credit lines		-			6,000
Payments on long-term debt and revolving credit lines		-			(44,250	)
Other		(777	)		307
Net cash provided (used) in financing activities		21,155			(22,490	)

Effect of exchange rate changes on cash and cash equivalents		2,429			(1,551	)

Net increase (decrease) in cash and cash equivalents		33,873			(15,012	)
Cash and cash equivalents, beginning of period		73,853			71,872
Cash and cash equivalents, end of period	$	107,726		$	56,860

See accompanying Notes to the Condensed Consolidated Financial Statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

NOTE 1. OVERVIEW AND BASIS OF PRESENTATION

Trimble Navigation Limited (“we,” “Trimble” or the “Company”), incorporated in California in 1981, provides positioning product solutions to commercial and government users in a large number of markets. These markets include surveying, construction, agriculture, urban and resource management, military, transportation and telecommunications.

Trimble has a 52-53 week fiscal year, ending on the Friday nearest to December 31, which for fiscal 2005 was December 30. The second fiscal quarters of 2006 and 2005 ended on June 30, 2006 and July 1, 2005, respectively. Fiscal 2006 and 2005 are 52-week years. Unless otherwise stated, all dates refer to its fiscal year and fiscal periods.

The Condensed Consolidated Financial Statements include the results of Trimble and its subsidiaries. Inter-company accounts and transactions have been eliminated. Certain amounts from prior periods have been reclassified to conform to the current period presentation.

The accompanying financial data as of June 30, 2006 and for the three and six months ended June 30, 2006 and July 1, 2005 has been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S. have been condensed or omitted pursuant to such rules and regulations. The following discussion should be read in conjunction with Trimble’s 2005 Annual Report on Form 10-K.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of financial position as of June 30, 2006, results of operations for the three and six months ended June 30, 2006 and July 1, 2005 and cash flows for the six months ended June 30, 2006 and July 1, 2005, as applicable, have been made. The results of operations for the three and six months ended June 30, 2006 are not necessarily indicative of the operating results for the full fiscal year or any future periods.

The preparation of financial statements in accordance with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in its condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may be different from the estimates. Trimble’s critical accounting policies are those that affect its financial statements materially and involve difficult, subjective or complex judgments by management. In the first quarter of fiscal 2006, the Company changed its critical accounting policy related to stock-based compensation. See Note 2 to the Notes to the Condensed Consolidated Financial Statements for additional information. For more information on the Company’s significant accounting principles, refer to Trimble’s 2005 Annual Report on Form 10-K.

NOTE 2. NEW ACCOUNTING PRONOUNCEMENTS

In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 applies to all tax positions related to income taxes subject to FASB Statement 109, “Accounting for Income Taxes.” Under FIN 48 a company would recognize the benefit from a tax position only if it is more-likely-than-not that the position would be sustained upon audit based solely on the technical merits of the tax position. FIN 48 clarifies how a company would measure the income tax benefits from the tax positions that are recognized, provides guidance as to the timing of the derecognition of previously recognized tax benefits and describes the methods for classifying and disclosing the liabilities within the financial statements for any unrecognized tax benefits. FIN 48 also addresses when a company should record interest and penalties related to tax positions and how the interest and penalties may be classified within the income statement and presented in the balance sheet. FIN 48 is effective for fiscal years beginning after December 15, 2006. For Trimble, FIN 48 will be effective for our 2007 fiscal year. Differences between the amounts recognized in the statements of operations prior to and after the adoption of FIN 48 would be accounted for as a cumulative effect adjustment to the beginning balance of retained earnings. The Company is currently evaluating FIN 48 and its possible impacts on the Company’s financial statements. Upon adoption, there is a possibility that the cumulative effect would result in a charge or benefit to the beginning balance of retained earnings.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued Standard of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”). SFAS 123(R) requires employee stock options and rights to purchase shares under stock participation plans to be accounted for under the fair value method, and eliminates the ability to account for these instruments under the intrinsic value method prescribed by APB Opinion No. 25, and allowed under the original provisions of SFAS 123.

Trimble has adopted SFAS 123(R) using the modified prospective method which requires the adoption of the accounting standard for fiscal years beginning after June 15, 2005. As a result, the Company’s financial statements for fiscal periods after December 30, 2005 include stock-based compensation expenses that are not comparable to financial statements of fiscal periods prior to December 30, 2005. SFAS 123(R) requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s Condensed Consolidated Statements of Income. Prior to the adoption of SFAS 123(R), the Company accounted for stock-based compensation to employees and directors using the intrinsic value method in accordance with APB Opinion No. 25 as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”). Under the intrinsic value method, no stock-based compensation expense had been recognized in the Company’s Condensed Consolidated Statement of Income because the exercise price of the Company’s stock options granted to employees and directors equaled the fair market value of the underlying stock at the date of grant.

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See Note 3 to the Notes to the Condensed Consolidated Financial Statements for additional information.

NOTE 3. STOCK-BASED COMPENSATION

In accordance with the provisions of Statement of Financial Accounting Standards No. 123 (“SFAS 123”), "Accounting for Stock-Based Compensation" and “Statement of Financial Accounting Standards No. 148” (“SFAS 148”), “Accounting for Stock-Based Compensation - Transition and Disclosure,” Trimble applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (“APB 25”) and related interpretations in accounting for its stock option plans and stock purchase plan prior to fiscal 2006. Accordingly, Trimble did not recognize compensation cost for stock-based compensation prior to fiscal 2006. For periods subsequent to fiscal 2005, Trimble recognized expense related to stock-based compensation in accordance with SFAS 123(R)

The following table summarizes stock-based compensation expense, net of tax, related to employee stock-based compensation included in the Condensed Consolidated Statements of Income in accordance with SFAS 123(R) for the three and six months ended June 30, 2006 and July 1, 2005.

		Three Months Ended					Six Months Ended
		June 30,			July 1,		June 30,			July 1,
		2006			2005		2006			2005
(in thousands)

Cost of sales		$	309		$	-	$	596			-

Research & development			667			-		1,306			-
Sales & marketing			711			-		1,452			-
General & administrative			1,572			-		3,134			-
Stock-based compensation expense included in operating expenses			2,950			-		5,892			-

Total stock-based compensation			3,259			-		6,489			-
Tax benefit	(1)		(294	)		-		(588	)		-
Total stock-based compensation, net of tax		$	2,965		$	-	$	5,901			-

(1) Tax benefit related to non-qualified options only as allowed by the applicable tax requirements using the statutory tax rate as of the three and six months ended June 30, 2006.

The table below provides pro forma information for the three and six months ended July 1, 2005 as if Trimble had accounted for its employee stock options and purchases under the employee stock purchase plan in accordance with SFAS 123.

		Three Months Ended		Six Months Ended
		July 1,		July 1,
		2005		2005
(in thousands, except per share amounts)

Net income - as reported		$	23,787	$	41,226
Stock-based compensation expense, net of tax	(2)		2,745		5,808
Net income - pro forma		$	21,042	$	35,418

Basic earnings per share - as reported		$	0.45	$	0.78
Basic earnings per share - pro forma		$	0.40	$	0.67

Diluted earnings per share - as reported		$	0.42	$	0.73
Diluted earnings per share - pro forma		$	0.37	$	0.62

(2) Includes compensation expense for employee stock purchase plan for the three and six months ended July 1, 2005 and reduction of tax benefits for stock-based compensation other than non-qualified stock options which were not included in the pro forma disclosure of Trimble’s second quarter of fiscal 2005 Form 10-Q. Tax benefit relates to non-qualified options only as allowed by the applicable tax requirements using the statutory tax rate as of the second quarter of fiscal 2005.

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OPTIONS

Stock option expense recognized during the period is based on the value of the portion of share-based payment awards that is expected to vest during the period. Stock option expense recognized in the Company’s Condensed Consolidated of Income for the three and six months ended June 30, 2006 included compensation expense for stock options granted prior to, but not yet vested as of December 30, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123 and compensation expense for the stock options granted subsequent to December 30, 2005 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R), the Company changed its method of attributing the value of stock option to expense from the accelerated multiple-option approach to the straight-line single option method. Compensation expense for all stock options granted on or prior to December 30, 2005 will continue to be recognized using the accelerated multiple-option approach while compensation expense for all stock options granted subsequent to December 30, 2005 is recognized using the straight-line single-option method. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.

Stock Option Plans

Trimble issues new shares upon exercises of stock options related to the following plans.

2002 Stock Plan

In 2002, Trimble’s Board of Directors adopted the 2002 Stock Plan (“2002 Plan”). The 2002 Plan, as amended to date and approved by shareholders, provides for the granting of incentive and non-statutory stock options for up to 6,000,000 shares plus any shares currently reserved but unissued to employees, consultants, and directors of Trimble. Incentive stock options may be granted at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the 2002 Plan have 120-month terms, and vest at a rate of 20% at the first anniversary of grant, and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of the grant. The exercise price of non-statutory stock options issued under the 2002 Plan must be at least 85% of the fair market value of Common Stock on the date of grant.

1993 Stock Option Plan

In 1992, Trimble's Board of Directors adopted the 1993 Stock Option Plan (“1993 Plan”). The 1993 Plan, as amended to date and approved by shareholders, provided for the granting of incentive and non-statutory stock options for up to 9,562,500 shares of Common Stock to employees, consultants, and directors of Trimble. Incentive stock options may be granted at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the 1993 Plan have 120-month terms, and vest at a rate of 20% at the first anniversary of grant, and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of grant. The exercise price of non-statutory stock options issued under the 1993 Plan must be at least 85% of the fair market value of Common Stock on the date of grant.

1992 Management Discount Stock Option Plan

In 1992, Trimble's Board of Directors and shareholders approved the 1992 Management Discount Stock Option Plan ("Discount Plan"). Employee stock options granted under the 1992 Plan have 120-month terms, and vest at a rate of 20% at the first anniversary of grant, and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of the grant.

1990 Director Stock Option Plan

In December 1990, Trimble adopted a Director Stock Option Plan under which an aggregate of 570,000 shares of Common Stock have been reserved for issuance to non-employee directors as approved by the shareholders to date. Stock options issued under this plan vest generally over a three year period.

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Option Activity

Activity during the first six months of fiscal 2006 under the combined plans was as follows:

	June 30, 2006
Six Months Ended	Options			Weighted average exercise price
(In thousands, except for per share data)

Outstanding at December 30, 2005		6,414		$	18.70
Granted		131			40.46
Exercised		(857	)		14.41
Forfeited/Cancelled/Expired		(38	)		23.69
Outstanding at June 30, 2006		5,650			19.82

Options Outstanding and Exercisable

Exercise prices for options outstanding and exercisable as of June 30, 2006, ranged from $5.33 to $48.11. Options outstanding and exercisable consist of fully vested options and options expected to vest at June 30, 2006. The aggregate intrinsic value is the total pretax intrinsic value based on the Company’s closing stock price of $44.64 as of June 30, 2006, which would have been received by the option holders had all option holders exercised their options as of that date.

Weighted-

Average

Aggregate

Number

Exercise Price

Remaining

Intrinsic

Of Shares

per Share

Contractual Term

Value

(in years)

(in thousands)

Options Outstanding and Expected to Vest

5,512,221

19.58

5.6

138,185

Options Exercisable

3,389,809

15.01

5.0

100,444

As of June 30, 2006, the total unamortized stock option expense is $16.1 million with weighted-average recognition period of 1.5 years.

Valuation Assumptions

For options granted prior to October 1, 2005, the fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model. For stock options granted on or after October 1, 2005, the fair value of each award is estimated on the date of grant using a binomial valuation model. Similar to the Black-Scholes model, the binomial model takes into account variables such as volatility, dividend yield rate, and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For these reasons, the Company believes that the binomial model provides a fair value that is more representative of actual experience and future expected experience than the value calculated using the Black-Scholes model.

Under the binomial models and Black-Scholes, the estimated values of each employee stock option granted during the second quarter of fiscal 2006 and 2005 were $17.93 and $17.67, respectively. The value of each option grant is estimated on the date of grant using the binomial model for options granted during the second quarter of fiscal 2006 and the Black-Scholes option pricing model for options granted during the second quarter of fiscal 2005 and with the following assumptions:

	Three Months Ended						Six Months Ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Expected dividend yield		--			--			--			--
Expected stock price volatility		42.0	%		41.8	%		42.0	%		49.6	%
Risk free interest rate		4.5	%		3.9	%		4.5	%		4.0	%
Expected life of options (in years)		4.6			4.8			4.6			4.8

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

Expected Stock Price Volatility - The Company’s computation of expected volatility is based on a combination of implied volatilities from traded options on the Company’s stock and historical volatility. The Company used implied and historical volatility as the combination was more representative of future stock price trends than historical volatility alone.

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

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

EMPLOYEE STOCK PURCHASE PLAN

Stock-based compensation expense related to the Company’s employee stock purchase plan is recognized during the purchase vesting period which is generally six months.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan (“Purchase Plan”) under which an aggregate of 5,775,000 shares of Common Stock have been reserved for sale to eligible employees as approved by the shareholders to date. The plan permits full-time employees to purchase Common Stock through payroll deductions at 85% of the lower of the fair market value of the Common Stock at the beginning or at the end of each six-month offering period. The Purchase Plan terminates on September 8, 2008.

Valuation Assumptions

The fair value of rights granted under the Employee Stock Purchase Plan is estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used at June 30, 2006 and July 1, 2005:

	Three Months Ended						Six Months Ended
	June 30, 2006			July 1, 2005			June 30, 2006			July 1, 2005
Expected dividend yield		--			--			--			--
Expected stock price volatility		34.9	%		35.1	%		34.9	%		35.1	%
Risk free interest rate		4.4	%		3.4	%		4.4	%		3.4	%
Expected life of purchase		0.5			0.5			0.5			0.5

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

Expected Stock Price Volatility - The Company’s computation of expected volatility is based on implied volatilities from traded options on the Company’s stock. The Company used implied volatility because it is representative of future stock price trends during the six month purchase period.

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

Expected Life Of Purchase - The Company’s expected life of the purchase is based on the 6 month offering period of the purchase plan.

NOTE 4. JOINT VENTURES:

Caterpillar Trimble Control Technologies Joint Venture

On April 1, 2002, Caterpillar Trimble Control Technologies LLC (“CTCT”), a joint venture formed by Trimble and Caterpillar began operations. The joint venture is 50% owned by Trimble and 50% owned by Caterpillar, with equal voting rights. The joint venture is accounted for under the equity method of accounting. Under the equity method, Trimble’s share of profits and losses are included in expenses for affiliated operations, net in the non-operating income (expense), net section of the Condensed Consolidated Statements of Income. CTCT develops advanced electronic guidance and control products for earth moving machines in the construction and mining industries.

Trimble acts as a contract manufacturer for CTCT. Products are manufactured based on orders received from CTCT and are sold at cost plus a mark up to CTCT. CTCT resells products to both Caterpillar and Trimble for sales through their respective distribution channels. Generally, Trimble sells products to its after market dealer channel, and Caterpillar sells products for factory and dealer installation. CTCT does not hold inventory in that the resale of products to Caterpillar and Trimble occur simultaneously when the products are purchased from Trimble.

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Beginning in the first fiscal quarter of 2006, Trimble included the impact of certain transactions with CTCT in revenue and cost of sales. Revenue and cost of sales were recorded for the manufacturing of products that are sold to CTCT and then sold through the Caterpillar distribution channel. Cost of sales transactions also include the purchasing of products from CTCT at a higher price than Trimble's original manufacturing costs for products sold through the Trimble distribution channel. Prior to the first fiscal quarter of 2006, these transactions were included in expenses for affiliated operations, net in the non-operating income (expense), net section of the Consolidated Statements of Income. The change in presentation resulted from the Company’s assessment of CTCT’s advancement and ability to function as a stand-alone company. In addition, the Company’s exclusive manufacturing agreement with CTCT ended during fiscal 2005. As a result, during the first quarter of fiscal 2006, the Company deemed transactions between CTCT and Trimble to be arms-length and concluded they should be presented similarly to other vendor and customer relationships. The impact of this change in presentation was a $5.1 million decrease and $10.4 million decrease in gross margins for the three and six month periods ended June 30, 2006. There was no impact on net income.

Trimble received reimbursement of employee-related costs from CTCT for Trimble employees dedicated to CTCT or performing work for CTCT totaling $3.5 million and $2.5 million for the three months ended June 30, 2006 and July 1, 2005, respectively, and $6.9 million and $5.1 million for the six months ended June 30, 2006 and July 1, 2005, respectively. The reimbursements were offset against operating expenses.

	June 30,			July 1,
Three Months Ended	2006			2005
(In millions)

CTCT incremental pricing effects, net	$	-		$	3.0
Trimble's 50% share of CTCT's reported (gain) loss		(1.4	)		(0.8	)
Total CTCT expense (income) for affiliated operations, net	$	(1.4	)	$	2.2

	June 30,			July 1,
Six Months Ended	2006			2005
(In millions)

CTCT incremental pricing effects, net	$	-		$	6.1
Trimble's 50% share of CTCT's reported (gain) loss		(3.0	)		(1.1	)
Total CTCT expense (income) for affiliated operations, net	$	(3.0	)	$	5.0

The net outstanding balance due from CTCT was $0.2 million at June 30, 2006 and at December 30, 2005 and is included in account receivables, net. As of June 30, 2006, dividend receivable from CTCT was $3.4 million and was included in other receivables.

Nikon-Trimble Joint Venture

On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to form a joint venture in Japan, Nikon-Trimble Co., Ltd., as described in Trimble’s 2005 Annual Report on Form 10-K. Nikon-Trimble began operations in July, 2003 and is equally owned by Trimble and Nikon, with equal voting rights.

Nikon-Trimble is the distributor in Japan for Nikon and Trimble products. Trimble is the exclusive distributor outside of Japan for Nikon branded survey products. For products sold from Trimble to the Nikon-Trimble, revenue is recognized by Trimble on a sell-through basis from Nikon-Trimble to the end customer. Profits from these inter-company sales are eliminated.

The terms and conditions of the sales of products from Trimble to Nikon-Trimble are comparable with those of the standard distribution agreements which Trimble maintains with its dealer channel and margins earned are similar to those from third party dealers. Similarly, the purchases of product by Trimble from the Nikon-Trimble are made on terms comparable with the arrangements which Nikon maintained with its international distribution channel prior to the formation of the joint venture with Trimble.

Trimble has adopted the equity method of accounting for its investment in Nikon-Trimble, with 50% share of profit or loss from this joint venture to be reported by Trimble in the Non-operating section of the Condensed Consolidated Statement of Income under the heading of “Expenses for affiliated operations, net.” For the three months ended June 30, 2006 and July 1, 2005, Trimble reported a profit of $0.2 million and a loss of $0.3 million, respectively, and a profit of approximately $0.2 million and a loss of $0.5 million for the six months ending June 30, 2006 and July 1, 2005, as its proportionate share of the results of the joint venture. In the second quarter of fiscal 2006, Trimble began recording its proportionate share of profit or loss in the joint venture one month in arrears. The impact is not considered to be material. At June 30, 2006, the net receivable from Nikon-Trimble to Trimble, related to the purchase and sale of products from and to Nikon-Trimble, is $1.7 million and was recorded within accounts receivable, net on the Condensed Consolidated Balance Sheet. At December 30, 2005, the net payable by Trimble to Nikon-Trimble is $2.0 million and was recorded within accounts payable on the Condensed Consolidated Balance Sheets. The carrying amount of the investment in Nikon Trimble was approximately $13.2 million at June 30, 2006 and $12.9 million at December 30, 2005 and is recorded in other long-term assets on the Condensed Consolidated Balance Sheets.

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NOTE 5. GOODWILL AND INTANGIBLE ASSETS:

Intangible Assets

Intangible Assets consisted of the following:

	June 30,			December 30,
As of	2006			2005
(in thousands)

Intangible assets:
Intangible assets with definite life:
Existing technology	$	71,185		$	48,100
Trade names, trademarks, patents, and other intellectual properties		27,980			26,808
Total intangible assets with definite life		99,165			74,908
Less accumulated amortization		(54,801	)		(47,598	)
Total net intangible assets	$	44,364		$	27,310

Goodwill

Goodwill, by reporting segment, consisted of the following:

	June 30,		December 30,
As of	2006		2005
(in thousands)

Engineering and Construction	$	256,177	$	229,176
Mobile Solutions		56,996		44,118
Advanced Devices		13,409		12,852

Total Goodwill	$	326,582	$	286,146

NOTE 6. CERTAIN BALANCE SHEET COMPONENTS:

Inventories consisted of the following:

	June 30,		December 30,
As of	2006		2005
(in thousands)
Raw materials	$	62,930	$	52,199
Work-in-process		7,919		7,249
Finished goods		43,075		48,403
	$	113,925	$	107,851

Property and equipment consisted of the following:

	June 30,			December 30,
As of	2006			2005
(in thousands)

Machinery and equipment	$	76,511		$	72,273
Furniture and fixtures		11,463			10,110
Leasehold improvements		10,056			8,695
Buildings		5,707			5,707
Land		1,231			1,231
		104,968			98,016
Less accumulated depreciation		(57,690	)		(55,352	)
	$	47,278		$	42,664

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NOTE 7. THE COMPANY AND SEGMENT INFORMATION:

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

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

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

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

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

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

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

In the first quarter of 2006, Trimble combined the operating results of the former Components Technologies and Portfolio Technologies segments and included the combined operating results in the Advanced Devices segment. The change in presentation was made in recognition of the small size of each of the businesses relative to the total company. The presentation of prior period’s segment operating results has been changed to conform to the Company’s current segment presentation.

The following table presents revenues, operating income (loss), and identifiable assets for the four segments. Operating income (loss) is net revenue less operating expenses, excluding general corporate expenses, amortization, restructuring charges, non-operating income (expense), and income taxes. The identifiable assets that Trimble's Chief Operating Decision Maker views by segment are accounts receivable and inventory.

	Reporting Segments
	Engineering and		Field		Mobile			Advanced
	Construction		Solutions		Solutions			Devices		Total
(In thousands)

Three Months Ended June 30, 2006
External net revenues	$	168,041	$	36,320	$	14,851		$	26,114	$	245,326
Operating income before corporate allocations		38,803		11,299		374			2,243		52,719

Three Months Ended July 1, 2005
External net revenues	$	141,096	$	32,187	$	6,437		$	24,505	$	204,225
Operating income (loss) before corporate allocations		37,173		8,044		(1,879	)		4,578		47,916

Six Months Ended June 30, 2006
External net revenues	$	314,775	$	79,363	$	27,458		$	49,584	$	471,180
Operating income before corporate allocations		65,182		25,207		597			4,566		95,552

Six Months Ended July 1, 2005
External net revenues	$	261,294	$	77,612	$	13,838		$	46,864	$	399,608
Operating income (loss) before corporate allocations		58,663		23,621		(2,515	)		7,810		87,579

As of June 30, 2006
Accounts receivable (1)	$	130,561	$	23,280	$	10,891		$	16,516	$	181,248
Inventories		83,947		12,377		2,388			15,213		113,925

As of December 30, 2005
Accounts receivable (1)	$	105,980	$	21,823	$	10,789		$	14,033	$	152,625
Inventories		80,590		11,790		1,983			13,488		107,851

(1)

As presented, accounts receivable represents trade receivables, gross, which are specified between segments.

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The following are reconciliations corresponding to totals in the accompanying Condensed Consolidated Financial Statements:

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
(In thousands)

Operating income:
Total for reportable divisions	$	52,719		$	47,916		$	95,552		$	87,579
Unallocated corporate expenses		(14,050	)		(9,179	)		(23,818	)		(18,642	)
Operating income	$	38,669		$	38,737		$	71,734		$	68,937

	June 30,			December 30,
As of	2006			2005
(in thousands)
Assets:
Accounts receivable total for reporting segments	$	181,248		$	152,625
Unallocated (1)		(9,306	)		(7,525	)
Total	$	171,942		$	145,100

(1) Includes trade-related accruals, allowances, and cash received in advance that are not allocated by segment.

The distribution of Trimble’s gross consolidated revenue by segment is summarized in the table below. Gross consolidated revenue includes external and internal sales. Total external consolidated revenue is reported net of eliminations of internal sales between segments.

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
(In thousands)

Engineering and Construction	$	169,102		$	141,868		$	316,560		$	265,156
Field Solutions		36,320			32,186			79,362			77,613
Mobile Solutions		14,851			6,437			27,458			13,838
Advanced Devices		26,114			24,552			49,586			46,921
Total Gross Consolidated Revenue	$	246,387		$	205,043		$	472,966		$	403,528
Eliminations		(1,061	)		(818	)		(1,786	)		(3,920	)
Total External Consolidated Revenue	$	245,326		$	204,225		$	471,180		$	399,608

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NOTE 8. LONG TERM DEBT

Credit Facilities

On July 28, 2005, Trimble entered into a $200 million unsecured revolving credit agreement (“2005 Credit Facility”) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent. The 2005 Credit Facility replaced the Company’s $175 million secured 2003 Credit Facility. The funds available under the new 2005 Credit Facility may be used by the Company for general corporate purposes and up to $25 million of the 2005 Credit Facility may be used for letters of credit.

The Company may borrow funds under the 2005 Credit Facility in U.S. Dollars or in certain other currencies, and will bear interest, at the Company's option, at either: (i) a base rate, based on the administrative agent's prime rate, plus a margin of between 0% and 0.125%, depending on the Company's leverage ratio as of its most recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on LIBOR, EURIBOR, STIBOR or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.625% and 1.125%, depending on the Company's leverage ratio as of the most recently ended fiscal quarter. The Company's obligations under the 2005 Credit Facility are guaranteed by certain of the Company's domestic subsidiaries.

The 2005 Credit Facility contains customary affirmative, negative and financial covenants including, among other requirements, negative covenants that restrict the Company's ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions, make investments, enter into mergers and consolidations and make capital expenditures, and financial covenants that require the maintenance of leverage and fixed charge coverage ratios. The 2005 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments, and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company's obligations under the 2005 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default. Trimble incurs a commitment fee if the 2005 Credit Facility is not used. The commitment fee is not material to the Company’s results during all periods presented.

At June 30, 2006, the Company had a zero balance outstanding under the 2005 Credit Facility and was in compliance with all financial covenants.

Notes Payable

As of June 30, 2006, the Company had other notes payable totaling approximately $0.9 million consisting of government loans to foreign subsidiaries and loans assumed from acquisitions.

NOTE 9. PRODUCT WARRANTIES:

The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on Trimble's behalf. The products sold are generally covered by a warranty for periods ranging from 90 days to three years, and in some instances up to 5.5 years.

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

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Changes in the Company’s product warranty liability during the three and six months ended June 30, 2006 and July 1, 2005 are as follows:

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
(In thousands)

Beginning balance	$	7,445		$	6,844		$	7,466		$	6,425
Warranty accrued		1,413			1,802			3,257			4,159
Warranty claims		(1,383	)		(1,454	)		(3,248	)		(3,392	)
Ending Balance	$	7,475		$	7,192		$	7,475		$	7,192

The product warranty liability is classified as accrued warranty in the accompanying condensed consolidated balance sheets.

NOTE 10. EARNINGS PER SHARE:

The following data was used in computing earnings per share and the effect on the weighted-average number of shares of potentially dilutive Common Stock.

	Three Months Ended				Six Months Ended
	June 30,		July 1,		June 30,		July 1,
	2006		2005		2006		2005
(In thousands, except per share amounts)

Numerator:
Income available to common shareholders:
Used in basic and diluted earnings per share	$	28,503	$	23,787	$	54,331	$	41,226

Denominator:
Weighted average number of common shares used in basic earnings per share		54,847		52,959		54,544		52,729
Effect of dilutive securities (using treasury stock method):
Common stock options		2,634		3,215		2,679		3,246
Common stock warrants		647		883		538		805
Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share		58,128		57,057		57,761		56,780

Basic earnings per share	$	0.52	$	0.45	$	1.00	$	0.78
Diluted earnings per share	$	0.49	$	0.42	$	0.94	$	0.73

NOTE 11. RESTRUCTURING CHARGES:

The Company did not record any restructuring charge during the second quarter of fiscal 2006 and fiscal 2005. Payments of $0.1 million and $0.2 million, and $0.2 million and $0.3 million, were made during the three and six months ended June 30, 2006 and July 1, 2005, respectively, relating to previous restructuring plans. As of June 30, 2006, the remaining restructuring accrual balance is $0.2 million which relates to the closure of one of Trimble’s sales offices and is expected to be paid over the next several years. The restructuring accrual is included on the Condensed Consolidated Balance Sheets under the heading of “Accrued Liabilities”.

NOTE 12. COMPREHENSIVE INCOME:

The components of comprehensive income, net of related tax in the Condensed Consolidated Statement of Income as follows:

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
(In thousands)

Net income	$	28,503		$	23,787		$	54,331		$	41,226
Foreign currency translation adjustments		8,448			(13,966	)		9,743			(22,794	)
Net gain (loss) on hedging transactions		-			(226	)		-			(108	)
Net unrealized gain (loss) on investments		(4	)		17			(14	)		(7	)
Comprehensive income	$	36,947		$	9,612		$	64,060		$	18,317

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The components of accumulated other comprehensive income, net of related tax in the Condensed Consolidated Balance Sheets as follows:

	June 30,		December 30,
As of	2006		2005
(In thousands)

Accumulated foreign currency translation adjustments	$	29,247	$	19,504
Accumulated net unrealized gain on investments		16		30
Total accumulated other comprehensive income	$	29,263	$	19,534

NOTE 13. LITIGATION:

From time to time, the Company is involved in litigation arising out of the ordinary course of its business. There are no known claims or pending litigation expected to have a material effect on the Company’s overall financial position, results of operations, or liquidity.

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to the “safe harbor” created by those sections. Actual results could differ materially from those indicated in the forward-looking statements due to a number of factors including, but not limited to, the risk factors discussed in “Risks and Uncertainties” below and elsewhere in this report as well as in the Company's Annual Report on Form 10-K for fiscal year 2005 and other reports and documents that the Company files from time to time with the Securities and Exchange Commission. The Company has attempted to identify forward-looking statements in this report by placing an asterisk (*) before paragraphs. Discussions containing such forward-looking statements may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. In some cases, forward-looking statements can be identified by terminology such as “may,” ”will,” “should,” “could,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These forward-looking statements are made as of the date of this Quarterly Report on Form 10-Q, and the Company disclaims any obligation to update these statements or to explain the reasons why actual results may differ.

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to product returns, doubtful accounts, inventories, investments, intangible assets, income taxes, warranty obligations, restructuring costs, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the amount and timing of revenue and expenses and the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. See the discussion of our critical accounting policies under the heading Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Form 10-K for fiscal 2005.

RECENT BUSINESS DEVELOPMENTS

BitWyse Solutions, Inc.

On May 1, 2006, we acquired BitWyse Solutions, Inc. in an all-cash transaction. BitWyse is a provider of engineering & construction information management software dedicated to providing engineering companies and owner operators a competitive advantage. BitWyse’s performance is reported under our Engineering and Constructions business segment.

Eleven Technology, Inc.

On April 28, 2006, we acquired Eleven Technology, Inc. of Cambridge, Massachusetts in an all-cash transaction. Eleven is a mobile application software company with a leading market and technology position in the Consumer Packaged Goods or, CPG, industry. Eleven’s performance is reported under our Mobile Solutions business segment.

Quantm International, Inc.

On April 5, 2006, we acquired privately-held Quantm International, Inc. a leading provider of transportation route optimization solutions used for planning highways, railways, pipelines and canals. Quantm’s innovative software system enables infrastructure planners to examine and select route corridors and alignments that simultaneously optimize construction costs, environmental restrictions, existing feature avoidance and legislative obligations. The improved solution for the proposed route may result in significant reductions to the customer in project planning time and cost. Quantm’s performance is reported under our Engineering and Construction business segment.

XYZ of GPS, Inc..

On February 26, 2006, we acquired the assets of XYZ of Dickerson, Maryland. XYZ develops real-time Global Navigation Satellite System or, GNSS, reference station, integrity monitoring and dynamic positioning software for meter, decimeter and centimeter applications. The purchase of XYZ’s intellectual property is expected to extend our product portfolio of infrastructure solutions by providing software that enhances differential GNSS correction systems used in marine aides to navigation, surveying, civil engineering, hydrography, mapping and Geographic Information System or, GIS, and scientific applications. XYZ’s performance is reported under our Engineering and Construction business segment.

Advanced Public Safety, Inc.

On December 30, 2005, we acquired APS of Deerfield Beach, Florida. APS provides mobile and handheld software products used by law enforcement, fire-rescue and other public safety agencies. With the APS acquisition, we plan to leverage our rugged mobile computing devices and our fleet management systems to provide complete mobile resource solutions for the public safety industry. APS is reported within our Mobile Solutions business segment.

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MobileTech Solutions, Inc.

On October 25, 2005, we acquired MobileTech Solutions, Inc. of Plano, Texas. MobileTech Solutions provides field workforce automation solutions and has a leading market position in the Direct Store Delivery or, DSD, market. We expect the MobileTech Solutions acquisition to extend our portfolio of fleet management and field workforce applications. MobileTech Solutions’ performance is reported under our Mobile Solutions business segment.

Apache Technologies, Inc.

On April 19, 2005, we acquired Apache Technologies Inc. of Dayton, Ohio. Apache is a leading developer of laser detection technology. With the acquisition, we extended our laser product portfolio for handheld laser detectors and entry-level machine displays and control systems, as well as our distribution network in the United States. Apache’s performance is reported under our Engineering and Construction business segment.

The effects of these acquisitions were not material to our overall results during all periods presented.

RESULTS OF OPERATIONS

Overview

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

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
(in thousands)
Total consolidated revenue	$	245,326		$	204,225		$	471,180		$	399,608
Gross margin		121,656			102,407			229,119			200,214
Gross margin %		49.6	%		50.1	%		48.6	%		50.1	%
Total consolidated operating income		38,669			38,737			71,734			68,937
Operating income %		15.8	%		19.0	%		15.2	%		17.3	%

Revenue

In the three months ended June 30, 2006, total revenue increased by $41.1 million or 20%, as compared to the same corresponding period in fiscal 2005. The increase was primarily due to stronger performances in our Engineering and Construction and Mobile Solutions segments. The Engineering and Construction and Mobile Solutions segments increased $26.9 million and $8.4 million, respectively, compared to the same corresponding period in fiscal 2005. Revenue growth within these segments was primarily driven by new product introductions and increased penetration of existing markets. Both segments also benefited from acquisitions.

In the six months ended June 30, 2006, total revenue increased by $71.6 million or 18%, as compared to the same corresponding period in fiscal 2005. The increase was primarily due to stronger performances in our Engineering and Construction and Mobile Solutions segments. The Engineering and Construction and Mobile Solutions segments increased $53.5 million and $13.6 million, respectively, compared to the same corresponding period in fiscal 2005. Revenue growth within these segments was primarily driven by new product introductions and increased penetration of existing markets, as well as the impact of acquisitions for the six month period ended June 30, 2006 that were not applicable in the comparable period in 2005.

During the second fiscal quarter of fiscal 2006, sales to customers in the United States represented 55%, Europe represented 25%, Asia Pacific represented 11% and other regions represented 9% of our total revenues. During the same corresponding period in fiscal 2005, sales to customers in the United States represented 54%, Europe represented 25%, Asia Pacific represented 11% and other regions represented 10% of our total revenues.

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Gross Margin

Gross margin varies due to a number of factors including product mix, pricing, distribution channel used, the effects of production volumes, new product start-up costs, and foreign currency translations. Gross margin as a percentage of total revenues was 49.6% and 48.6% for the three and six months ended June 30, 2006, respectively, compared to 50.1% for the three and six months ended July 1, 2005. Gross margin for the three months ended June 30, 2006 decreased primarily due to the impact of CTCT transactions of $5.1 million previously recorded in non-operating expenses, amortization of software-related purchased intangibles of $1.3 million and stock-based compensation expense of $0.3 million that were not included in gross margin during the second quarter of fiscal 2005, for a total impact of 2.7%. Gross margin for the six months ended June 30, 2006 decreased primarily due to the impact of CTCT transactions of $10.4 million previously recorded in non-operating expenses, amortization of software-related purchased intangibles of $2.2 million and stock-based compensation expense of $0.6 million that were not included in gross margin during the same period in fiscal 2005, for a total impact of 2.8%. Underlying margins increased due to stronger sales of our new, higher margin products, and higher revenue.

Operating Income

Operating income as a percentage of total revenue was 15.8% and 19.0% for the second quarter of fiscal 2006 and 2005, respectively and 15.2% and 17.3% for the first six months of fiscal 2006 and 2005, respectively. The decrease in operating income for the three months ended June 30, 2006 compared to the corresponding period last year is driven by the impact of CTCT transactions of $5.1 million and stock-based compensation expense of $3.3 million that were not included in operating income during the second quarter of fiscal 2005. In addition, expenses related to acquisitions, namely amortization of purchased intangibles and purchased in-process research and development expenses, increased by $2.6 million versus the same period last year. The decrease in operating income for the six months ended June 30, 2006 is driven by the impact of CTCT transactions of $10.4 million and stock-based compensation expense of $6.5 million that were not included in operating income during the same period last year. In addition, expenses related to acquisitions, namely amortization of purchased intangibles and purchased in-process research and development expenses, increased by $2.6 million versus the same period last year. The fluctuations for both three and six month periods ended June 30, 2006 were partially offset by an increase in revenue and an increase in the underlying gross margins.

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 (loss) equals net revenue less cost of sales and operating expenses, excluding general corporate expenses, amortization of purchased intangibles, restructuring charges, non-operating income (expense), and income taxes.

In the first fiscal quarter of 2006, we combined the operating results of the former Components Technologies and Portfolio Technologies segments and included the combined operating results in the Advanced Devices segment. The change in presentation was made in recognition of the small size of each of the businesses relative to the total company. The presentation of prior period’s segment operating results has been changed to conform to our current segment presentation.

The following table is a breakdown of revenue and operating income by segment (in thousands, except percentages):

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005

Engineering and Construction
Revenue	$	168,041		$	141,096		$	314,775		$	261,294
Segment revenue as a percent of total revenue		68	%		69	%		67	%		65	%
Operating income	$	38,803		$	37,173		$	65,182		$	58,663
Operating income as a percent of segment revenue		23	%		26	%		21	%		22	%
Field Solutions
Revenue	$	36,320		$	32,187		$	79,363		$	77,612
Segment revenue as a percent of total revenue		15	%		16	%		17	%		19	%
Operating income	$	11,299		$	8,044		$	25,207		$	23,621
Operating income as a percent of segment revenue		31	%		25	%		32	%		30	%
Mobile Solutions
Revenue	$	14,851		$	6,437		$	27,458		$	13,838
Revenue as a percent of total revenue		6	%		3	%		6	%		4	%
Operating income (loss)	$	374		$	(1,879	)	$	597		$	(2,515	)
Operating income (loss) as a percent of segment revenue		3	%		(29	%)		2	%		(18	%)
Advanced Devices
Revenue	$	26,114		$	24,507			49,584			46,864
Segment revenue as a percent of total revenue		11	%		12	%		11	%		12	%
Operating income	$	2,243		$	4,578		$	4,566		$	7,810
Operating income as a percent of segment revenue		9	%		19	%		9	%		17	%

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

	Three Months Ended						Six Months Ended
	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
(In thousands)

Consolidated segment operating income	$	52,719		$	47,916		$	95,552		$	87,579
Unallocated corporate expense		(9,287	)		(7,002	)		(16,716	)		(13,889	)
Amortization of purchased intangible assets		(3,742	)		(2,177	)		(6,082	)		(4,475	)
In-process research and development expense		(1,020	)		--			(1,020	)
Restructuring charges		--			--			--			(278	)
Non-operating income (expense), net		2,524			(2,617	)		5,332			(6,394	)
Consolidated income before income taxes	$	41,194		$	36,120		$	77,066		$	62,543

Engineering and Construction

Engineering and Construction revenues increased by $26.9 million or 19% and $53.5 million or 20% while segment operating income increased $1.6 million or 4% and $6.5 million or 11% for the three and six months ended June 30, 2006 as compared to the same corresponding periods in fiscal 2005.

The revenue growth for both the three and six months ended June 30, 2006 was driven by a steady market, strong sales of new products and aggressive marketing programs. In addition, for the three months ended June 30, 2006 segment operating income increased as a result of higher revenues and increased sales of higher margin products, partially offset by $4.9 million in expenses related to CTCT transactions and $1.1 million in stock-based compensation expense that were not present in the corresponding period of fiscal 2005, as well as higher costs incurred due to meeting the requirements of a European lead free initiative (known as RoHS). For the six months ended June 30, 2006 segment operating income increased as a result of higher revenues and increased sales of higher margin products, partially offset by $9.7 million in expenses related to CTCT transactions and $2.1 million in stock-based compensation expense that were not present in the corresponding period of fiscal 2005.

Field Solutions

Field Solutions revenues increased by $4.1 million or 13% and $1.7 million or 2% while segment operating income increased $3.3 million or 40% and $1.6 million or 7% for the three and six months ended June 30, 2006 as compared to the same corresponding periods in fiscal 2005.

Revenues increased for the second quarter ended June 30, 2006 compared to the corresponding period of fiscal 2005 due to double digit growth in both our agricultural and GIS businesses. In GIS, growth was due to new products and a continuing shift to a higher value, differentiated distribution channel. In agriculture, growth was driven by higher demand for both automated and manual guidance products as farmers increasingly utilized technology to increase yields and improve productivity. Operating income increased primarily due to higher revenue and stronger operating leverage.

Revenue growth for the first six months of 2006 was relatively flat to fiscal 2005 due to the strong revenue generated by new products introduced, primarily in agriculture, in the prior year. Operating income was up, driven by the timing of expenses related to new product introduction.

Mobile Solutions

Mobile Solutions revenues increased by $8.4 million or 131% and $13.6 million or 98% while segment operating income increased $2.3 million or 120% and $3.1 million or 124% for the three and six months ended June 30, 2006 as compared to the same corresponding periods in fiscal 2005.

Revenues for the three and six months ended June 30, 2006 compared to the corresponding periods of fiscal 2005 grew due to increased subscriber growth, an increase in recurring revenues, the benefit of acquisitions not in the prior period, and our entry into new vertical markets. Operating income for three and six months ended June 30, 2006 compared to the corresponding periods of fiscal 2005 increased primarily due to higher subscription revenue and gross margins.

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Advanced Devices

Advanced Devices revenues increased by $1.6 million or 7% and $2.7 million or 6% while operating income decreased by $2.3 million or 51% and $3.2 million or 42% for the three and six months ended June 30, 2006 as compared to the corresponding period in fiscal 2005.

For the three and six months ended June 30, 2006 compared to the corresponding periods in fiscal 2005, the increase in revenue was primarily due to stronger performance in our Applanix airborne business and sales of components to our non-automotive Original Equipment Manufacturers (“OEM’s”). Operating income for the three and six months ended June 30, 2006 compared to the same period in fiscal 2005 decreased primarily due to a reduction in revenue in our automotive and timing businesses and relatively flat sales in our Military and Advanced Systems product line. Operating income year over year also declined due to development costs related to the introduction of the TrimTrac® GSM version, costs incurred due to meeting the requirements of the European lead free initiative, and product mix.

Research and Development, Sales and Marketing, and General and Administrative Expenses

Research and development (“R&D”), sales and marketing (“S&M”), and general and administrative (“G&A”) expenses are summarized in the following table (in thousands, except percentages):

	Three Months Ended						Six Months Ended

	June 30,			July 1,			June 30,			July 1,
	2006			2005			2006			2005
Research and development	$	27,607		$	20,865		$	52,053		$	42,693
Percentage of revenue		11.3	%		10.2	%		11.0	%		10.7	%
Sales and marketing		35,747			28,704			68,453			59,075
Percentage of revenue		14.6	%		14.1	%		14.5	%		14.8	%
General and administrative		16,205			11,924			31,966			24,756
Percentage of revenue		6.6	%		5.8	%		6.8	%		6.2	%
Total	$	79,559