The non-GAAP financial measures included in the table above are non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP net income and non-GAAP diluted net income per share, which adjust for the following items: expenses related to acquisitions, stock-based compensation expense and restructuring charges. Management uses these non-GAAP measures to assess trends in its business and for budgeting purposes, as many of these excluded items are non-cash. In addition, we believe that the presentation of these non-GAAP financial measures is useful to investors for the reasons associated with each of the adjusting items as described below.
(A) Restructuring. The amounts recorded are for employee compensation resulting from reductions in employee headcount in connection with our company restructurings and we believe they are not directly related to the operation of our business. (B) Amortization of purchased intangibles. The amounts recorded as amortization of purchased intangibles arise from prior acquisitions and are non-cash in nature. We exclude these expenses because we believe they are not reflective of ongoing operating results in the period incurred and are not directly related to the operation of our business. (C) In-process research and development. The amounts recorded as in- process research and development arise from prior acquisitions and are non-cash in nature. We exclude these expenses because we believe they are not reflective of ongoing operating results in the period incurred and not directly related to the operation of our business. (D) Stock-based Compensation. We exclude these stock-based compensation expenses because they are non-cash expenses that we believe are not reflective of ongoing operation results. For the three and nine months ended September 26, 2008 and September 28, 2007, stock-based compensation was allocated as follows: Three Months Twelve Months Ended Ended Jan-02, Dec-28, Jan-02, Dec-28, 2009 2007 2009 2007 Cost of sales $487 $493 $1,920 $1,733 Research and development 860 954 3,489 3,573 Sales and Marketing 1,095 1,091 3,993 3,891 General and administrative 2,121 1,529 6,764 5,819 $4,563 $4,067 $16,166 $15,016 (E) 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. 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 we do not believe it is reflective of our ongoing operating results, and it is not used by management to assess the core profitability of our business operations. (F) Income tax effect on non-GAAP adjustments. This amounts adjusts the provision for income taxes to reflect the effect of the non-GAAP adjustments on non-GAAP operating income. NON-GAAP RECONCILIATION REPORTING SEGMENTS (Dollars in thousands) (Unaudited) Reporting Segments Engineering Field Mobile Advanced and Solutions Solutions Devices Construction THREE MONTHS ENDED JANUARY 2, 2009: Revenue $142,613 $58,245 $39,995 $27,231 GAAP operating income before corporate allocations: $2,339 $17,528 $3,331 $6,340 Stock-based compensation (G) 1,533 221 1,167 399 Non-GAAP operating income before corporate allocations: $3,872 $17,749 $4,498 $6,739 Non-GAAP operating margin (% of segment external net revenues) 2.7% 30.5% 11.2% 24.7% THREE MONTHS ENDED DECEMBER 28, 2007: Revenue $186,699 $49,616 $47,685 $28,783 GAAP operating income before corporate allocations: $36,818 $13,976 $5,739 $3,656 Stock-based compensation (G) 1,073 232 1,306 368 Non-GAAP operating income before corporate allocations: $37,891 $14,208 $7,045 $4,024 Non-GAAP operating margin (% of segment external net revenues) 20.3% 28.6% 14.8% 14.0% TWELVE MONTHS ENDED JANUARY 2, 2009: Revenue $741,670 $300,706 $167,113 $119,745 GAAP operating income before corporate allocations: $126,014 $109,489 $11,328 $24,445 Stock-based compensation (G) 4,726 821 4,749 1,378 Non-GAAP operating income before corporate allocations: $130,740 $110,310 $16,077 $25,823 Non-GAAP operating margin (% of segment external net revenues) 17.6% 36.7% 9.6% 21.6% TWELVE MONTHS ENDED DECEMBER 28, 2007: Revenue $743,291 $200,614 $157,673 $120,692 GAAP operating income before corporate allocations: $174,177 $60,933 $12,517 $17,276 Stock-based compensation (G) 3,614 763 4,976 1,369 Non-GAAP operating income before corporate allocations: $177,791 $61,696 $17,493 $18,645 Non-GAAP operating margin (% of segment external net revenues) 23.9% 30.8% 11.1% 15.4% (G) Stock-based Compensation. The amounts consist of expenses for employee stock options and purchase rights under our employee stock purchase plan determined in accordance with SFAS 123(R), which became effective for us on January 1, 2006. We discuss our operating results by segment with and with-out stock-based compensation expense, as we believe it is useful to investors to understand the impact of the application of SFAS 123(R) to our results of operations. Stock-based compensation not allocated to the reportable segments was approximately $1,243K and $1,088K for the three months ended January 2, 2009 and December 28, 2007, respectively and $4,492K and $4,294K for the twelve months ended January 2, 2009 and December 28, 2007, respectively.
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